The US securities regulators have opened an investigation into Tesla Inc over a whistleblower complaint that the company did not notify shareholders and the public of the fire risks associated with solar panel system defects over several years, according to a letter from the agency.
The probe raises regulatory pressure on the world's most valuable automaker, which is already facing a federal safety probe into accidents involving its driver assistant systems. Concerns about fires from Tesla solar systems have been published before, but this is the first report of an investigation by the securities regulator.
The U.S. Securities and Exchange Commission disclosed the Tesla probe in response to a Freedom of Information Act request by Steven Henkes, a former Tesla field quality manager who filed a whistleblower complaint on the solar systems in 2019 and asked the agency for information about the report.
The SEC said in a Sept. 24 response to Henkes that the investigation from which you seek records is still active and ongoing, and that it has been confirmed by Division of Enforcement staff. The letter should not be taken as an indication by the agency that violations of law had occurred, the SEC official said. The response was confirmed by Reuters.
Henkes, a former Toyota Motor quality division manager, was fired from Tesla in August 2020 and sued Tesla, claiming the dismissal was in retaliation for raising safety concerns. Tesla did not respond to Reuters' emailed questions, while the SEC didn't respond.
In the SEC complaint, Henkes said Tesla and SolarCity did not disclose their liability and exposure to property damage, risk of injury to users, fire, etc., to shareholders prior to and after the acquisition.
According to the complaint, Tesla didn't notify its customers that defective electrical connectors could lead to fires.
Tesla told consumers it needed to conduct maintenance on the solar panel system in order to avoid a failure that could shut down the system. Henkes said it did not warn of fire risks, offer temporary shutdown to mitigate risk, or report problems to regulators.
More than 60,000 residential customers in the U.S. and 500 government and commercial accounts were affected by the issue, according to a lawsuit filed in November last year against Tesla Energy.
It is not clear how many of them remain after Tesla's remediation program.
Henkes, a longtime quality manager at Toyota's North American quality division, moved to SolarCity in 2016 as a quality engineer 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 Tesla needs 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 against any communication of this issue to the public as a detriment to the reputation of Tesla. This is a criminal offense, he said in the SEC complaint.
There have been a lot of litigation over faulty connectors and Tesla solar system issues for a long time. The article US-walmart tesla-solar lawsuit-idUSKCN 1 VA 26 B against Tesla said the latter's roof solar system led to seven store fires. Tesla denied the allegations and settled.
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 the legal transparency group PlainSite.
Henkes also filed a complaint with the U.S. Consumer Product Safety Commission, which CNBC reported this year was investigating the case.