SEC probes Tesla over whistleblower claims on fire-prone solar panel defects - Reuters

• Henkes alleged that he told Tesla about the need to shut down the fire-prone solar systems, report to safety regulators, and notify consumers, but he was fired

• In 2019 Walmart said Tesla’s solar roof system had led to seven store fires, but later the two companies settled

U.S. Securities and Exchange Commission has opened an investigation into Tesla Inc over a whistleblower complaint that the company failed to properly notify its shareholders and the public about fire risks associated with its solar panel systems.

Reuters on Monday reported that the securities regulator is proceeding with an investigation after Steven Henkes, a former Tesla employee, filed a whistleblower complaint in 2019, dropping the shares of the company more than 3% in early trading.

The news of the SEC probe sent the shares of Elon Musk’s company more than 20% off their recent 52-week high on November 4.

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SEC disclosed the Tesla probe in response to a Freedom of Information Act request by Henkes, who worked as a solar field quality manager and was fired in August 2020, according to Reuters, citing communications between the agency and the whistleblower dated September 24.

After dismissal from the company, Henkes sued Tesla claiming it was in retaliation for raising safety concerns.

“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 response to Henkes, declining his request to provide its records.

However, it also mentioned that the letter should not be taken as an indication that law violations had occurred, Reuters reported.

Tesla’s solar roof

There are more than 60,000 residential customers and 500 government and commercial accounts in the U.S. that were affected by the issue, Reuters reported citing Henkes’ lawsuit filed in November 2020 against Tesla Energy over wrongful termination.

Although Tesla started a remediation program, how many are still affected is unclear.

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

Henkes also said Tesla told consumers that it needed to conduct maintenance on the solar panel system to avoid a failure that could shut down it. It did not warn its customers that the defective electrical connectors could lead to fires, offer a temporary shutdown to mitigate risk or report the problems to regulators.

The whistleblower

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

In the SEC complaint, Henkes mentioned that he told Tesla management that the company needs to shut down the fire-prone solar systems, report to safety regulators, and notify consumers.

“The top lawyer cautioned any communication of this issue to the public as a detriment to the Tesla reputation. For me, this is criminal,” Henkes said in the SEC complaint, which he filed after his calls were ignored.

Henkes also filed a complaint with the U.S. Consumer Product Safety Commission, which CNBC reported this year, stating that the CPSC was investigating the case.

Regulatory pressure

The probe increases regulatory pressure on the world’s most valuable carmaker, which is already facing a safety probe into accidents involving what it calls autopilot — the driver assistant system the EV maker provides with its vehicles,

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Although litigation and concerns over Tesla’s faulty connectors and solar system issues stretch back several years, it is the first report of an investigation launched by the securities regulator.

In a 2019 lawsuit, Walmart said Tesla’s solar roof system has led to seven store fires. Tesla denied the allegations, and the two companies settled.

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

Picture Credit: SolarReviews