Bloomberg News

Tesla Tweaks Model S to Avert Recall Seen Damaging Image

November 20, 2013

Tesla Model S

A visitor looks under the hood of a Tesla Model S automobile, produced by Tesla Motors Inc., at the 65th Frankfurt International Motor Show in Frankfurt. Photographer: Krisztian Bocsi/Bloomberg

Tesla Motors Inc. (TSLA:US), under U.S. scrutiny for vehicle-fire risk, is seeking to head off a months-long investigation that could lead to expensive upgrades and longer-term damage to the image of electric cars.

Chief Executive Officer Elon Musk said yesterday on his blog that the company made a software adjustment to its Model S sedan so it won’t ride as low to the ground at highway speed, reducing the risk of battery packs being punctured and catching fire after hitting objects in the road. His remarks preceded a National Highway Traffic Safety Administration statement that it would investigate the Model S over two such fires.

Should regulators reject the software fix, they may order Palo Alto, California-based Tesla to install a thicker barrier of aluminum or a stronger metal in the Model S’s undercarriage. That would be much more costly and undermine Tesla’s claim to sell the safest U.S. car, one priced from $70,000 to more than $100,000.

“With these high-technology vehicles, a recall is the particularly dreaded end game,” said Bill Visnic, senior editor at Edmunds.com, an auto-information website based in Santa Monica, California. “Musk understands that.”

A recall of all Model S cars would cost about $13 million, Barclays Plc auto analyst Brian Johnson said in a report today. He lowered his target price on the shares to $120 from $141.

“With the monetary cost of a recall likely manageable, the real issue is to what extent the publicity over the fire is likely to crimp Tesla Model S sales growth,” he said, citing sales losses for Toyota Motor Corp. and Audi AG following attention to defects that could cause unintended acceleration.

Recall Avoidance

The U.S. investigators who will decide whether to allow Musk to head off a recall on his terms are with the same agency that rebuked the company two months ago for exaggerating the Model S’s government crash-test results.

Musk yesterday framed the safety questions surrounding the Model S as a threat to “delay the advent of sustainable transport and increase the risk of global climate change, with potentially disastrous consequences worldwide.”

Related News:

  • Doubting Toyota Prince Defeats Crisis to Prove Self Wrong
  • Porsche Macan Chases Land Rover as SUVs Dwarf 911 Demand

Avoiding a recall is more than a matter of semantics. If a consumer searches NHTSA’s database, it won’t find any listings for a 2011 recall of General Motors Co. (GM:US) Chevrolet Volt, since GM acted before one was requested.

After a Volt caught fire on a storage lot following a government crash test, GM offered to better shield the lithium-ion batteries from puncture and exchange the cars if owners didn’t want them. The company’s top executive started driving a Volt. Regulators agreed the repairs were sufficient and ended their probe.

‘Very Benign’

Tesla’s software upgrade is “very benign” in terms of cost and production disruption, and probably will be acceptable to NHTSA, Dan Galves, an analyst at Deutsche Bank, said in a note yesterday.

Tesla shares dropped 4 percent to $121.11 at 4 p.m. in New York after rising yesterday when the investigation was announced. They have fallen 37 percent since reaching a closing peak of $193.37 on Sept. 30, the day before the first fire.

If NHTSA requires more, such as replacing or improving the undercarriage barrier, Model S owners may have to return their vehicles to be fixed at company expense.

“Compare the skid plate on a SUV or a pickup,” Dave Sullivan, an analyst at AutoPacific Inc., said in interview. “Those are all made from steel today, very thick-gauge steel, and they protect the underbody components, whether it’s transfer cases or oil pans. Nobody makes any of those things from aluminum. They’re just not as durable.”

Who First?

Liz Jarvis-Shean, a Tesla spokeswoman, said NHTSA already has extensive information on the battery pack and lithium-ion cells used in the Model S. She declined to comment on possible modifications the company might consider, including reinforcing the battery’s protective aluminum casing.

“It’s too early in the process to speculate about that,” Jarvis-Shean said in a phone interview.

Musk predicted last week that there would “definitely” be no recall. In statements and posts on Twitter, he has criticized media coverage and said fires have been much more prevalent in gasoline-powered cars.

He said on his blog yesterday that the company asked NHTSA to start the investigation, which agency Administrator David Strickland disputed in remarks to reporters in Washington. Both said the investigation began Nov. 15; they disagreed on who acted first.

Straining ‘Credulity’

“The notion that a manufacturer would ask the agency to open a formal investigation is so unusual as to defy credulity,” said Allan Kam, a safety consultant and former senior enforcement attorney with NHTSA. “The meat doesn’t come to the grinder.”

NHTSA in August criticized Tesla in a press release for claiming it received a 5.4-star rating in crash tests on the Model S, a rating the agency said doesn’t exist. The Model S did receive the highest possible rating -- five stars in each aspect of the test.

The agency has a history of taking companies to task when officials believed their actions were mischaracterized or exaggerated.

Samurai Dispute

In 1988, NHTSA’s then-deputy administrator, Jeffrey Miller, criticized the maker of the Suzuki Samurai for saying the agency supported the company’s claim that “the Samurai is safe and should put to rest the inaccurate and misleading attacks on the vehicle.”

While the agency ended its investigation into the Samurai’s alleged propensity to roll over, Miller said the agency never said the Samurai was safe or had no safety-related defects.

Ford Motor Co. got a similar rebuke in 1998, after NHTSA closed an investigation into the Bronco II sport-utility vehicle. The agency said it made the decision based on whether it could build enough evidence to force a recall.

Toyota vigorously defended much of its product lineup in 2009 and 2010 before recalling a record number for defects that may cause unintended acceleration. Both the GM and Toyota defects led to congressional hearings.

Most automakers do more to build influence in Washington than Tesla does.

Musk’s company has maintained only a nominal lobbying presence for the past two years, reporting expenditures of less than $5,000 every three months, disclosure reports show. It spent more in previous years when it sought the U.S. Energy Department loan that helped finance the Model S’s development. Tesla repaid the $465 million loan in full earlier this year.

The brashness that helps Musk’s credibility with investors isn’t likely to sway NHTSA, as the agency is under examination almost as much as the automakers over its handling of the Toyota recalls, Visnic said.

“The last thing you want to do with NHTSA right now is tell them their business,” Visnic said. “Musk is not going to talk his way out of this.”

To contact the reporters on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


Race, Class, and the Future of Ferguson
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • TSLA
    (Tesla Motors Inc)
    • $263.84 USD
    • 0.59
    • 0.22%
  • GM
    (General Motors Co)
    • $34.62 USD
    • -0.09
    • -0.26%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus