SEC probes Tesla on whistleblower’s claims about solar panel defects

Reuters

Tesla is under regulatory investigation after a whistleblower alleged the company failed to properly disclose fire risks associated with solar panel defects.

The investigation raises regulatory pressure on the world’s most valuable automaker, which already faces a federal safety probe into accidents involving its driver assistant systems. Concerns about fires from Tesla solar systems have been published previously, but this is the first report of investigation by the securities regulator.

The solar panel probe was revealed in a letter from the US Securities and Exchange Commission, which was made public in response to a Freedom of Information Act request by Steven Henkes, a former Tesla field quality manager. Henkes filed a whistleblower complaint about the solar systems in 2019 and asked the SEC for information about the report.

“We have confirmed with Division of Enforcement staff that the investigation from which you seek records is still active and ongoing,” the SEC said in a September 24 response to Henkes, declining his request to provide its records.

The SEC official said the letter should not be taken as an indication by the agency that violations of law had occurred. Reuters was able to confirm the response.

Henkes, a former Toyota Motor quality division manager, was fired from Tesla in August 2020 and he sued Tesla claiming the dismissal was in retaliation for raising safety concerns. Tesla did not respond to Reuters’ emailed questions, while the SEC declined to comment.

‘Risk of injury of users’

In the SEC complaint, Henkes said Tesla and SolarCity, which it acquired in 2016, did not disclose its “liability and exposure to property damage, risk of injury of users, fire etc to shareholders” prior and after the acquisition.

Tesla also failed to notify its customers that defective electrical connectors could lead to fires, according to the complaint.

Tesla told consumers it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down the system. It did not warn of fire risks, offer temporary shutdown to mitigate risk, or report the problems to regulators, Henkes said.

More than 60,000 residential customers in the US and 500 government and commercial accounts were affected by the issue, according to Henkes’ lawsuit filed in November last year against Tesla Energy over wrongful termination.

It is not clear how many of those remain after Tesla’s remediation program.

Henkes, a longtime quality manager at Toyota’s North American quality division, moved to SolarCity as a quality engineer in 2016, months before Tesla acquired SolarCity. After the acquisition, his duties changed and he became aware of the widespread problem, he told Reuters.

Henkes, in the SEC complaint, said he told Tesla management that the company needed to shut down the fire-prone solar systems, report to safety regulators and notify consumers. When his calls were ignored, he proceeded to file complaints with regulators.

“The top lawyer cautioned any communication of this issue to the public as a detriment to the Tesla reputation. For me this is criminal,” he said in the SEC complaint.

Litigation and concerns over faulty connectors and Tesla solar system issues stretch back several years. Walmart in a 2019 lawsuit against Tesla said its roof solar system led to seven store fires. Tesla denied the allegations and the two companies ultimately reached a settlement.

Business Insider reported in 2019 about Tesla’s program to replace defective solar panel parts.

Several residential customers or their insurers have sued Tesla and parts supplier Amphenol over fires related to their solar systems, according to documents provided by legal transparency group PlainSite.

Henkes also filed a complaint with he U.S. Consumer Product Safety Commission, which CNBC reported this year was investigating the case. CPSC and Amphenol didn’t respond to request for comment.

Shares of Tesla fell 1% in premarket trading on news of the probe.

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