Tesla stock tumbles after Model S catches fire

Screen grab from video showing a Tesla Model S on fire.

The automobile site Jalopnik.com posted photos of the blaze that it says were taken by a reader, along with a video. The video shows the front of the Tesla Model S in flames.

SEATTLE — Shares of electric car company Tesla sank more than 6 percent Wednesday after an Internet video showed flames spewing from one of the company's vehicles near Seattle.

Shares of Tesla Motors Inc. fell $12.05 to $180.95 — the stock's biggest one-day decline since July 16.

The incident happened Tuesday after 8 a.m. as the driver was traveling southbound on state Route 167 through Kent, said Trooper Chris Webb of the Washington State Patrol. The driver stated that he believed he had struck some metal debris on the freeway, so he exited the highway and the vehicle became disabled.

Company spokeswoman Liz Jarvis-Shean said the fire Tuesday was caused by a large metallic object hitting one of the battery pack's modules in the pricey Model S.

Related: Tesla founder plans cross-country road trip

The driver told authorities he began to smell something burning and then the vehicle caught fire. Firefighters needed several attempts to extinguish the flames because the blaze kept reigniting, Webb said. A trooper who responded to the scene was unable to locate any objects on the roadway, but Department of Transportation workers did observe some debris near the scene.

Webb said there was too much damage from the fire to see what damage the debris may have caused.

The automobile site Jalopnik.com posted photos of the blaze that it says were taken by a reader, along with a video. The video shows the front of the Tesla Model S in flames.

In a statement issued Wednesday, Tesla said the fire was caused by "substantial damage" to the car when the driver hit a large metal object in the road. The flames, the company said, were contained to the front of the $70,000 vehicle due to its design and construction.

"All indications are that the fire never entered the interior cabin of the car. It was extinguished on-site by the Fire Department," the statement said.

The liquid-cooled 85 kilowatt-hour battery in the Tesla Model S is mounted below the passenger compartment floor and uses lithium-ion chemistry similar to the batteries in laptop computers and mobile phones. Investors and companies have been particularly sensitive to the batteries' fire risks, especially given issues in recent years involving the Chevrolet Volt plug-in hybrid car and Boeing's new 787 plane.

In an incident report released under Washington state's public records law, firefighters wrote that they appeared to have Tuesday's fire under control, but the flames reignited. Crews found that water seemed to intensify the fire, so they began using a dry chemical extinguisher.

After dismantling the front end of the vehicle and puncturing holes in the battery pack, responders used a circular saw to cut an access hole in the front section to apply water to the battery, according to documents. Only then was the fire extinguished.

Shares of Palo Alto, Calif.-based Tesla have risen more than 400 percent since the start of the year. But investors likely were alarmed, with some selling their shares, out of fear that the fire could be an indication of a flaw in the company's battery packs.

The company's battery system and the Model S itself have received rave reviews, including a top crash-test score from the National Highway Traffic Safety Administration and a tie for the highest auto test score ever recorded by Consumer Reports magazine.

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After getting the top crash test score, Tesla touted the Model S as being "the safest car in America." The car's liquid-cooled 85 kilowatt-hour battery, mounted below the passenger compartment floor, uses lithium-ion chemistry similar to batteries that power laptop computers and mobile phones. Millions of such rechargeable batteries were recalled in 2006 and 2007 after it was discovered they could overheat and ignite.

Two years ago, battery fires broke out in three Chevrolet Volt plug-in hybrid cars after crash-testing, but NHTSA investigators determined that the Volt was no more risky than vehicles with conventional gasoline engines.

Officials from General Motors Co. and the government believe the fires were caused by coolant leaking from damaged plastic casing around the batteries after side-impact test crashes. At the time, they said there were no real-world fires in any Volts.

Still, the fires tarnished the Volt's reputation and cut into sales. Recently, though, sales of the car have recovered. Sales are up about 3 percent this year, with GM selling about 17,000 through September.

Earlier this year, Boeing Co.'s worldwide fleet of 787 planes was grounded because lithium-ion batteries overheated or caught fire. Flights resumed four months later after a revamped battery system was installed.

Under normal circumstances, investigators from NHTSA, the government's auto safety watchdog, would travel to Seattle to investigate the Tesla crash. But with the partial government shutdown, NHTSA stopped posting recall information on its website and it was unclear when or if an investigation would begin.

Also contributing to Tesla shares' decline Wednesday was a rare downgrade of the company from an analyst. R.W. Baird analyst Ben Kallo cut his rating on the stock from "Outperform" to "Neutral," telling investors that while he's still bullish on Tesla's long-term prospects, the company has "significant milestones" during the next 18 months that come with risk.

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