Editors’s Note: Earlier this week, Fortune published two articles questioning whether Tesla and its CEO Elon Musk broke securities laws in not disclosing a fatal accident in which the company’s much-hyped autopilot feature was in use. One, by former Fortune Editor-at-Large Carol Loomis said that the car crash was a material event and should have been disclosed to potential investors in Tesla’s stock offering, which was completed at least a week after Tesla knew about the accident. A follow-up article reported that Tesla itself stated in a financial filing just days after the accident that an injury or death involving its autopilot feature and the resulting liability claim against the company would have a “material adverse effect on our brand, business, prospects and operating results.”
On Wednesday evening, Tesla sent the below response to Fortune, reprinted in full below. In reporting both articles, Fortune reached out to both Tesla and Musk for comments, in particular seeking to find out when exactly they knew about the accident, and why it wasn’t disclosed. Fortune fully stands by its reporting and both articles. Here is Tesla’s response:
Fortune’s article, “Tesla Said an Autopilot Crash Would Be ‘Material’ Before Elon Musk Said It Wasn’t,” is fundamentally incorrect. First, it mischaracterizes Tesla’s SEC filing. Here is what Tesla’s SEC filing actually says:
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
Product liability claims could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected resulting in personal injury or death. We also may face similar claims related to any misuse or failures of new technologies that we are pioneering, including autopilot in our vehicles and our Tesla Energy products. A successful product liability claim against us with respect to any aspect of our products could require us to pay a substantial monetary award. Our risks in this area are particularly pronounced given the limited number of vehicles and energy storage products delivered to date and limited field experience of our products. Moreover, a product liability claim could generate substantial negative publicity about our products and business and would have material adverse effect on our brand, business, prospects and operating results. We self-insure against the risk of product liability claims, meaning that any product liability claims will have to be paid from company funds, not by insurance.
This is just stating the obvious. One of the risks facing Tesla (or any company) is that someone could bring product liability claims against it. However, neither at the time of this SEC filing, nor in the several weeks to date, has anyone brought a product liability claim against Tesla relating to the crash in Florida.
Next, the article entirely ignores what Tesla knew and when, nor does it even asked the questions. Instead, it simply assumes that Tesla had complete information from the moment this accident occurred. This was a physical impossibility given that the damage sustained by the Model S in the crash limited our ability to recover data from it remotely.
When Tesla told NHTSA about the accident on May 16, we had barely started our investigation. Tesla informed NHTSA because it wanted to let NHTSA know about a death that had taken place in one of its vehicles. It was not until May 18 that a Tesla investigator was able to go to Florida to inspect the car and the crash site and pull the complete vehicle logs from the car and not until the last week of May that Tesla was able to finish its review of those logs and complete its investigation. When Fortune contacted Tesla for comment on this story during the July 4 holiday, Fortune never asked any of these questions and instead just made assumptions. Tesla asked Fortune to give it a day to confirm these facts before it rushed its story to print. They declined and instead ran a misleading article.
Here’s what we did know at the time of the accident and subsequent filing:
1) That Tesla Autopilot had been safely used in over 100 million miles of driving by tens of thousands of customers worldwide, with zero confirmed fatalities and a wealth of internal data demonstrating safer, more predictable vehicle control performance when the system is properly used.
2) That contrasted against worldwide accident data, customers using Autopilot are statistically safer than those not using it at all.
3) That given its nature as a driver assistance system, a collision on Autopilot was a statistical inevitability, though by this point, not one that would alter the conclusion already borne out over millions of miles that the system provided a net safety benefit to society.
Given the fact that the “better-than-human” threshold had been crossed and robustly validated internally, news of a statistical inevitability did not materially change any statements previously made about the Autopilot system, its capabilities, or net impact on roadway safety.
Finally, the article makes two other false assumptions. First, it assumes that this accident was caused by an Autopilot failure. To be clear, this accident was the result of a semi-tractor trailer crossing both lanes of a divided highway in front of an oncoming car. Whether driven under manual or assisted mode, this presented a challenging and unexpected emergency braking scenario for the driver to respond to. In the moments leading up to the collision, there is no evidence to suggest that Autopilot was not operating as designed and as described to users: specifically, as a driver assistance system that maintains a vehicle’s position in lane and adjusts the vehicle’s speed to match surrounding traffic.
The article never even addresses that point. Second, the article assumes that, putting all of these other problems aside, a single accident involving Autopilot, regardless of how many accidents Autopilot has stopped and how many lives it has saved, is material to Tesla’s investors. On the day the news broke about NHTSA’s decision to initiate a preliminary evaluation into the incident, Tesla’s stock traded up, not down, confirming that not only did our investors know better, but that our own internal assessment of the performance and risk profile of Autopilot were in line with market expectations.
The bottom line is that Fortune jumped the gun on a story before they had the facts. They then sought wrongly to defend that position by plucking boilerplate language from SEC filings that have no bearing on what happened, while failing to correct or acknowledge their original omissions and errors.