Tesla shares drop 6 pct after report of Model S fire

Reuters

* Model S fire on Tuesday morning came after driver hitdebris

* Firefighters said flames kept reigniting, damage tobattery unclear

* Baird analyst downgrades stock to "neutral" citingvaluation

By Deepa Seetharaman

DETROIT, Oct 2 (Reuters) - Tesla Motors Co sharesfell 6 percent on Wednesday after an automotive blog publishedimages of a Model S electric sedan in flames after an accidenton Tuesday morning just south of Seattle, Washington.

The blog, called Jalopnik, posted pictures and a video ofthe Model S fire on Wednesday. Tesla confirmed the authenticityof the images and said the car caught fire after the driver ranover a "large metallic object" causing extensive damage to thefront end of the car.

Tesla shares fell 6.2 percent to $180.95 on the Nasdaq,their biggest one-day decline since mid-July.

It is unclear if the Model S lithium-ion battery pack wasdamaged. Firefighters found it difficult to quash the flames,and fire damage made it tough to determine the impact of theobject on the car, Chris Webb, a spokesman for the WashingtonState Patrol said.

The driver told state troopers that he struck metal debriswhile on State Route 167 around 8:18 a.m. local time on Tuesday,in Kent, a city located some 20 miles south of Seattle, he said.

The car's alert system instructed the driver to pull overand he got off the highway and out of the vehicle, Tesla said ina statement.

"The driver stated that he began to smell something burningand a short time later the vehicle caught on fire," Webb said,citing information from the state trooper investigating theincident.

"It took the fire department several attempts to extinguishthe flames as it kept reigniting," Webb said in an email. Thecar's tires were burned up and officials dispatched a flat bedtruck to remove the car, he said.

The Model S, like many other "green cars," is powered bylithium-ion batteries, a relatively new technology to the autoindustry that is much more powerful than the traditionallead-acid batteries, but also carries a larger safety risk,battery experts have said.

Investors are wary of lithium-ion battery fires because theycould hurt consumer demand, at least in the short-term, analystshave said.

Tesla spokeswoman Liz Jarvis-Shean had no immediate commenton the trooper's description of the fire. She added that Tesla,which exclusively makes electric cars, is studying the incidentnow.

Tesla's only vehicle for sale now is the Model S, althoughthe Model X crossover is on the horizon.

Separately on Wednesday, Robert W. Baird & Co analyst BenKallo downgraded Tesla shares to "neutral" from "outperform."

So far this year, Tesla shares have surged more than 400percent, buoyed by the successful launch of the Model S. Butsome investors and analysts believe the stock is over-valued.

Tesla's market value currently is around $23 billion, nearlyhalf that of General Motors Co, which is worth $49billion.

"TSLA has several significant milestones over the next 18months including continued production ramp and the introductionof the Model X," Kallo said in a note.

"We believe solid execution on both of these fronts isalready priced into the stock, and any hiccups in executionpresent stock price risk in the near to intermediate term."

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