Tesla Agrees to Pay Model S Owners $1.5 Million For Reducing Battery Power in Their Vehicles

author: Eric Walz   

Tesla has agreed to pay 1,743 Model S sedan owners $1.5 million to settle claims that an over-the-air update, pushed to their Model S electric sedans in May 2019, reduced their battery's charging rate, maximum capacity and overall range.

The lawsuit is one of the most unusual in the auto industry, as it is a direct result of a software update and not a mechanical issue with the vehicles.

According to documents filed with the U.S. District Court in San Francisco that were obtained by CNBC, the proposed settlement would have Tesla paying $1.5 million into a fund that would pay owners for the reduced vehicle performance they experienced after Tesla pushed out an over-the-air software update that reduced battery power. 

The fees would cover the plaintiffs' attorney fees and costs, which works out to around $625 for Tesla owners affected by the software update. Attorneys fees amount to about 25% of the settlement funds. 

Reuters first reported on the new filings in the class action suit filed on behalf of Model S owner David Rasmussen, which accused Tesla of "computer fraud" over the software update.

Rasmussen owned a 2014 Tesla Model S P85 that he purchased from a private third party seller.

The software update in question was issued by Tesla after a high-profile battery fire in Hong Kong in a shopping mall parking garage involving a Model S in May 2019. The update revised the thermal battery management settings to help prevent the battery from overheating, including while charging.

A similar fire involving a Model S was reported in Germany on July 30, 2019, when the vehicle was unoccupied.

At the time, Tesla called the software update a "precautionary measure" and released the following statement, "As we continue our investigation of the root cause, out of an abundance of caution, we are revising charge and thermal management settings on Model S and Model X vehicles via an over-the-air software update that will begin rolling out today, to help further protect the battery and improve battery longevity."

Rasmussen however, was a tech-savvy Tesla owner and had been thoroughly tracking his vehicle's performance over time. After his Model S received the update, he immediately noticed performance degradation in his Model S, including reduced range and longer charging times, which he said reduced the value of his vehicle. 

Rasmussen's attorney, Edward C. Chen, complained to the court in August 2019 after his client's vehicle received the software update and believed instead that the battery itself was defective.

Mr Chen wrote that Tesla's attempt to improve battery longevity and to further protect the battery "were all fraudulent and intentional misrepresentations of what the software updates would actually accomplish." 

"Tesla cannot be exonerated for its wrongdoing despite claiming and acting under the guise of safety," Mr Chen wrote in the filing. "If this were true, Tesla could have informed owners of the Class Vehicles whether their car was at a higher risk of catching on fire and could have offered to replace the batteries for the Class Vehicles. Instead, Tesla has, and continues to, deny the fact that the software updates in question have caused significant harm and damage to customers."

Rasmussen accused Tesla "of fraudulently manipulating its software with the intent to avoid its duties and legal obligations to customers to fix, repair, or replace the batteries, which Tesla knew were defective, yet failed to inform its customers of the defects." 

By October 2019, Tesla and the owners moved to try to reach a settlement agreement and attorneys stayed the litigation. 

Tesla rolled out another software update in March 2020 to restore impacted owners' batteries back to their maximum voltage.

The court filings this week say that 1,552 of the affected Tesla Model S sedans have already been updated with new software that restores the battery power. 57 Tesla owners received full battery replacements over the issue. Other Tesla owners who experienced battery throttling "should see their Model S's maximum voltage restored as they continue to drive the cars," Tesla said.

As part of the proposed settlement, Tesla would also have to "maintain diagnostic software for in-warranty vehicles to notify owners and lessees of vehicles that Tesla determines may need battery service or repair for certain battery issues."

The owners in the class action settlement include U.S. residents who owned or leased a Tesla Model S experiencing the battery limitations due to Tesla's over-the-air update in May 2019. 

A hearing to finalize the proposed settlement is scheduled for Dec. 9, 2021.

Tesla did not respond to a request for comment.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.