Why the End of the NHTSA Probe May Not Help Tesla

Tesla Motors Inc. (NASDAQ: TSLA) won a victory Friday. It agreed to install a new titanium shield and two defector plates beneath the battery of its Model S luxury car to minimize the threat of fires if objects hit the vehicles. In return, the National Highway Transportation Safety Administration (NHTSA) closed a probe into two fires that the vehicles suffered. Investors were delighted — at least for now.

Tesla shares bounced higher at the open after falling for seven sessions in the past 10. The biggest problems the company faces have more to do with an extremely pricey stock and dealer opposition to how it sells its cars than to its safety issues. UBS even issued a very cautious stance on its valuation in recent days.

Tesla said it began installing the new shielding in every new Model S starting on March 6. It will install the shield and deflector in the 22,000 vehicles built before that date if customers request it or as part of regular servicing.

Tesla will add an aluminum bar, a titanium plate and a second piece of aluminum to the vehicles designed specifically to stop the type of debris that caused fires in two Model S cars last year. The NHTSA said this shield, coupled with raising the height of the ride, should reduce damage to the underside of the cars and reduce fire risk. Tesla said this move is not a recall.

In a blog post complete with video, CEO Elon Musk maintained that the Model S was — and remains — just about the safest car on the road. There were no deaths or permanent injuries from the two accidents. But, he added:

There is significant value to minimizing owner inconvenience in the event of an impact and addressing any lingering public misperception about electric vehicle safety.

The Tesla announcement comes in contrast to how General Motors Co. (NYSE GM) reacted to first reports of defective ignition parts in 1.6 million vehicles, mostly Chevrolet Cobalts. It took years for the company to initiate a recall, which may damage its brand for years.

Tesla shares were up $7.98, or 3.9%, to $215.30 Friday morning and have traded in a 52-week range of $40.21 to $265. The shares are down 18% from their peak and more than 12% this month on valuation concerns. They are still up 43% this year after soaring 344% in 2013. The company faces opposition in many states because of its strategy of selling through showrooms as opposed to classic dealerships.

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