Two days after a video of a burning Tesla electric car went viral, the "green car" maker grappled with ways to contain the damage as investors shaved $2.4 billion off the company's market value.

Tesla Motors Inc has confirmed that the car caught fire after the driver ran over a large metallic object on Tuesday morning just south of Seattle, causing extensive damage to the front end of the Model S sedan. Emergency officials at the accident said the fire occurred in the electric vehicle's lithium-ion battery.


The fire and resulting publicity sparked a PR nightmare for a company that only makes electric cars, as opposed to mainstream automakers like General Motors Co that derive only a small percentage of sales from EVs, analysts said.




The video of the burning car was posted online at auto blog Jalopnik and has been widely disseminated by other media.


"Tesla's a very controversial stock and this will give fodder for the bears. They'll say this is going to slow down sales," said R. W. Baird analyst Ben Kallo. On Wednesday, he downgraded the stock to "neutral" for valuation reasons.

He said he saw the fire hurting sales slightly, but he and other analysts still expected strong demand going forward.

This is not the first battery fire in an electrified vehicle, as it followed cases in GM's Chevrolet Volt and Mitsubishi's <7211.T> i-MiEV. Boeing Co also dealt with lithium-ion battery fires in its new Dreamliner plane earlier this year.



Tesla officials said the battery and the car worked as designed, keeping the fire under control and allowing the driver time to pull over and safely exit the vehicle.





Analysts for research firm Kelley Blue Book said the road debris likely compromised the vehicle's cooling system, leading to the fire. They also said the current shutdown of the U.S. government would hamper any investigation.



Panasonic Corp <6752.T>, which supplies the batteries used in the Model S, declined to comment on Thursday.


The auto industry has been increasingly shifting toward lithium-ion batteries as opposed to the less expensive but heavier nickel-metal hydride battery which is still in use by Toyota Motor Corp <7203.T> in its top-selling Prius.

GM, the largest U.S. automaker, uses a lithium-ion battery in its Chevrolet Volt plug-in hybrid, while smaller U.S. rival Ford Motor Co uses the same technology in its green cars, including the C-Max hybrid.


Still, the Tesla fire was more bad news for a technology that was already the object of some concerns, said Albertine, the analyst at Stifel.





Dealer groups in several U.S. states have fought Tesla's efforts to avoid the traditional franchise dealership structure.

(Additional reporting by Paul Lienert, Deepa Seetharaman and Bernie Woodall in Detroit, and Yoko Kubota in Tokyo; editing by Maureen Bavdek, Jeffrey Benkoe and Matthew Lewis)