Why Tesla Stock Got Clobbered Today

What happened

Shares of Tesla ( TSLA -0.59{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} ) ran into a ditch Monday morning, sliding 4.8{cfdf3f5372635aeb15fd3e2aecc7cb5d7150695e02bd72e0a44f1581164ad809} as of 10 a.m. EDT on twin negative news items from Reuters and The New York Times.

So what

Let’s cover the more topical news from Reuters first. Remember how last week, Tesla stock got a brief pop, and investors had a chuckle, over news that Tesla was selling a limited edition “Cyberwhistle” shaped like its long-awaited (and still not here) Cybertruck? Well, today we learned what that inside joke was all about.

Turns out, a whistleblower within Tesla’s solar systems division (the artist formerly known as SolarCity) is alleging to the Securities and Exchange Commission that the company “failed to properly notify its shareholders and the public of fire risks associated with solar panel system defects over several years,” reports Reuters. The SEC is taking the allegations seriously and has opened an investigation. Although both the SEC and Tesla declined to comment, Reuters reports that the scale of the scandal could be significant, affecting “more than 60,000 residential customers in the U.S. and 500 government and commercial accounts.”  

Meanwhile, The New York Times is reporting that Tesla “may have undermined safety in designing its Autopilot driver-assistance system” for electric cars. This second report focuses on Elon Musk’s desire to have Autopilot rely exclusively on camera data to interpret its environment, rather than supplementing cameras with radar and lidar sensors as other car companies are trying to do. According to NYT, the National Highway Traffic Safety Administration is now investigating whether this decision might have contributed to “at least 12 accidents in which Teslas using Autopilot drove into parked fire trucks, police cars and other emergency vehicles.”  

NHTSA is also considering whether Musk may have misled car buyers into thinking that Autopilot’s “full self driving” (FSD) capability was what its name suggests — a fully autonomous system — when its actual capabilities were, in Musk’s own words, “not great.”

Image source: Getty Images.

Now what

How big a risk do these twin investigations pose to Tesla’s business? The SEC investigation, I suspect, will produce at most a fine from the agency and some reputational damage to Tesla’s relatively tiny energy generation and storage business, which, honestly, doesn’t produce a whole lot of profit for Tesla in any case. Of the two news items, I’d say it’s the less significant.

There’s greater risk of fines, recall costs, and reputational damage in the NHTSA investigation. But even there, well, with Tesla continuing to produce data showing that Tesla cars using Autopilot are crashing at a rate of only one accident per 4.41 million miles driven (versus a crash every 484,000 miles for ordinary drivers in ordinary cars), the data sure seems to suggest that — headlines notwithstanding — Autopilot increases driver safety by a factor of nine, rather than subtracting from it at all.  

With the stock down only a few percentage points, investors — while a bit nervous today — by and large seem to think that Tesla will come out of both of these investigations looking just fine.