Poorly written legalese -- that's what this whole thing is about.
Last Friday, Tesla Motors (NASDAQ:TSLA) shares fell nearly 5% on reports that NHTSA was seeking additional information regarding potential issues around the Model S suspension, wiping out $1.5 billion in market value.
A Tesla customer recently experienced a ball joint failure on a 2013 Model S with 70,000 miles, but the vehicle was out of warranty so the customer was facing a hefty repair bill of more than $3,000. After escalating the issue to service executives, since suspensions should last well over 100,000 miles under normal conditions, the electric-car maker had offered to repair the suspension out of goodwill for the sake of customer satisfaction. However, Tesla asked the customer to sign a Goodwill Agreement, which included a confidentiality provision.
Longtime Tesla bear Ed Niedermeyer dug up the thread at the Tesla Motors Club forum and blogged about the issue on his site, alleging that Tesla is actively trying to hide vehicle defects from safety regulators.
Tesla fires back
Tesla posted an official response to the situation on its blog, defending the overall safety of the Model S. The company maintains that the legal language was not intended to prevent customers from reporting vehicle concerns to National Highway Traffic Safety Administration (NHTSA), which is one of the most important methods for regulators to find out about possible vehicle problems.
You can imagine other reasons why Tesla might ask the customer to keep the situation under wraps. The last thing the company wants is for the owner to tell other Tesla customers about a pricey out-of-warranty repair that he was able to finagle for free, which would only lead to an influx of similar requests. There's also a tendency for any negative storyline around Tesla to be blown out of proportion (sound familiar?), so the company may also prefer that the customer not publicize the issue too broadly -- particularly if it's an isolated incident.
The $1.5 billion sentence
Almost everyone (including Niedermeyer) agrees that the possibility of an underlying mechanical problem is not the issue. Vehicles experience problems all the time and need to be recalled; this is par for the course. Rather, the focus is on the wording in the Goodwill Agreement. Specifically, here is the sentence in question:
You agree to keep confidential our provision of the Goodwill, the terms of this agreement and the incidents or claims leading or related to our provision of the Goodwill.
The rest of the document reads like standard legalese, where the customer releases Tesla of additional claims and other liabilities in exchange for covering the repairs. The customer also cannot sue Tesla based on the claim or incident.
In response to the situation and NHTSA's concerns around the wording, Tesla has agreed to change the wording to explicitly state that customers are not barred from reporting concerns to regulators, and it is not attempting to inhibit regulatory processes designed for consumer safety.
In a series of social media posts, Tesla CEO Elon Musk also subsequently shared additional information that NHTSA has now also concluded that there are no defects related to the Model S suspension system and it does not require additional information.
NHTSA confirmed today that they found no safety concern with the Model S suspension and have no further need for data from us on this matter— Elon Musk (@elonmusk) June 10, 2016
Perhaps more interesting is that the vast majority of suspension complaints that were submitted to NHTSA are fake, providing fake location information and/or VIN numbers.
Would seem to indicate that one or more people sought to create the false impression of a safety issue where none existed. Q is why?— Elon Musk (@elonmusk) June 10, 2016
If the remaining three complaints, one of which includes the specific vehicle in question at the heart of this story, are valid, that's still three out of the over 120,000 cumulative Model S sedans that Tesla has delivered to date. Hardly widespread.
Furthermore, if you look at a few of the complaints, they do sound quite suspicious.
A troll down under
In at least one complaint filed with NHTSA, the user explicitly states, "PLEASE NOTE, I AM NOT MAKING FRIVOLOUS COMPLAINTS," while acknowledging that the user provided a fake U.S. address in order to be able to submit the complaint since it is a required field on the submission form. I'm pretty sure that real consumers with genuine concerns do not go to the extra effort of clarifying that their complaints are not frivolous.
The evidence suggests that at least some, if not all, of these fraudulent complaints are being submitted by an Australian man named Keef Wivaneff, a self-proclaimed whistleblower that seeks to uncover "GREEN SCAMS." Wivaneff is also a longtime known Tesla troll, and even maintains an entire Flickr account dedicated to aggregating pictures of crashed Tesla vehicles. One of the NHTSA complaints links directly to this Flickr account.
Wivaneff has also been known to peruse the Tesla Motors Club forums under various usernames attempting to spread negative storylines. Other hobbies apparently include flooding the NHTSA complaint inbox with pictures off the internet with no context about the actual crash.
It's hard to imagine this type of situation being blown this far out of proportion for any other automaker. Consider any company in any industry including some seemingly nefarious sentence in their Terms of Service (which everyone carefully reads) by mistake. That this issue is being significantly overplayed is an understatement.
The good news is that this entire storyline is over almost as soon as it started. There is no widespread suspension problem and Tesla has updated its legalese. Time to move on.
Evan Niu, CFA owns shares of Tesla Motors, and has the following options: long January 2018 $180 calls on Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.