Tesla grapples with impact of battery fire in U.S.

Thu Oct 3, 2013 7:52pm EDT
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By Ben Klayman

DETROIT (Reuters) - Two days after a video of a burning Tesla electric car went viral, the "green car" maker grappled with ways to contain the damage as investors shaved $2.4 billion off the company's market value.

Tesla Motors Inc (TSLA.O: Quote) has confirmed that the car caught fire after the driver ran over a large metallic object on Tuesday morning just south of Seattle, causing extensive damage to the front end of the Model S sedan. Emergency officials at the accident said the fire occurred in the electric vehicle's lithium-ion battery.

It was the latest in a string of problems for lithium-ion batteries, which are used heavily in EVs sold by various automakers. However, the battery fire was the first for Tesla, the California-based EV maker founded by billionaire Elon Musk.

The fire and resulting publicity sparked a PR nightmare for a company that only makes electric cars, as opposed to mainstream automakers like General Motors Co (GM.N: Quote) that derive only a small percentage of sales from EVs, analysts said.

"The bar is much higher for Tesla," said James Albertine, analyst at Stifel, Nicolaus & Co, who has a "hold" rating on Tesla shares.

"Tesla cannot weather a sustained onslaught of consumer complaints and incidents that could potentially dent the demand curve for the next vehicle."

Before the incident, Tesla's stock had soared almost sixfold this year. On Thursday Tesla shares fell 4.2 percent to close at $173.31 on the Nasdaq. That came on top of a 6.2 percent drop on Wednesday.

The video of the burning car was posted online at auto blog Jalopnik and has been widely disseminated by other media.   Continued...

A Tesla model S car is displayed during a media preview day at the Frankfurt Motor Show (IAA) September 10, 2013. REUTERS/Kai Pfaffenbach