Scariest Tesla Explosion Was Its Stock Price

When a video of a Tesla Model S bursting into flames hit the Web on Oct. 2, it seemed to concentrate two anxieties -- among investors and the general public -- into one explosive moment.

The first is that lithium-ion batteries, which power Tesla's electric car, seem to catch fire an awful lot and might not be a great idea for cars. Regulators temporarily grounded Boeing's 787 Dreamliner earlier this year after one of the batteries caught fire, and similar problems plagued the Chevy Volt's battery pack under government testing. Lithium-ion devices have also occasionally melted down laptops and other electronics.

This is a misguided worry. As Tesla quickly pointed out, the car didn't spontaneously combust: It crashed into a "large metallic object in the middle of the road." After the collision, the car automatically alerted the driver to the problem and he got out unharmed. Internal firewalls prevented the blaze from spreading to the cabin.

Tesla also has a remarkable safety record, including in government crash tests. As a Deutsche Bank analyst put it this week, "After 83 million miles of Model S driving, 12 significant accidents, and extreme crash-testing by U.S. safety regulators, this is the first fire in a Tesla vehicle."

Also, for perspective: Cars burst into flames about 150,000 times per year.

The second anxiety is that Tesla's explosive recent growth, acclamatory reviews and unassailable coolness all seem too good to be true. There might be something to this one.

Tesla's stock had been on a tear after the company announced its first quarterly net profit and began expanding into Asia and Europe this year. But share prices declined 6.2 percent, to 180.95, the day the video was released, and kept falling the next day. (It closed today at $180.98.)

The video's release happened to coincide with a downgrade -- to "neutral" from "outperform" -- by analysts at Baird Research. They argued that investors had effectively priced in a flawless roll-out for Tesla's new Model X, as well as increased production of the Model S, both of which will be challenging for the company to pull off.

In other words, don't count on Tesla's recent surge to continue in the short term. Of the analysts following Tesla's stock tracked by Bloomberg, 66.7 percent have a hold or sell rating on it.

On top of that cautious news, the company may now be facing an investigation from the National Highway Traffic Safety Administration as a result of the fire (if its investigators return after the government shutdown). This could turn out to be a good thing, especially if Tesla embraces the investigation and figures out how to fix whatever went wrong. The more transparent the company is, the more confidence the public will have in lithium-ion batteries and in electric cars more generally.

Which is a good thing. In its report clearing the Chevy Volt, the NHTSA said that it "continues to believe that electric vehicles show great promise as a safe and fuel-efficient option for American drivers."

One car fire, however lurid, doesn't change that fact.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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    Timothy Lavin at

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