UPDATE 1-Tesla stock keeps sliding after Model S battery fire
(Adds analysts' comments, background on EVs, updates stock action)
DETROIT, Oct 3 (Reuters) - Tesla Motors Inc's stock price took another hit on Thursday following a battery fire in its flagship Model S sedan in Washington state this week as analysts said sales of the electric vehicle would likely suffer.
The shares fell 5.7 percent to $170.70 in afternoon trading following a decline of more than 6 percent on Wednesday, at one point knocking almost $3 billion from the company's market value. Images and a video of the burning car were posted online after the accident and fire on Tuesday morning just south of Seattle.
Tesla confirmed the car caught fire after the driver ran over a "large metallic object," causing extensive damage to the vehicle's front end. Fire officials identified it as road debris.
Analysts said the news reports and images of the burning car would be a public relations nightmare for the Silicon Valley-based electric carmaker, led by billionaire Elon Musk. Before the incident, Tesla's stock had soared almost sixfold this year.
"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. On Wednesday, he downgraded the stock to "neutral" for valuation reasons.
He said he saw the fire hurting sales slightly but he and other analysts still expected strong demand going forward.
This is not the first battery fire in an electrified vehicle, as it followed cases in General Motors Co's Chevrolet Volt and Mitsubishi's i-MiEV.
Analysts pointed out that warnings inside the Model S in the Washington incident alerted the driver in plenty of time to pull over and exit, and that the fire never entered the vehicle's interior cabin.
Given that Tesla's Model S and the discontinued Roadster have been driven a combined 113 million miles and that this was the first battery fire, the company's rate of catching fire was still only one-tenth the frequency of conventional car fires, Wedbush Securities analyst Craig Irwin said. He has a "neutral" rating on the stock.
Nevertheless, it was bad news for a company that only makes electric cars, versus mainstream automakers like GM that get a small percentage of sales from EVs.
"Given the lack of vehicle diversity, the 'bar' is much higher for Tesla," Stifel, Nicolaus & Co analyst James Albertine said in a research note. "Tesla cannot weather a sustained onslaught of consumer complaints and incidents that could potentially dent the demand curve for the next vehicle." He has a "hold" rating on Tesla shares.
Tesla officials said 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.
The incident report filed by the Kent Fire Department in Washington state 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.
Analysts for research firm Kelley Blue Book said the road debris likely compromised the vehicle's cooling system, leading to the fire. They also said the U.S. government shutdown would hamper any investigation.
Tesla's battery pack is made up of small lithium-ion battery cells that are also used in laptops, an approach not used by other automakers. The battery pack stretches across the base of the vehicle. In comparison, GM uses large-format battery cells in a T-shape in the center of the Volt.
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.
GM, the largest U.S. automaker, uses a lithium-ion battery in its Chevrolet Volt plug-in hybrid, while smaller U.S. rival Ford Motor Co uses the same 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.
Still, the Tesla fire was more bad news for a technology that was already the object of some concerns, Stifel's Albertine said.
The Model S is the most popular pure electric vehicle in the United States, with an estimated 14,300 sales for the year through September.
In August, it won a five-star safety rating from the U.S. National Highway Traffic Safety Administration in every testing category. The Model S also has the highest rating given by influential magazine Consumer Reports with a score of 99 out of 100 points.
Wedbush's Irwin said the fire will be a "learning opportunity," allowing Tesla to make potential design changes for the Model X, a crossover derivative of the Model S coming next year, and the so-called Gen 3 models, a new family of battery-powered compacts priced from around $35,000.
(Additional reporting by Paul Lienert, Deepa Seetharaman and Bernie Woodall in Detroit, and Yoko Kubota in Tokyo; Editing by Maureen Bavdek)