Tesla Fire: This Analyst’s Expectations Aren’t Going Up in Flames

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Tesla’s (NASDAQ:TSLA) stock sunk to new lows Wednesday, falling 6.24 percent and marking its steepest decline since July 16 of this year when it fell 14 percent. Several factors contributed to the increased investor doubt, but a Deutsche Bank analyst Dan Galves alleviated worry Thursday morning when he reiterated his Buy rating and $200 price target on Tesla Motors.

One factor that contributed to Tesla’s sharp stock decline Wednesday was its Model S sedan that caught fire earlier this week, sparking speculation that the vehicle’s new electric battery caused the incident. Jalopnik first published the piece about the fire on Washington State Route 167 Tuesday, and a video of the vehicle on fire then quickly ripped through the Internet.

The new technology and the sensitivity over its safety made a stock decline seem inevitable. However, according to Street Insider, although Galves recognizes “that negative news flow and investor concern over how this incident may impact demand will put negative pressure on the stock in the near-term,” he maintained that the fire was bound to happen and it thus didn’t change his original thesis. Of the 15 analysts who cover Tesla stock, Galves is now only one of six who have issued buy-equivalent ratings on Tesla, but he maintains his confidence.

Another factor that contributed to the stock decline Wednesday was Tesla’s rating downgrade that it received from R.W. Baird’s Ben Kallo. The analyst downgraded his rating on the stock from outperform to neutral Wednesday morning, and voiced concern about Tesla’s short-term prospects.

That warning also came on the same day that Tesla issued its statement about the Model S fire and it asserted, according to Business Insider, “Yesterday, a Model S collided with a large metallic object in the middle of the road, causing significant damage to the vehicle. The car’s alert system signaled a problem and instructed the driver to pull over safely, which he did.”

“No one was injured, and the sole occupant had sufficient time to exit the vehicle safely and call the authorities. Subsequently, a fire caused by the substantial damage sustained during the collision was contained to the front of the vehicle thanks to the design and construction of the vehicle and battery pack. All indications are that the fire never entered the interior cabin of the car. It was extinguished on-site by the fire department.”

Now, Galves believes that Tesla’s statement will help mitigate any newfound concern about Tesla safety, and he also highlighted via Street Insider four reasons why the fire shouldn’t have a significant negative impact on the company’s prospects.

First, the analyst illuminated that this is the first vehicle fire Tesla has encountered after 83 million miles of Model S driving, 12 significant accidents, and extreme crash-testing by U.S. safety regulators. Then, he reminded investors that the fire was not spontaneous, but instead resulted from a collision. It also is wasn’t an explosion, and gave the driver ample time to depart from the vehicle once the fire started. Lastly, Tesla will soon be able to offer a detailed report on what caused the incident thanks to its ability to monitor the vehicle systems remotely.

Galves therefore concluded that, “This incident does not change our positive thesis on the stock. Given significant Roadster and Model S experience without a fire, we have confidence that this is an isolated incident that could happen to any vehicle.”

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