- The Washington Times - Thursday, October 3, 2013

The stock of highly touted electric car pioneer Tesla Motors Inc. continued its sharp slide Thursday, losing more than 4 percent in value two days after a Web video showing the company’s new Model S bursting into flames after a street accident went viral.

The company’s shares were down $7.64 Thursday to $173.31, a 4.2 percent drop, following a $12.05 drop the day before. The crash video was even more upsetting to the company’s image because the Model S sedan received the highest safety rating ever recorded from the federal government, helping to boost Tesla’s stock 400 percent this year.

In one immediate fallout from the video, R.W. Baird analyst Ben Kallo cut his rating on the stock from “outperform” to “neutral,” explaining to investors that while he’s still confident in Tesla’s long-term prospects, the company has “significant milestones” during the next 18 months that increase the volatility of the stock.

On Tuesday, the driver of the new Tesla, which can sell for $70,000 or more, struck debris on Route 167 near Seattle, causing a fire in the car’s battery, according to a Washington State Police report.


The batteries in the Tesla Model S use lithium-ion chemistry similar to batteries in laptops and mobile phones. Despite the high safety ratings, which the company has been quick to highlight, investors and companies have been sensitive to the batteries’ fire risks given other battery fires in recent years involving the Chevrolet Volt plug-in hybrid car and Boeing’s new 787 Dreamliner jet.

In 2011, three Chevy Volts caught fire during crash-testing, but according to The Associated Press the vehicles hit the market anyway after the National Highway Traffic Safety Administration determined that the Volt did not pose a greater safety risk than gas-powered cars.

Earlier this year, Boeing Co.’s fleet of Dreamliners was grounded worldwide because the lithium-ion batteries overheated or caught fire. A revamped battery system was installed in the 787s and flights resumed four months later.

Tesla spokeswoman Liz Jarvis-Shean was quick to defend the safety of the car, pointing out that no one was injured and the flames were contained to the front of the car due to its design and construction. She said the fire was caused by a large metal object which directly hit one of the battery pack’s modules.

“This was not a spontaneous event. Every indication we have at this point is that the fire was a result of the collision and the damage sustained through that,” she told Fox News.

Deutsche Bank analyst Dan Galves, in a note to investors Thursday, said he expects bad news and investor concern to push down Tesla shares in the short-term, according to the AP. Investors, he said, will be concerned because electric cars represent a new technology with a high sensitivity to safety risks. But the Model S has been collectively driven more than 83 million miles, yet this is the first fire despite 12 significant crashes and extreme testing by the government, he noted.

“We have confidence that this is an isolated incident that could happen to any vehicle,” Galves wrote. He still thinks Tesla shares will reach $200. The stock drop over the last couple days is minor compared to the 400 percent increase this year, but according to Yahoo News the single car fire was still enough to lower Tesla’s market value by $600 million. There is also fear among investors that the stock will take time to recover its value.

This article is based in part on wire service reports.