Yesterday, Tesla shares fell 6.2% — in part because of an analyst’s downgrade, but also perhaps in part because of a fiery car crash that raised concerns over the safety of the electric vehicle’s lithium-ion battery.
In a note to clients (titled “Had to happen at some point; no change to the thesis”), Deutsche Bank analysts led by Dan Galves argue that this was inevitable.
“We expect that negative news flow and investor concern over the impact to demand of this incident will put negative pressure on the stock in the near-term,” write the Deutsche Bank analysts. “And these are meaningful concerns, as this is a new technology and one in which sensitivity to safety risk is very high.”
However, the Deutsche Bank team also offers a few reasons why damage to investor perceptions of Tesla vehicles’ safety should be mitigated:
- 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. Although more details are needed on the exact reasons behind this incident, and it would certainly be best to completely eliminate the chance of a fire, Tesla believes that the frequency in which an accident propagates a fire is similar in an internal combustion vehicle.
- The fire resulted from a collision. If this had been a spontaneous incident with no catalyst (i.e. in someone’s garage), the impact would be significantly worse.
- This was not an explosion. The fire started gradually and the vehicle performed as designed in terms of protecting the driver and providing ample warning.
- Tesla’s ability to monitor the vehicle systems remotely will enable a detailed report on the root cause of the incident. We believe that the company will and should provide as much information as possible.
“This incident does not change our positive thesis on the company or the stock,” concludes Galves. “Given significant Roadster and Model S experience (6 years, tens of millions of miles driven) without a fire, we have confidence that this is an isolated incident that could happen to any vehicle.”
Deutsche Bank has a buy rating on the stock and a price target of $US200.