Tesla (TSLA) Model S Fire Doesn't Change Bullish Thesis - Deutsche Bank

October 3, 2013 7:24 AM EDT
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Deutsche Bank analyst Dan Galves reiterated a Buy rating and $200 price target on Tesla Motors (NASDAQ: TSLA) amid news of a Model S fire. The firm said the fire was bound to happen and doesn't change his thesis.

"Although Tesla has not completed a full analysis of the incident, they do believe that the battery pack was damaged in some way and was the cause of the fire," Galves noted. "We expect that negative news flow and investor concern over how this incident may impact demand will put negative pressure on the stock in the near-term. And these are meaningful concerns, as this is a new technology and one in which sensitivity to safety risk is very high."

The firm sees several issues that will mitigate the negative impact on safety perception: 1) After 83mn 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 (on avg, 1 vehicle fire occurs on US roads every 20MM miles). 2) The fire resulted from a collision. If this had been a spontaneous incident with no catalyst (e.g. in a garage), the impact would be significantly worse. 3) This was not an explosion. The fire started gradually and the vehicle performed as designed in terms of warning the driver and venting the fire outside of the driver compartment. 4) Tesla’s ability to monitor the vehicle systems remotely will enable a detailed report on the root cause of the incident.

He added, "This incident does not change our positive thesis on the stock. Given significant Roadster and Model S experience (6yrs, tens of mns of miles driven) without a fire, we have confidence that this is an isolated incident that could happen to any vehicle."

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $180.95 yesterday.

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