U.S. launches investigation into Tesla Model S fires

Tue Nov 19, 2013 1:24pm EST
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DETROIT (Reuters) - U.S. auto safety regulators have launched an investigation into electric sports car maker Tesla Motors Inc's (TSLA.O: Quote) luxury Model S sedan after three car fires in six weeks, and Tesla announced it is raising the vehicle's ground clearance.

Tesla shares fell in premarket trading on Tuesday following the news but they were up 3.5 percent in early-afternoon dealings.

The U.S. National Highway Traffic Safety Administration has opened a preliminary evaluation of the risks associated with highway debris striking the underbody of the 2013 Model S, the agency said on its website on Tuesday. (r.reuters.com/cys74v)

Late on Monday, Tesla said it would push out a software update to the Model S air suspension that will give the car more ground clearance at highway speeds, and will amend its warranty policy to cover fire damage even if it is due to driver error.

Investors appeared unfazed by the NHTSA investigation. Stifel analyst James J. Albertine said price volatility surrounding the probe "amounts to nothing more than noise."

The investigation could be a blessing in disguise because it could lead to a result that "could restore Tesla's safety reputation," S&P analyst Efraim Levy said.

The probe comes after a wave of bad publicity for Tesla - not only the fires, but an accident at its Fremont, California, factory that burned three workers; results and forecasts from the company earlier this month that disappointed investors; and even a complaint from actor George Clooney about being stuck on the side of the road in a Tesla Roadster sports car. Tesla's share price has dropped by more than a third since the end of September, wiping some $8 billion off the company's market value.

Chief Executive Elon Musk Tweeted on Tuesday that last Friday the company's head of regulatory affairs, Jim Chen, "invited NHTSA senior staff to conduct a review of Model S."

But David Strickland, administrator of NHTSA, was quoted by the Detroit News as saying Tesla did not ask for the government probe.   Continued...

A Tesla model S car is displayed during a media preview day at the Frankfurt Motor Show (IAA) September 10, 2013. REUTERS/Kai Pfaffenbach