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Electric car blaze raises questions for Tesla

Tesla Model S burns
Tesla Model S burns on a highway in Washington stateYouTube
A Tesla Model S electric car is on display at a Tesla store in a shopping mall in La Jolla, Calif., on Sept. 6.
A Tesla Model S electric car is on display at a Tesla store in La Jolla, Calif., on Sept. 6. This week a Tesla S was engulfed in flames, raising questions about the cars.MIKE BLAKE / Reuters

Bad news for an electric car company.

Video of a Tesla Model S on fire in Washington state is raising questions about what caused the electric car to go up in flames and what that means to the manufacturer.

The incident sent Tesla Motors' shares down over 6 percent on Wednesday and the stock was down a further 5 percent on Thursday.

The fire occurred in Kent, outside Seattle, after the Model S hit a large metal object in the middle of the road. .

Tesla confirmed the incident saying: "The fire was caused by the direct impact of a large metallic object to one of the 16 modules within the Model S battery pack.

"Because each module within the battery pack is, by design, isolated by fire barriers to limit any potential damage, the fire in the battery pack was contained to a small section in the front of the vehicle."

The automaker said the car's alert system signaled a problem and instructed the driver to pull over safely, which he did. No one was injured and the sole occupant had sufficient time to get out safely.

(Read more:Recall outbreak! This time, Chrysler yanks SUVs)

Tesla Model S burns
Tesla Model S burns on a highway in Washington stateYouTube

Local firefighters put out the blaze and then released the car to its owner. Since there was no criminal activity and no one was hurt, the Kent Fire Department is not conducting any further investigation.

Video of the Model S on fire while sitting on the exit ramp of a highway was posted on YouTube on Wednesday afternoon.

(Related video:Tesla's Model S scores top safety ratings)

Tesla shares had been under pressure earlier in the day on Wednesday after a downgrade by Baird Equity Research, which shifted its rating on TSLA to neutral from outperform. Analyst Ben Kallo made the call based on the stock's valuation.

In a research note, Kallo wrote that any "hiccups in execution present stock price risk in the near to intermediate term." Baird's call is one of the few downgrades for a stock that has soared 507 percent in the last year.

But despite the selloff, at least one analyst is reiterating her "buy" rating on Tesla shares.

Andrea James with Dougherty & Co. issued a note Thursday morning looking at the potential impact of the Model S fire. "Tesla does not intend to halt orders, so we see no near-term downside.

"Model S consumers tend to be well-informed, which mitigates the risk of canceled orders," James wrote.

The Model S fire may renew concerns with buyers about the safety of electrics cars. As Tesla, Nissan and General Motors were developing fully electric or extended-range electric cars, questions were raised about the possibility of the battery packs overheating and catching fire.

(Related video: Volkswagen plans to enter electric car biz)

Two years ago, GM redesigned the battery compartment of the Chevy Volt after a crash test resulted in a fire in one of the vehicles. Though no one was hurt, the incident heightened public scrutiny of the safety of the Volt battery system. No fires have been reported since in any of the almost 50,000 Volts sold.

Concerns about fires in electric cars baffle supporters of the zero emission vehicles. They point out how many gasoline-powered vehicles catch fire annually. Between 2006 and 2010 there were an estimated 152,300 vehicle blazes every year, according the National Fire Protection Association.

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews.