Tesla Faces Inquiry From Safety Agency Over Fires (NASDAQ:TSLA)

Tesla MotorsThe Tesla Motors electric Model S sedan is now in the crosshairs of a federal safety investigation, according to an announcement from the company. Regulators are examining the high-end vehicle to determine the cause of two battery fires that have occurred with the vehicles. Regulators are wondering whether the design of the vehicle and its advanced lithium-ion battery pack are the source of the problem. The investigation could take months to complete and may contain crash tests of the vehicle well beyond the ordinary government testing that is usually done.

The issue of safety arose because the car has caught fire on three occasions, twice in the United States and once in Mexico, in less than two months. The National Highway Traffic Safety Administration will scrutinize the vehicle to see if it can find any defective elements that could be causing the issues. The regulators want to see if the size, shape or chemical makeup of the car’s battery makes it prone to fires when its lithium-ion cells are punctured in a collision. The Nissan Leaf, which is currently the best-selling all-electric car on the market, has not had any reported fires.

Elon Musk, Tesla’s chief executive, said the company welcomed the inquiry. The investigation comes at a critical juncture for the car and the company. The design of the Model S has been defended repeatedly by Mr. Musk and other company executives. Regulators and independent publications like Consumer Reports gave the vehicle early accolades for its safety. The Model S garnered also high praise for its styling, performance and eco-friendly electric power after it was released for sale to the public.

In response to the safety issues raised, Tesla said it would increase the ground clearance of the Model S and pledged to cover fire damage with its current vehicle warranty. However, the changes made by Tesla will not divert the focus of the investigation or reduce the potential for the safety agency to order a vehicle recall or structural changes to make the cars safer. Karl Brauer, an analyst with the auto research firm Kelley Blue Book, said, “Adjustments or modifications of the vehicle will not affect the inquiry. That is out of Tesla’s hands now, and the range of potential outcomes is very wide.”