Tesla Motors shares drop after fire in electric car

Shares of Tesla Motors fell more than four per cent Thursday as investors in the high-flying company assessed the fallout from a fire in one of its $70,000 US electric cars.

The fire began in the car's battery after the driver hit metal debris. Firefighters extinguished the flames and no one was hurt.

Tesla says it's the first fire in one of its cars. Experts say electric car fires are rare, and consumers should still consider buying them.

But the sight of flames engulfing the front end of a Model S on the side of a highway in the Seattle-area has been a jolt to investors. Tesla has been a Wall Street darling this year, selling more cars than expected and posting its first-ever profit.

Shares fell six per cent Wednesday as video of the fire surfaced. The shares were down $7.64, or 4.2 percent, to $173.31 after the electric car company had a rare downgrade from a financial analyst on Thursday. At that price, Tesla's market value has dropped about $2.5 billion in the past two days.

The fire and resulting publicity sparked a PR nightmare for a company that only makes electric cars, analysts said.

"The bar is much higher for Tesla," said James Albertine, analyst at Stifel, Nicolaus & Co, who has a "hold" rating on Tesla shares.

"Tesla cannot weather a sustained onslaught of consumer complaints and incidents that could potentially dent the demand curve for the next vehicle."

Still, if an investor purchased a share of Tesla at $35 on Jan. 2, they're sitting on a gain of more than 400 per cent for the year.

Deutsche Bank analyst Rod Lache told investors Thursday that he views the fire as an isolated incident and still expects Tesla shares to reach $200.