Tesla stock plunge continues after Model S battery fire

DETROIT Thu Oct 3, 2013 10:43am EDT

DETROIT Oct 3 (Reuters) - Tesla Motors Co's stock price took another hit on Thursday and its sales were likely to suffer following a battery fire in its flagship Model S sedan in Washington state this week, analysts said.

Tesla's shares fell 6.4 in early trading, following a more than 6 percent decline on Wednesday after images and a video of the burning car were posted online. The accident and fire occurred Tuesday morning just south of Seattle.

Tesla confirmed that the car caught fire after the driver ran over a "large metallic object," causing extensive damage to the vehicle's front end.

Analysts said the news and imagery of the burning car would certainly be a public relations nightmare for the Silicon Valley-based electric carmaker, led by billionaire Elon Musk.

"Tesla's a very controversial stock and this will give fodder for the bears. They'll say this is going to slow down sales," said R. W. Baird analyst Ben Kallo, who on Wednesday downgraded the stock to "neutral" for valuation reasons.

Tesla officials said the battery's construction and the car worked as designed to keep the fire under control and allow 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.

The incident report filed by the Kent Fire Department in Washington described how the firefighters put out the blaze, but it reignited underneath the car and water seemed to just intensify the flames. They then used a dry chemical extinguisher to put out most of the fire in what was described as the battery pack in the front end of the vehicle.

"(Firefighters) had to puncture multiple holes into the pack to apply water to the burning material in the battery," according to the report.

The firefighters then used a high-lift jack to expose the undercarriage of the car to get at the battery pack, and used a circular saw to cut an access hole, according to the report.

Panasonic Corp, which supplies the batteries used in the Model S, declined to comment.

The auto industry has been increasingly shifting toward using lithium-ion batteries rather than the cheaper, but heavier nickel-metal hydride battery still used widely by Toyota Motor Corp in its top-selling Prius.

General Motors Co, the largest U.S. automaker, uses a lithium-ion battery in its Chevrolet Volt plug-in hybrid, while its smaller U.S. rival Ford Motor Co uses the technology in its green cars, including the C-Max hybrid.

The technology is favored in the latest generation of such cars because the batteries can be made lighter, smaller and in a way that retains capacity longer. Lithium-ion batteries are about half the weight of nickel-metal hydride batteries. (Additional reporting by Yoko Kubota in Tokyo; Editing by Maureen Bavdek)

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