Tesla Rises as Germany Clears Model S Car After Fires

Tesla Motors Inc. rose the most in almost six months after its Model S electric car was cleared of any defect in a German review following three recent fires and two analysts said the events won’t hurt the business.

Tesla, whose Model S is being investigated for a possible U.S. recall, had been asked to provide technical data to the German Federal Motor Transport Authority after three recent crashes involving the car that ended in fires, according to a company statement yesterday. The German agency, like the U.S. National Highway Traffic Safety Administration, has authority to request recalls if a defect is found, Tesla said.

“No manufacturer-related defects could be found,” the Palo Alto, California-based company said, citing documents from the agency. “Therefore, no further measures under the German Product Safety Act are deemed necessary.”

Tesla soared 17 percent to $144.70 at the close in New York, the biggest one-day gain since May 9. While the shares have slumped 25 percent this year since a closing peak of $193.37 on Sept. 30, they have surged more than fourfold this year.

“We believe negative news flow on Model S fires, while clearly disruptive to the stock’s momentum, will not cause material damage to the business,” Adam Jonas, a Morgan Stanley analyst in New York, wrote in a note today.

“Tesla shares have moved from 20 percent overvalued to nearly 20 percent undervalued in just two months,” he wrote.

Top Pick

Tesla shares now present enough of a buying opportunity to make them the top pick on Morgan Stanley’s U.S. auto coverage of 26 names, said Jonas, who rates the stock overweight.

Tesla, led by billionaire entrepreneur Elon Musk, has been the world’s fastest-growing auto stock this year as the company expanded sales of its Model S sedans, priced from $70,000 to more than $100,000. The shares have tumbled in the past month as Tesla posted third-quarter results that trailed some analysts’ estimates, amid reports of the crash-related fires.

“German govt reviews Tesla Model S fires,” Musk said in a Twitter post yesterday. “All due to high speed impacts, no injuries. Concludes: no defects, no recall.”

Tesla sells the Model S in some European markets, with the sedan’s German debut in the second half.

The NHTSA said last month it would look into the fire risks from the undercarriage of the Model S striking objects. In two such U.S. cases, one on Oct. 1 in Washington state and another in Tennessee on Nov. 6, Model S drivers hit metallic road debris that caused battery-casing damage and resulted in fires.

‘Favorable Conclusion’

The German outcome is a “favorable conclusion” for Tesla, Elaine Kwei, a Jefferies Group equity analyst in New York who rates the stock a buy, said in a report late yesterday.

“This should provide greater confidence that the NHTSA investigation will result in a favorable outcome in the U.S. as well, providing a positive catalyst for the stock,” Kwei said.

NHTSA, in a letter to Tesla dated Nov. 27 and posted today on the agency’s website, asked the company for records of consumer complaints, crash reports and warranty claims related to fires and thermal reactions in batteries. It also requested an assessment of how the Model S’s design addressed impacts to the battery pack from road debris.

The U.S. agency hasn’t yet announced the results of its investigation.

Before it's here, it's on the Bloomberg Terminal.