Tesla's Reputation Is On the Line (Update 2)
Updated from 10:16 a.m. EST to provide analyst comments in the fifth paragraph.
NEW YORK ( TheStreet) -- The ride in shares of Tesla Motors
The National Highway Traffic Administration (NHTSA) is opening a probe into two fires that have happened on American soil as concerns about the safety of the Model S have crept up in recent weeks. Shares were hit on the news of the probe, which Tesla and CEO Elon Musk asked for, falling 1.4% to $119.90.
Bloomberg reported the NHTSA administrator was unaware of a request from Tesla requesting the investigation. Tesla spokeswoman Liz Jarvis-Shean noted that Jim Chen, Tesla's vice president of regulatory affairs, requested the probe while having a call with the staff of the NHTSA, the same day the agency ordered the inquiry.
"The resulting impact damage to the propulsion battery tray (baseplate) initiated thermal runaway," the NHTSA wrote in its investigation letter. "In each incident, the vehicle's battery monitoring system provided escalating visible and audible warnings, allowing the driver to execute a controlled stop and exit the vehicle before the battery emitted smoke and fire. Based on these incidents, NHTSA is opening this preliminary evaluation to examine the potential risks associated with undercarriage strikes on model year 2013 Tesla Model S vehicles."
Jack R. Nerad, executive editor and market analyst at Kelley Blue Book , noted it could be a huge blow if there's a recall for the Model S. "An official inquiry into Tesla Model S fires is a blow to Tesla Motors, which has touted the vehicle as the safest car in the world," Nerad said in an email. "This inquiry doesn't mean there will be a safety recall, but if there were a recall, it would be an even larger blow to the innovative automaker."
In late October, the NHTSA had said it was investigating the fires but no decision was made on a probe.
Tesla has received incredible amounts of positive press because of the Model S, which has sold more than 20,000 units around the world. Consumer Reports gave it its highest ever rating, while Motor Trend awarded the Model S its 2013 car of the year. Even the NHTSA awarded the Model S its highest ever safety rating.
Earlier this year, I reviewed the Model S, noting that although "the car is incredibly quick, hitting full torque instantly, it's built like a tank. The Model S feels very safe and well-built."
Tesla is taking several actions to prove the safety of its Model S. In a blog post to the company's Web site, Musk said Tesla has "rolled out an over-the-air update to the air suspension that will result in greater ground clearance at highway speeds." He noted this is about reducing the chances of underbody impact damage, not improving safety, as Musk, and others have repeatedly said the Model S is the safest car on the road. "Another software update expected in January will give the driver direct control of the air suspension ride height transitions," Musk said.