Shareholders have applauded Tesla (TSLA) CEO Elon Musk for "requesting" a government investigation into a spate of fires
in the automaker's Model S sedan, in the hope an inquiry will turn up
nothing and give the company a clean bill of health. But Musk's account
of how the investigation developed clashes with the government's
explanation, and other efforts to defend the company seem to be raising
more questions than answers.
The government's docket on the case says the agency opened the investigation on November 15. But Musk didn't say Tesla “requested” the investigation until November 18. In a blog post on that date, Musk showed his trademark defiance as he pointed out the incidence of fires in gas-powered cars is far higher than the rate in the Model S, which so far totals just three fires among more than 19,000 cars on the road. He mustered further evidence to support his claim that the Model S is “safer in an accident than any other vehicle without exception.” And he said the investigation Tesla supposedly asked for was "highly unlikely" to turn up anything that would require major changes to the car.
Well, maybe, but Musk's characterization of the federal investigation doesn't quite ring true. The National Highway Traffic Safety Administration isn’t an investigator-for-hire that waits for companies to give it a ring before checking out problems. It sets its own agenda, and while it gets frequent pushback from automakers, it’s far from a rubber-stamp agency that does automakers’ bidding.
In a tweet on November 19, Musk elaborated, saying, "On Friday last week, Tesla VP of Regulatory Affairs, Jim Chen, invited NHTSA senior staff to conduct a review of Model S." If true, the dates would align, because the Friday Musk refers to was November 15. However, industry experts guffaw at the notion that NHTSA would jump on an issue the very same day an automaker asked it to, which would have to be record response time for a U.S. government agency. With questions mounting, Chen finally told Bloomberg he had asked for a NHTSA investigation over the phone on the same day NHTSA happened to initiate one — without knowing that was about to happen.
Shading the truth?
NHTSA administrator David Strickland says he's not aware of any request from Tesla, and agency officials say the decision to open an investigation was an “independent process.” Automakers clash with NHTSA all the time, and this is hardly the first instance of artful wordsmithing involving a potential safety issue. Shareholders can draw their own conclusions about whether Musk and Tesla may be shading the truth.
The company's stock has dropped sharply in recent weeks, but it rose nearly 4% on Musk's tweets and reassurances about the fire investigation. Musk's cheering squad, however, may not be familiar with the kind of problem NHTSA tends to look for. The question isn’t really whether the incident rate involving a particular problem is too high. It’s whether the incidents that have occurred so far reveal a design flaw that might impact safety and have to be fixed in every car on the road. If a recall ensues, fixes could range from costly to ruinous, especially since the Model S is Tesla's only model at the moment. And since the problem seems to involve the battery pack — a core part of the car’s breakthrough technology — the stakes are higher than if it were a secondary feature such as a floor mat or gas pedal, as in the huge batch of Toyota recalls in 2009 and 2010.
Musk is also making the wrong comparison when he cites the incidence of fires in gasoline cars. A Merrill Lynch analyst
has already called Musk out for comparing apples and oranges, since the
data for fires in gas-powered cars include every possible cause,
including owners who set their own cars on fire to scam insurance
companies. Musk’s data for Tesla, by contrast, involves only on-the-road
incidents in cars that by definition are less than two years old.The government's docket on the case says the agency opened the investigation on November 15. But Musk didn't say Tesla “requested” the investigation until November 18. In a blog post on that date, Musk showed his trademark defiance as he pointed out the incidence of fires in gas-powered cars is far higher than the rate in the Model S, which so far totals just three fires among more than 19,000 cars on the road. He mustered further evidence to support his claim that the Model S is “safer in an accident than any other vehicle without exception.” And he said the investigation Tesla supposedly asked for was "highly unlikely" to turn up anything that would require major changes to the car.
Well, maybe, but Musk's characterization of the federal investigation doesn't quite ring true. The National Highway Traffic Safety Administration isn’t an investigator-for-hire that waits for companies to give it a ring before checking out problems. It sets its own agenda, and while it gets frequent pushback from automakers, it’s far from a rubber-stamp agency that does automakers’ bidding.
In a tweet on November 19, Musk elaborated, saying, "On Friday last week, Tesla VP of Regulatory Affairs, Jim Chen, invited NHTSA senior staff to conduct a review of Model S." If true, the dates would align, because the Friday Musk refers to was November 15. However, industry experts guffaw at the notion that NHTSA would jump on an issue the very same day an automaker asked it to, which would have to be record response time for a U.S. government agency. With questions mounting, Chen finally told Bloomberg he had asked for a NHTSA investigation over the phone on the same day NHTSA happened to initiate one — without knowing that was about to happen.
Shading the truth?
NHTSA administrator David Strickland says he's not aware of any request from Tesla, and agency officials say the decision to open an investigation was an “independent process.” Automakers clash with NHTSA all the time, and this is hardly the first instance of artful wordsmithing involving a potential safety issue. Shareholders can draw their own conclusions about whether Musk and Tesla may be shading the truth.
The company's stock has dropped sharply in recent weeks, but it rose nearly 4% on Musk's tweets and reassurances about the fire investigation. Musk's cheering squad, however, may not be familiar with the kind of problem NHTSA tends to look for. The question isn’t really whether the incident rate involving a particular problem is too high. It’s whether the incidents that have occurred so far reveal a design flaw that might impact safety and have to be fixed in every car on the road. If a recall ensues, fixes could range from costly to ruinous, especially since the Model S is Tesla's only model at the moment. And since the problem seems to involve the battery pack — a core part of the car’s breakthrough technology — the stakes are higher than if it were a secondary feature such as a floor mat or gas pedal, as in the huge batch of Toyota recalls in 2009 and 2010.
A
better comparison would pit the record of the Model S against other
electric vehicles. There might be a reason Musk didn’t do that. There
are nearly 90,000 Nissan Leaf electrics on the road, for example, and
not one vehicle fire has been reported. General Motors has sold about
50,000 Chevy Volts, and the only known fire occurred three weeks after NHTSA crash-tested one,
as battery chemicals unleashed during the test leaked and eventually
began smoldering. Altogether, there are nearly 140,000 Leafs and Volts
on the road, without a single on-road fire between them. Suddenly, three
fires among 19,000 cars doesn't seem so impressive.
A significant difference
A significant difference
Tesla’s
batteries are, in fact, significantly different from those used by
other automakers, according to industry experts. Automakers consider
core battery technology a proprietary secret, so exact details aren’t
public. But aficionados of electric vehicles have speculated for years
about what tradeoffs might be required to give Tesla batteries greater
range and power than competing batteries. Musk, of course, has
passionately defended the safety of Tesla’s batteries and pointed out
they’re protected by a thick metal cover, among other things. The Model S
also earned the government's highest rating in crash tests.
In
his defense of the company, Musk displays the confidence of an engineer
certain about the laws of physics. But as other car companies have
discovered — usually to the detriment of their bottom line — weird
things happen on real pavement that can’t be foreseen by engineers or
simulated in a lab. One of the biggest worries isn’t just engineering
flaws but also the legal liability that comes with them. “One of the
major costs in auto production is the R&D meant to avoid legal
liability,” says Karl Brauer of car-research site KBB.com. “That’s a
defining distinction between a small and a large automaker.”
Tesla’s
initial success stems largely from the must-do mentality of a startup.
But its survival may depend on whether it develops the institutional
defenses of the big, slow companies Musk often derides. They’re not as
foolish as they sometimes seem. LINK
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