By on October 4, 2013

The price of Tesla Motors stock took a double hit this week as an influential analyst downgraded the company’s investment potential almost simultaneously with the viral spread of a Model S electric car burning in Washington state after running over metal debris in the road. On Wednesday morning, the Robert W. Baird company changed its rating on shares of Tesla from “Outperform” to “Neutral”. Around the same time Wednesday, Jalopnik posted a cellphone video of the burning Model S. As the video spread throughout the online automotive community and Baird analyst Ben Kallo’s report spread through the financial community, Tesla stock prices declined all day on Wednesday, finally finishing down 12.05 at $180.95 on volume that was higher than average for the stock.

The Baird report said that Tesla stock had peaked in value and that changes in the investment structure of the EV startup made the stock less attractive to investors. Kallo’s report said, “Although we continue to be bullish on TSLA’s long-term prospects, we think the stock appreciation reflects its technological leadership and several milestones that could contain execution risk. We would look to become more constructive on execution related pullbacks or significant advances in battery technology.” With the stock’s 470% gains and the end of the year approaching, institutional investors may have taken the report as a signal to secure their gains and cash out. Another report on Tesla from Bank of America said that pension funds and other large investors were exiting Tesla. CNN reported that small investors were buying those shares, a move seen by analysts as negative.

Regardless of the stock fluctuations and a drop in market value of approximately $3 billion analysts say that Tesla should still have no problems securing financing for current operations and for the development of the Model X crossover and the mass market EV that Tesla CEO Elon Musk has promised. Still, as a maker of only electric powered cars, Tesla is far more exposed in the event of problems with EVs than those established car companies that are exploring electrically powered cars and trucks.

Tesla cars have been driven for a combined 113 million miles, according to the company, and the Washington state fire was the first case of a Tesla battery pack burning, which puts the rate of burning Teslas at 1/10th the rate of fires in conventional gasoline or diesel powered cars. Despite the fact that hundreds of thousands of cars and trucks catch fire one way or another every year in the U.S. with little attention, isolated fires involving cars such as the Chevy Volt, Fisker Karma, and Mitsubishi’s i-MiEV and the lithium ion batteries used in the new Boeing Dreamliner have drawn considerable interest and possibly created a marketing obstacle for electric cars. Those few EV fires followed recalls by Apple for far more numerous fires involving the lithium ion batteries used in laptop computers. Though the most successful of the EVs and hybrids, the Toyota Prius, uses nickel-metal hydride battery cells, the automobile industry has been moving to lithium-ion, as used in the Chevy Volt, Nissan Leaf and Ford C-Max. Li-ion batteries have better energy density and discharge characteristics. The are also lighter than NiMH batteries

After releasing his valuation report and the video of the fire going viral, Ben Kallo considered the impact of the fire. “Tesla’s a very controversial stock and this will give fodder for the bears. They’ll say this is going to slow down sales.” While short term the fire may hurt Model S sales, Kallo and other analysts still expect that Tesla will see strong demand going forward.

On their part, Tesla officials said that the battery and the car worked as designed, keeping the fire under control and allowing the driver time to pull over and safely exit the vehicle. “The fire was caused by the direct impact of a large metallic object to one of the 16 modules within the Model S battery pack,” Tesla spokeswoman Elizabeth Jarvis-Shean said. “Because each module within the battery pack is, by design, isolated by fire barriers to limit any potential damage, the fire in the battery pack was contained to a small section in the front of the vehicle,” she added. Panasonic Corp., which makes the Model S’ batteries, declined to comment.

While Tesla insisted that the burning Model S worked as designed, Clarence Ditlow, director of the Center for Auto Safety, said that there has to be a “design issue” with the Model S if an object striking the bottom of the car could lead to a battery fire.

Tesla’s battery pack uses standard form factor lithium-ion battery cells similar to those used in laptop computers. As a result, the combined battery pack takes up most of the underside of the Model S. By comparison, EVs from established car companies use custom sized battery cells so the finished battery packs can be packaged more compactly as in the T-shaped battery pack located in the middle of the Chevy Volt.

