Faced With Recall, Tesla Asks Just What 'Recall' Means

Oct. 25 (Bloomberg) -- Elon Musk, chief executive officer of Tesla Motors Inc., talks about the causes of a Model S battery fire, the company's stock price and battery-powered car sales in Europe. He spoke yesterday with Guy Johnson in London. (Source: Bloomberg)

Elon Musk, the billionaire co-founder of electric carmaker Tesla Motors Inc., is sniping over semantics with the industry’s regulator, the latest step in what he calls a crusade to revolutionize the automobile.

The flap began as the U.S. National Highway Traffic Safety Administration last year started investigating battery fires in the $70,000-and-up Tesla Model S sedan. It escalated after the agency listed as a recall Tesla’s steps to reduce fire risks during recharging. An exasperated Musk took to Twitter Jan. 14, saying “the word ‘recall’ needs to be recalled.”

As Musk looks to start selling into the safety-conscious mass market within three years, he wants to dispel any notion that owning a Tesla is inherently dangerous. Yet by sparring publicly with NHTSA, he risks rankling a regulator that could force costly alterations or fine Tesla millions of dollars for not reporting what it considers safety defects.

“This is just the kind of reaction you get from someone who is essentially a rookie in the car business,” said Jack Nerad, executive editorial director with Kelley Blue Book. “You will not hear a seasoned auto executive knock NHTSA.”

Automakers typically work behind the scenes to negotiate with NHTSA on the scope and timing of recalls. For the largest automakers, these efforts can result in recalls covering fewer model years or applying only to vehicles made in certain factories, narrowing the cost to companies.

Photographer: Noah Berger/Bloomberg

Elon Musk, co-founder and chief executive officer of Tesla Motors Inc., at the company's assembly plant in Fremont, California. Close

Elon Musk, co-founder and chief executive officer of Tesla Motors Inc., at the... Read More

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Photographer: Noah Berger/Bloomberg

Elon Musk, co-founder and chief executive officer of Tesla Motors Inc., at the company's assembly plant in Fremont, California.

‘Amazing’ Car

“Because Tesla gets so much attention, NHTSA rides us pretty hard,” Musk said in a telephone interview. “People are going to think our car has a greater propensity for fire than a gasoline car, which is simply untrue.”

“We’ve now almost 30,000 Tesla vehicles on the road. Fire incidents are one in 10,000. For gasoline cars, it’s one in 1,300. That doesn’t make any sense to us,” he said. “We should be applauded for how amazing our car is for never catching on fire relative to a gasoline car.”

While Tesla shares have rallied about 41 percent since a low of $120.50, much of it after the company said Jan. 14 that fourth-quarter sales exceeded targets, they’re down about 12 percent from a record in September -- with some of the biggest tumbles occurring after safety-related news.

Tesla fell 0.6 percent to $170.01 at 4:00 p.m. in New York.

Tesla’s latest regulatory challenge dates to November, when a fire broke out while a Model S was recharging in an Irvine, California, garage. The company concluded the fire was caused by house wiring. Orange County fire officials said it could have been the house or the car’s charging cable.

Non-Recall Recall

Tesla issued an over-the-air software update that enables a charging Model S to reduce amperage if heating is detected. While Musk said that fix removed almost all of the safety risk, the company said Jan. 10 it would mail replacement adapters to owners, after Bloomberg News reported that at least six incidents of plugs smoking or melting had been discussed on a Tesla owner website.

The plug adapter replacement showed up as a recall notice on NHTSA’s website Jan. 13, which along with media reports about it set off Musk’s swipe on Twitter. Company officials said it wasn’t a true recall because customers could swap the parts themselves without taking their cars to a service center.

“NHTSA may sometimes call this a recall,” Jerome Guillen, Tesla’s vice president of worldwide sales and service, told reporters at the North American International Auto Show in Detroit Jan. 14. “We call it modern technology.”

Battery Probe

NHTSA Deputy Administrator David Friedman downplayed any tensions with Tesla during an interview at the auto show on Jan. 14. The company is doing a good job of communicating with and responding to the agency, he said.

“The other dynamics aren’t important,” Friedman said.

The agency began investigating the Model S on Nov. 19 after two U.S. fires that started after drivers ran over road debris that punctured the cars’ lithium-ion battery packs. Investigators sent a set of detailed questions that the company answered within a week, Musk said Jan. 10.

“We’re really quite keen to have NHTSA close the investigation or ask us for more information so we can provide it,” Musk said. “We would really, really like to get this done.”

Tesla is replacing the plug adapters even though it’s a “slight gray area” who is responsible for overheating where the plug meets the wall socket, he said.

House Wiring

Musk said the company shouldn’t need to report a safety issue that isn’t under NHTSA’s responsibility. It would be a bit silly to report to the car-safety regulator that somebody’s house had inadequate or faulty wiring, he said.

“What are they supposed to do about that, issue a recall for the house?” Musk said.

Musk’s comments evoke what other auto executives said as agency got its start during the 1970s, before a series of court cases established its legal authority, said Clarence Ditlow, executive director of the Washington-based Center for Auto Safety.

Chrysler Group LLC earlier this year threatened a lawsuit, which would have been the first court challenge in decades, over NHTSA’s effort to force a recall of 2.7 million Jeep Grand Cherokee and Jeep Liberty sport-utility vehicles. It eventually backed off, negotiating a cheaper repair to rear-mounted fuel tanks that covered about half as many vehicles.

Companies rarely fight NHTSA’s requests, and the agency is increasingly forcing recalls on accessories ranging from iPhone chargers to electronic ice scrapers under threat of court action, Ditlow said.

Official Notice

That Tesla sent regulators an official recall notice, even as Musk debated the use of the word, indicates the company’s lawyers recognized the plug adapter as a safety defect under the law and that the company could be fined $35 million for not telling NHTSA about it, Ditlow said.

Carmakers accept that they have to work with NHTSA and that they can’t control the timing or results of probes, Kelley Blue Book’s Nerad said. Having a good relationship with the regulator can help narrow the scope of recalls when they’re necessary, Nerad said.

Friedman, in his interview, said NHTSA has a dual role of enforcing auto safety and promoting improvements in fuel efficiency. That makes it doubly important to determine whether there’s a defect with the Model S, he said.

“We’re taking this issue seriously,” said Friedman, who will be the agency’s acting chief when Administrator David Strickland departs this month for a job with the Venable law firm. “People aren’t used to the new challenges that electric vehicles pose.”

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

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

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