Tesla Motors Inc. (TSLA:US)’s Model S, the electric sedan marketed by the company as “the safest car in America,” is being investigated by U.S. auto regulators in a possible precursor to a recall.
The U.S. National Highway Traffic Safety Administration announced the probe today in a website posting, saying it would look into the fire risks from the cars’ undercarriages striking objects. There are more than 19,000 Model S sedans on the road, priced at $70,000 to more than $100,000.
Tesla will update the software in its suspension to allow greater ground clearance at highway speeds, Elon Musk, the company’s billionaire chief executive officer, wrote in a blog post today. In the Model S, as with some other high-performance cars, the frame can be lowered to improve handling and aerodynamics.
“While we think it is highly unlikely, if something is discovered that would result in a material improvement in occupant fire safety, we will immediately apply that change to new cars and offer it as a free retrofit to all existing cars,” Musk wrote.
Tesla shares (TSLA:US) rose 3.7 percent, to $126.09, at 4 p.m. New York time after gaining as much as 6.1 percent. They had slid 37 percent through yesterday since reaching a closing peak of $193.37 on Sept. 30, the day before the first fire.
Two of the three fires occurred in the U.S. when cars ran over metal objects, which then punctured the cars’ lithium-ion battery packs. A third, which followed a high speed crash, was reported in Mexico on Oct. 18.
Drivers were uninjured in all the fires.
NHTSA Administrator David Strickland and Musk disagreed today on who initiated the probe.
“I am not aware of Tesla making a request of the agency to open a formal investigation,” Strickland told reporters in Washington.
“I’ve never heard of an automaker formally requesting an investigation,” said Strickland, who worked on auto safety issues for the Senate Commerce Committee before becoming NHTSA administrator. “And I don’t think this probably happened in this case.”
Musk said in his blog post hours before the filing that the company sought the probe to counter “false perceptions” about the safety of the Model S, which was created with the backing of a $465 million U.S. loan the company repaid earlier this year. Musk last week said “there’s definitely not going to be a recall.”
Jim Chen, Tesla’s vice president of regulatory affairs, said in a phone interview today that he requested the probe on a call with NHTSA’s staff on Nov. 15 -- the same day Strickland said the agency ordered the inquiry. Chen said he asked for the investigation before NHTSA told him one would occur.
Toyota Motor Corp. (7203) in 2009 and 2010 tangled with NHTSA in a months-long exchange that ended with the automaker recalling a record number of vehicles worldwide for defects that could cause unintended acceleration. Two of its executives were compelled to testify before congressional committees.
Tesla investors are responding to the company’s “more assertive” role related to potential safety risk, said Elaine Kwei, an equity analyst with Jefferies Group in New York who rates Tesla a buy.
“The company is doing and has always done what it can to give customers peace of mind,” she said. “Every obstacle or potential doubt that comes up, they’ve typically responded with something to address the worry points.”
Marc-Rene Tonn, a Hamburg-based analyst with Warburg Research, said the probe’s outcome is important for electric cars generally.
“It’s important to clarify if there were three singular unfortunate incidents or if there is actually a problem in the construction of the vehicles that makes them more susceptible to catch fire,” he said in a phone interview.
In announcing the probe, NHTSA said both U.S. incidents led to thermal runaway, a phenomenon found in the lithium-ion batteries on Boeing 787 Dreamliners that led to the plane’s grounding earlier this year.
NHTSA said Oct. 24 it found no evidence the first fire resulted from defects or violations of U.S. safety standards. It didn’t send investigators to the scene of that accident, in Washington state, because it occurred on the initial day of a partial U.S. government shutdown.
Two months earlier, the Model S received the highest possible ratings in NHTSA’s crash tests, getting top five-star rating in each category.
“NHTSA is doing its safety job; but for the shutdown during the earlier crash, this investigation would have been opened sooner,” Clarence Ditlow, executive director of the Center for Auto Safety, a Washington-based advocacy group, said in an e-mail.
NHTSA previously investigated fires in two other electric cars, the hybrid electric General Motors Co. (GM:US)’s Chevrolet Volt and Fisker Automotive Inc.’s Karma plug-in. The Karma was recalled and GM voluntarily reinforced the battery packs on Volts, after one caught fire following a NHTSA crash test.
California safety officials separately are investigating an industrial accident at Tesla’s plant that burned three workers last week.
“Given that the incidence of fires in the Model S is far lower than combustion cars and that there have been no resulting injuries, this did not at first seem like a good use of NHTSA’s time compared to the hundreds of gasoline fire deaths per year that warrant their attention,” Musk wrote in his blog post.
“However, there is a larger issue at stake: if a false perception about the safety of electric cars is allowed to linger, it will delay the advent of sustainable transport and increase the risk of global climate change, with potentially disastrous consequences worldwide,” Musk wrote.
Karl Brauer, senior analyst at Kelley Blue Book, said Musk can’t rely on his statements that the Model S catches fire less often than gasoline-powered cars.
“While only three Tesla fires have occurred, that’s three more than I’m aware of for the Nissan Leaf, which has sold in greater numbers while being on the market longer,” he said in an e-mail, referring to the Japanese automaker’s pure electric vehicle.
“Is there an inherent design flaw in the Tesla’s battery pack that makes it more prone to fires compared to other electric cars? That’s what NHTSA will be determining.”
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