Has Tesla's fire chilled the battery car market?

Mon, 14 Oct 2013

The nascent battery-car market just might be short-circuiting.

If this year is average, about 194,000 vehicles will catch fire before the ball drops in Times Square. And, for the moment at least, just one of them will have been a Tesla Model S. Of course, it didn't help that a passerby happened to catch that blaze in the Seattle suburbs earlier this month, quickly posting the video on YouTube (you can watch it yourself below).

Within hours, the images had gone viral and it didn't take much longer for Tesla investors to scramble to start selling off their shares, the high-flying stock plunging from a 52-week high of nearly $195 to as low as $163. Of course, that was still a heck of an increase from the year's low-point, but it suggested that much like the space station supply ships launched by Tesla founder Elon Musk's other venture, SpaceX, what goes up eventually may just have to come back down. It has also raised new concerns that the nascent battery-car market just might be short-circuiting.

Paul A. Eisenstein is Publisher of TheDetroitBureau.com and a 30-year veteran of the automotive beat. His editorials bring his unique perspective and deep understanding of the auto world to Autoblog readers on a regular basis.

Due to the federal government shutdown, the normal investigation by the National Highway Traffic Safety Administration couldn't take place. But by the end of the week, the social media-savvy Musk was blogging and tweeting away, explaining that Tesla's internal investigation echoed the Model S owner's initial report: a large chunk of metallic road debris, he explained, had punched a three-inch hole in the armor plate designed to protect the sedan's battery pack from routine damage.

In turn, part of the pack shorted out, setting off a blaze that owner Robert Carlson said, the "images really exaggerate." Significantly, it appears the car's warning system actually advised Carlson to pull over and exit the Model S before the flames could be seen or felt, possibly saving his life.

Nonetheless, Musk isn't the only one who has been talking about the fire, and bloggers and traditional journalists alike have not necessarily been as charitable as he might like. Indeed, even normally friendly media outlets like NPR have lumped the incident in with other recent battery fires, including those involving Chevy Volts, Fisker Karmas – and the big Boeing 787. The so-called Dreamliner looked more like an airborne nightmare when its own lithium-ion backup battery system caught fire on a JAL aircraft earlier this year, leading to a temporary grounding of the entire 787 fleet.

Is this "just a blip," as analyst George Peterson, of AutoPacific, Inc., suggests? Or has the Tesla fire cast a chill over not just the Model S but the entire battery-electric vehicle market?

There's no question that sales of electrified vehicles have been falling well short of proponents' expectations.

There's no question that sales of electrified vehicles have been falling well short of proponents' expectations, especially if you exclude traditional hybrids – the Toyota Prius in particular. Actually, you can include the Prius Plug-In, as the Japanese maker this week was forced to trim the price of that extended-range model by as much as $4,620. Sales of the Prius Plug-in were off a whopping 30 percent in September.

The Chevy Volt was down 47 percent, while the Nissan Leaf, which had been gaining momentum earlier in the year, slipped 19 percent. Even the Tesla Model S, well before the Seattle fire, dropped 20 percent after exceeding company forecasts for the first eight months of 2013.

True, the overall US car market was down in September for the first time in over two years, and analysts caution that much of the decline was due to flukes in the way last month's numbers were reported. But battery-car sales were nonetheless down in September much more sharply than the overall industry's decline, even as some of the biggest, most fuel-thirsty machines, such as the Ford F-Series, picked up momentum.

Battery-car sales were nonetheless down in September much more sharply than the overall industry's decline.

So, there's good reason to watch October's battery-car sales quite closely. Will all the coverage of the Model S fire, indeed, blip off the screen as the media shifts attention to such things as Washington's budget crisis, the SUV/biker assaults in New York – and the latest PR stunt by Miley Cyrus?

Even without the fire, battery-based vehicles have been a tough sell. Toyota was only the latest maker to slash prices hoping to lure reluctant buyers into showrooms. About the only one who hasn't taken that step yet has been Tesla. Might it also have to come up with incentives if sales slip?

As for investors, Tesla stock didn't bottom out for long. Analyst Peterson suggests "the event" may simply have "giving investors a rationale" to sell off some stock and reap profits after the gains they'd made earlier in the year. Even at $163 a share, anyone who'd held Tesla stock for more than a few months made out like a high-tech bandit.

Several key analysts have now suggested the company is already flying, Icarus-like, a little too close to the sun.

The stock has been rising, in fits-and-starts, in recent days, jumping $4.15 a share on a Thursday that saw Wall Street breathe a collective sigh of relief as Washington seemed ready to avert a government debt default. But will Tesla reach previous highs? Several key analysts have now suggested the company is already flying, Icarus-like, a little too close to the sun. A bad third-quarter earnings report could lead to an even faster exodus than the Model S fire.

Then again, Musk and company have been quite effective at turning a typically skeptical media to their own advantage. It's just possible that Tesla will bounce back, even as the rest of the electric car market struggles – and as competing start-ups like Fisker fold.

But, for the moment, even if we don't see another fire, the electric vehicle market clearly needs to recharge its batteries in a hurry.

By Paul Eisenstein