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Tesla Motors to reportedly face SEC investigation for possible Securities-Law breach: WSJ

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Tesla Motors, spearheaded by the visionary founder Elon Musk has garnered much praise for its electric vehicles, but some recent unfortunate events has put the automobile company in a bind. With the ongoing investigation of the two recent car crashes, Tesla is now facing an investigation by the U.S Securities and Exchange Commission.

The SEC is kind-of using the situation at hand to its benefit, and striking when the iron is still hot. It has launched a probe into company practices and is investigating whether Tesla Motors breached security laws by failing to disclose the details of a fatal car crash to its investors.

According to WSJ sources, the SEC investigators are scrutinizing the information handling practices of the company. It believes that Tesla should have disclosed the Model S car crash operating in Autopilot Mode(a feature that lets the car drive itself under certain conditions) as a ‘material event’ to the investor board. The sources say that the investigation is at a very nascent stage and it is unclear what action the SEC will take.

A Tesla spokeswoman has, however, pointed out that the May 7 crash didn’t require disclosure to investors, as the blogpost discerning the findings of the car crash provided all relevant information. She further added that,

Tesla has not received any communication from the SEC regarding this issue.

But it is also important to notice that customary reporting of fatal auto accidents as ‘material events’ to investors isn’t common practice in the industry, specially those involving evolving auto-tech technology.

Car Crash Investigation

If you’re unknown of the details of the car crash events that the SEC is now planning to investigate the company about, then let me brief you a little about the same. This is the first known fatality in just over 130 million miles that have been since the launch of the Autopilot Mode in mid-2015.

The turn-of-events began on May 7, when a 40-year old Tesla Model X owner, Joshua Brown was killed on collision with a semi-truck that pulled in front of him on Florida highway. This unfortunate event has since then been followed by two more car crashes, which saw the Model X go off-road and topple simultaneously. No one was injured in these crashes.

Right after the crash, Tesla intimated U.S car-safety regulator, National Highway Traffic Safety Administration(NHTSA) of the situation and started investigating whether the Model X was using the AutoPilot Mode at the time of the crash. At the same time, NHTSA also opened an investigation into the fatal car crash and the autonomous AutoPilot technology developed by Tesla.

Last week, Tesla announced the results of its ongoing investigation into the data recovered from the May 7 car crash. It unfortunately concluded that the AutoPilot system was in use at the time of the accident. NHTSA also reached the same conclusion in their findings on the same day.

And this is where the SEC steps in. It maybe after Tesla for not disclosing the details of the accident( specially that AutoPilot Mode was on) in the regulatory filing, when it was planning to tell $2 billion worth of stock in the market on May 18. The fund-raising which was reportedly triggered due to tax requirements, included nearly 2.8 million share of CEO Elon Musk.

But when asked about the non-disclosure of accident details including the AutoPilot functionality in the crash, Musk answered that,

I didn’t know there had been an Autopilot incident at the time of the fundraising. What we told NHTSA [on May 16] was just that somebody died–it wasn’t that there was an Autopilot incident. I also don’t think it’s material, but I didn’t know about it.

Future of the Company

With no other automobile player in the market providing autonomous driving in their vehicles, Tesla has already zoomed past them with their pioneer AutoPilot tech released last year. But, bloating the events to a larger extent could tarnish the company’s image and even lead to product liability being filed against them.

In accordance to the latest quarterly report, Musk has been very concerned about the future of the company and its financial status due to some liability claim against them. In a recent regulatory filing, the company has added that,

[Liability claims] could generate substantial negative publicity about our products and business and would have material adverse effect on our brand, business, prospects and operating results.

The case is complicated to comment upon due to the second nature of the AutoPilot technology which is still in testing phase, but has been marketed aggressively by Musk himself. But he has also been very cautious in these proceeding and added that,

[Tesla] is designed for your driving comfort and convenience and is not a collision warning or avoidance system.

Plus, Musk has recently also tweeted about an upcoming change in the vision of the company which has been dubbed as the ‘Top Secret Masterplan Part 2‘. The company is looking for the possible acquisition and consolidation of solar panel startup SolarCity with its own automobile arm.

A hands-on guy fascinated by new apps, technologies and enterprise products.

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