Will YouTube Video of Seattle Car Fire Halt Tesla's (TSLA) Meteoric Rise?

Investors say a video of a car fire isn't the only thing wrong with Tesla.

ByABC News
October 3, 2013, 10:05 AM
In this image from a YouTube video, a firefighter arrives to extinguish a burning Tesla Model S on Washington State Route 167 outside of Seattle.
In this image from a YouTube video, a firefighter arrives to extinguish a burning Tesla Model S on Washington State Route 167 outside of Seattle.
AJ Gill/YouTube

Oct. 3, 2013 — -- Shares of Tesla Motors have fallen 10 percent following the release of a YouTube video that showed the $70,000 Model S car on fire near Seattle.

After a meteoric increase in Tesla's stock price (NASDAQ: TSLA) this year, the shares fell 6.2 percent yesterday and another 5 percent today to around $171.

Robert W. Baird & Co. analyst Ben Kallo downgraded Tesla on Wednesday to "neutral" from "outperform."

The fire that engulfed a Tesla Model S in Seattle was caused by impact to the electric car's battery pack, says a spokeswoman for Tesla.

Elizabeth Jarvis-Shean, Tesla's director of global communications, provided a statement to ABC News, explaining that 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 under the passenger seat.

Read More: Calif. City Requires Electric Car Charging Stations for New Homes

"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 said.

Jarvis-Shean declined to discuss Tesla's stock price.

The shares even with the 10 percent decline are trading at 282 times earnings, compared with about 11 times earnings for Ford Motor Co.

Kallo says that Tesla's "significant price appreciation likely limits upside in the near term," and its "stock price reflects near flawless execution."

Kallo pointed to challenges for Tesla including "continued production ramp and the introduction of the Model X."

"We believe solid execution on both of these fronts is already priced into the stock, and any hiccups in execution present stock price risk in the near to intermediate term," Kallo wrote.

Jamie Albertine, automotive analyst with investment firm Stifel Nicolaus & Co., who initiated a "hold" rating on Tesla in August, wrote in a research note on Thursday that the car fire on Tuesday morning was an "isolated, circumstantial issue that says very little in our opinion about the Model S."

"However, it does highlight one very important point - Tesla is an automotive company first, rather than a technology company," Albertine wrote.

Albertine said the police report, which indicated that water used by firefighters "seemed to intensify the fire activity," is a "negative not only for Tesla, but all global original equipment manufacturers offering plug-in hybrid vehicles with electric vehicles."

"However, given early stages of growth, we believe consumer perception remains far more critical to Tesla thanpeers," Albertine wrote. "Our concern, given already stretched production schedules, is that Tesla cannot weather a sustained onslaught of consumer complaints and incidents that could potentially dent the demand curve for the next vehicle."