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Tesla stock recovers slightly in wake of car fire

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October 4, 2013 11:17 AM EST | AP

DETROIT — DETROIT (AP) — Shares of electric car maker Tesla Motors Inc. made a small recovery Friday morning after two days of big declines due to news of a fire in one of its $70,000 Model S cars.

Tesla's stock, which has risen in value by 400 percent so far this year, was up $1.35, or just under 1 percent, to $174.66 in morning trading. The increase slightly exceeded gains in the broader markets early in the day.

Tesla shares lost more than 10 percent of their value since news of the fire broke on Wednesday. They closed Thursday down $7.64, or 4.2 percent, at $173.31.

Friday's increase came after some analysts told investors that the fire would hurt the short-term stock price, but they don't expect long-term consequences.

The fire, which happened Tuesday, began in a Model S lithium-ion battery pack after the driver hit some debris on a freeway near Seattle. The debris somehow punctured a battery cell, which started the blaze. Firefighters had trouble putting it out with water and had to cut their way into the battery to extinguish the flames with dry powder. The car told the driver of problems shortly after the crash, and he pulled off the freeway and got out unharmed. A video of the fire was posted on the Internet.

"We do not expect this to derail near-term Model S orders and delivery momentum," Wedbush analyst Craig Irwin wrote in a note on Thursday. He wrote that most Model S buyers are tech-savvy or environmentally conscious early adopters. "We believe both groups will already understand the risks of a lithium fire and likely calibrate this recent event as of relatively minor importance."

Irwin kept his $180 stock price target and Neutral rating on the Tesla stock.

Stifel, Nicolaus & Co. analyst James Albertine was more cautious, writing that he expects Tesla's third- and fourth-quarter results to calm investors' fears. But once the earnings pass, he told investors to focus on Tesla's need to increase factory capacity, increased competitive threats and significant infrastructure and dealership investments.

Tesla has plans for two new lower-priced models in the coming years, an SUV called the "Model X" and a $35,000 car for mainstream buyers.

"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," Albertine wrote. He maintained a "Hold" rating on the stock.

Tesla got some good news Wednesday when Virginia officials gave it clearance to run its own dealership in suburban Washington, D.C. The decision reverses a previous ruling by the state motor vehicles commissioner and came from discussions between Tesla, the DMV and the Virginia Automobile Dealers Association.

Tesla has been running into state-by-state opposition as it tries to establish company-owned dealerships. Many states have laws requiring cars to be sold through franchised dealers.