Did Tesla wait too long to inform investors about self-driving car crash?

The SEC is investigating Tesla, asking whether the company should have more quickly informed its investors of the fatal collision of one of its self-driving cars.

First Look

The Securities and Exchange Commission is investigating Tesla Motors Inc. for a possible breach of securities law for failing to inform investors of a fatal crash involving a self-driving car in May, a person familiar with the matter told The Wall Street Journal on Monday.

Tesla immediately alerted the National Highway Traffic Safety Administration (NHTSA), the US car-safety regulator, about the May 7 accident. The driver, Joshua Brown, was killed when a tractor trailer drove across a divided highway in front of his Model S, which was operating in autopilot.

But Tesla did not consider the accident a “material” event, or a development a reasonable investor would consider important, as The Wall Street Journal reported, so did not disclose it to investors in a securities filing.

Tesla issued a statement Monday afternoon saying it has "not received any communication from the SEC regarding this issue,” and the Journal informant said that the SEC probe is still in a “very early stage” and might not lead to any regulatory enforcement action.

Tesla learned of the crash soon after it happened and informed auto-safety regulators on May 16 that somebody had died, which Tesla said was sooner than rules require. At that point, the company’s investigation into the accident had just begun and it wasn’t immediately apparent that the car was in autopilot at the time of the crash.

The NHTSA probe into the circumstances of the crash wasn’t made public until June 30. With the investigations ongoing, Tesla raised about $1.46 billion through a stock sale on May 18 and 19. The company didn’t disclose the accident to purchasers of the stock, which included 2.8 million shares sold by Tesla Chief Executive Elon Musk.

“I didn’t know there had been an Autopilot incident at the time of the fundraising,” Mr. Musk said in an interview with The Wall Street Journal. “What we told NHTSA [on May 16] was just that somebody died – it wasn’t that there was an Autopilot incident. I also don’t think it’s material, but I didn’t know about it.”

James Spindler, a law professor at the University of Texas at Austin, told Automotive News that the fact that Tesla’s stock rose on the first day of trading after the NHTSA announced the crash and investigation supported Musk’s claim that the event was non-material to investors.

In announcing the National Highway Traffic Safety Administration probe into the crash, Tesla highlighted that the May 7 accident was the first known fatality in over 130 million miles where Autopilot was activated, compared to a fatality every 94 million miles among all American vehicles. Nonetheless, Tesla is under increased scrutiny, as Monday marked the third crash of an electric vehicle in autopilot in the past two weeks.