• Tesla unveiled its “autopilot” system on October 14, 2015.  The release by the “Tesla Motors Team” included the following: 

“Tesla's commitment to developing and refining the technologies to enable self-driving capability is a core part of our mission.  Tesla Autopilot relieves drivers of the most tedious and potentially dangerous aspects of road travel. We're building Autopilot to give you more confidence behind the wheel, increase your safety on the road, and make highway driving more enjoyable.”[1]

• On May 7, 2016, a fatal crash occurred in Florida in which a 40-year old driver was killed after the “autopilot” of the Tesla he was driving failed to detect an 18-wheel tractor trailer which was making a left turn. The car apparently did not break and the driver was killed. 

• On July 14, 2016, the independent, non-profit organization, Consumer Reports, issued a report calling on Tesla to immediately disable “autopilot” until it could be made safer.  The Consumer Reports statement included the following:

“"By marketing their feature as ‘Autopilot,’ Tesla gives consumers a false sense of security," says Laura MacCleery, vice president of consumer policy and mobilization for Consumer Reports. "In the long run, advanced active safety technologies in vehicles could make our roads safer. But today, we're deeply concerned that consumers are being sold a pile of promises about unproven technology. 'Autopilot' can't actually drive the car, yet it allows consumers to have their hands off the steering wheel for minutes at a time. Tesla should disable automatic steering in its cars until it updates the program to verify that the driver's hands are on the wheel."[2]

The NHTSA (National Highway Traffic Safety Administration) and the NTSB (National Transportation Safety Board) have launched investigations.[3]

• On July 11, 2016, the Wall Street Journal reported: 

 “The Securities and Exchange Commission is investigating whether Tesla breached securities laws by failing to disclose to investors a fatal crash in May involving an electric car that was driving itself, a person familiar with the matter said, heightening scrutiny of how the company handled the information.”[4]

The thrust of the SEC investigation is whether Tesla should have disclosed the crash as material information for shareholders and investors.  Specifically, for example, Tesla did not disclose the accident prior to selling $2 Billion in stock including 2.8 million shares sold by CEO Musk personally.  The disclosure was also delayed until after the Company announced its bid to takeover SolarCity.

• The seriousness of these investigations by themselves should be of concern to investors.  However, we are additionally troubled by contradictory statements made by Tesla spokespeople regarding the accident and investigation.  On July 5, 2016, CEO Musk tweeted that the accident was not material to Tesla and that an article by Fortune Magazine on the issue was “BS”.

However, on May 10, 2016, Tesla filed a Form 10-Q with the SEC in which they indicated that such events would clearly be material. According to Fortune Magazine, the SEC filing indicated that: 

“a fatal crash related to its autopilot feature, even a single accident, would be a material event to ‘our brand, business, prospects and operating results’”.[5]  

The SEC Form 10-Q also disclosed that Tesla does not carry liability insurance regarding claims connected to its “Autopilot” feature.[6]In our estimating, when serious production and safety issues are relegated to “tweets” or flippant statements by the CEO, it is further indication of management problems and lack of independent Board oversite at Tesla.