Tesla (TSLA) Stock Falls After NHTSA Announces Autopilot Investigation

The National Highway Traffic Safety Administration (NHTSA) is investigating Tesla, Inc.'s (TSLA) Advanced Driver Assistance System (ADAS) to assess its self-driving technology after reports that detailed its vehicles involvement in a series of crashes. The investigation is focused on Tesla Models Y, X, S, and 3 from 2014 to 2021 model years. It will investigate crashes or accidents that occurred after January 2018.

News of the NHTSA's inquiry yesterday crashed Tesla's price by more than 5% to $681. Tesla's stock price, which is still up by 7% on a year-over-year basis, is at $686 as of this writing.

Why Is the NHTSA Investigating Tesla?

In its release announcing the investigation, the NHTSA stated there have been 11 crashes, 17 injuries, and one fatality involving the Autopilot feature since 2018. According to the agency, most Autopilot incidents occurred after dark and "included scene control measures such as first responder vehicle lights, flares, an illuminated arrow board, and road cones." It said its report will assess "technologies and methods" for Autopilot and also probe contributing circumstances to the crash.

Tesla's Autopilot feature has been celebrated and criticized on social media for its capabilities. While the company's manuals instruct the drivers to put their hands on the steering wheel in Autopilot mode, news reports have catalogued cases in which drivers stop engaging with the vehicle completely.

Other car manufacturers have introduced similar functionality in their vehicles. For example, General Motors Company's (GM) Super Cruise feature, available in its Cadillac vehicles, enables hands-free driving. However, it uses facial recognition technology to measure driver engagement with the vehicle. The feature turns on hazard lights and brings the vehicle to a stop if it detects driver disengagement. Tesla vehicles stop after 60 seconds if the driver ignores Autopilot's warning messages.

Tesla has said that the final goal for its vehicles is Full Self-Driving (FSD). Currently, the feature is in beta stage of development.

Will the Investigation Affect Tesla's Share Price?

During an appearance on Yahoo Finance yesterday, Wedbush analyst Dan Ives said the NHTSA's move had taken the "bloom off the rose" of the electric car maker’s shares for investors. " … This is definitely a step back," he said. "And now Tesla and Musk need to navigate this to make sure they get onto the other side successfully. And I think that's really right now a bit of the uncertainty that you're seeing in the stock."

The worst-case scenario for Tesla is possible incrimination in a crash or scrutiny over a software defect. That could result in a possible recall of its cars. But the Palo Alto, California-based company has escaped censure from government agencies in the past, insisting that drivers and contributing circumstances are to blame for Autopilot incidents.

Previous inquiries have proved Tesla right. For example, a 2017 investigation into a fatal Florida crash concluded that there was no "safety-related defect" in Tesla's vehicles and that the issue did not warrant further investigation.

To be sure, the investigation is among a series of problems buffeting Tesla as it expands overseas and ramps up production within the United States. The company faces intensifying competition from established auto makers accelerating into the electric vehicle category. It has also faced safety concerns in China, which is the biggest market for electric vehicles, and was forced to recall nearly 300 vehicles. The Wall Street Journal says that a combination of these factors and the car company's massive valuation in the markets should give "sensible investors a reason to pump the brakes."