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17 Comments on “Tesla Stock Gets Double Whammy From Analyst Downgrade and Model S Fire...”

  • avatar

    the issue for me is not only that there was a fire, since there are always fires in cars…but why it was difficult to put out and how oftne this type of fire can be expected.
    Reading reports about the event explain the firemen tried several ways and had difficulty getting the fire stopped.
    Plus…I have many times struck objects on the highway and never had a fire. If you drive in Chicago at high speeds in heavy traffic…odds are you will hit a dropped tail pipe or muffler sooner or later. I had cars damaged badly enough they had to be towed…but never a fire.

    Still seems there are questions here that need to be asked…

  • avatar

    I think Tesla is lying. Let’s see the test vehicles and logs.
    “a combined 113 million miles” on 100 test cars (a guess, unlikely that many), at an average of 40mph, at a 12h test day, equals 6.4 years driving per test car, every day, no breaks. If it was 50 test cars, that makes it 12.8 years driving per test car.

    • 0 avatar

      I don’t think he’s referring to test vehicles; I think he’s referring to customer cars. I think there are about 20,000 out there, so that would be an average of 5,650 a car. From the numbers occasionally bandied out on the Tesla Motors Forums, that seems entirely plausible and perhaps even an underestimate.


      • 0 avatar

        David, I think you’re right on that. I’d still like to see what their test records show for road debris, though. Unless, of course, the customer-usage is the test. Anyone can design a car for perfect conditions all the time.

        • 0 avatar

          There’s a guy on the forums discussion of the fire who posted some pictures of what happened when he ran over a large pole at 65 MPH. The tires were instantly shredded, the wheels did not look happy, but the battery only suffered what Tesla service referred to as “cosmetic” damage and needless to say nothing caught on fire.

          I assume Tesla has a count of total miles based on the fact that they are tracking every car they’ve sold.

  • avatar

    I think Musk suffers from his decision to make himself the lightning rod of his company. Megalomania comes to mind. Many in his field have suffered this condition.

  • avatar

    I still think it’s overblown a little bit, but still a concern. Ever since hybrids hit the roads, some fire departments have provided additional specialized training on how to handle them and not get killed in the process. We take for granted that we’ve got 100+ years of gas-powered car experience across billions and billions of miles. Gasoline fires often end catastrophically, not slowly and progressively.

    But here we have cutting-edge Li-ion batteries in a limited production vehicle. We’re only a couple years past an era where Sony laptops were exploding randomly. There is a cost to being an early adopter, both financial and in reliability.

    So I’m gonna go out on a limb and thank these early adopters for their service to society. And to loosely paraphrase Edison (ironic in a story about the company named for the very guy Edison stole ideas from and tried to destroy): It’s not a failure, it’s a success in figuring out one more thing that didn’t work.

  • avatar
    Robert Fahey

    Every stock got at least one whammy due to the government shutdown. To boot, TSLA is up as I write this (a few hours after the alleged public relations nightmare). The press loves to connect dots and concoct a story.

  • avatar
    SCE to AUX

    This is more free advertising for Tesla.

    Even non-engineers know that not all fires are created equal. As for safety, I’ll take my chances on a lithium ion fire any day over the explosive nature of gasoline.

    This story won’t get real traction because people know their laptops aren’t killing them.

    Wait until the hydrogen Kool-Aid club tries to sell us on the safety of its invisible fuel and infrastructure.

  • avatar

    Lets put some numbers up: There are appx 180,000 car fires per year in America. Thank you I’m here every thursday.

    So it struck something – the car informed the driver of an issue, he pulled over, and the fire was contained to the front area of the car – as designed. No too shabby. Sure beats when my 68 firebird just started shooting flames out from the wheel wells.

    Stock up about $10.00/share as I type. Down about $10 for the week but it’s been on a good run. I bought at around $36 so I can take a hit.

  • avatar

    Maybe they were hauling a gas can in the front trunk.

  • avatar

    At least the batteries are designed to burst into flames in front of the driver and not under the seat bottom as to warn the driver of impending failure and pull over.

  • avatar

    Anything that wipes the smirk off that Musk guy’s face is OK by me.

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