Document ID: NHTSA-2008-0013-0001
Agency: nhtsa
Document Type: Rule
Title: Tesla Motors, Inc.; Grant of Application for a Temporary Exemption From Advanced Air Bag Requirements of Federal Motor Vehicle Safety Standard No. 208
Posted Date: 2008-01-28T05:00Z

[Federal Register: January 28, 2008 (Volume 73, Number 18)]
[Notices]               
[Page 4944-4950]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ja08-135]                         

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

[Docket No. NHTSA-2008-0013]

 
Tesla Motors, Inc.; Grant of Application for a Temporary 
Exemption From Advanced Air Bag Requirements of Federal Motor Vehicle 
Safety Standard No. 208

AGENCY: National Highway Traffic Safety Administration (NHTSA), DOT.

ACTION: Grant of Application for a Temporary Exemption from Certain 
Advanced Air Bag Requirements of Federal Motor Vehicle Safety Standard 
No. 208.

-----------------------------------------------------------------------

SUMMARY: This notice grants the Tesla Motors, Inc. (Tesla) application 
for a temporary exemption from certain advanced air bag requirements of 
Federal Motor Vehicle Safety Standard (FMVSS) No. 208, Occupant Crash 
Protection. The exemption applies to the Tesla Roadster vehicle. In 
accordance with 49 CFR part 555, the basis for the grant is that 
compliance would cause substantial economic hardship to a manufacturer 
that has tried in good faith to comply with the standard. The exemption 
will be effective for a period of three years.
    The National Highway Traffic Safety Administration (NHTSA) 
published a notice of receipt of the application on July 31, 2007, and 
afforded an opportunity for comment.\1\
---------------------------------------------------------------------------

    \1\ See 72 FR 41814 (July 31, 2007), Docket Number NHTSA-2007-
28821-1.

DATES: The exemption is effective immediately and remains in effect 
until January 28, 2011.

[[Page 4945]]

FOR FURTHER INFORMATION CONTACT: Mr. Ari Scott, Office of the Chief 
Counsel, NCC-112, National Highway Traffic Safety Administration, 1200 
New Jersey Avenue SE., Washington, DC 20590. Telephone: (202) 366-2992; 
Fax: (202) 366-3820; E-mail ari.scott@dot.gov.

I. Advanced Air Bag Requirements and Small Volume Manufacturers

    In 2000, NHTSA upgraded the requirements for air bags in passenger 
cars and light trucks, requiring what are commonly known as ``advanced 
air bags.'' \2\ The upgrade was designed to meet the goals of improving 
protection for occupants of all sizes, belted and unbelted, in 
moderate-to-high-speed crashes, and of minimizing the risks posed by 
air bags to infants, children, and other occupants, especially in low-
speed crashes.
---------------------------------------------------------------------------

    \2\ See 65 FR 30680 (May 12, 2000).
---------------------------------------------------------------------------

    The advanced air bag requirements were a culmination of a 
comprehensive plan that the agency announced in 1996 to address the 
adverse effects of air bags. This plan also included an extensive 
consumer education program to encourage the placement of children in 
rear seats. The new requirements were phased in beginning with the 2004 
model year.
    Small volume manufacturers were not subject to the advanced air bag 
requirements until September 1, 2006, but their efforts to bring their 
respective vehicles into compliance with these requirements began 
several years ago. However, because the new requirements were 
challenging, major air bag suppliers concentrated their efforts on 
working with large volume manufacturers, and thus, until recently, 
small volume manufacturers had limited access to advanced air bag 
technology. Because of the nature of the requirements for protecting 
out-of-position occupants, ``off-the-shelf'' systems could not be 
readily adopted. Further complicating matters, because small volume 
manufacturers build so few vehicles, the costs of developing custom 
advanced air bag systems compared to potential profits discouraged some 
air bag suppliers from working with small volume manufacturers.
    The agency has carefully tracked occupant fatalities resulting from 
air bag deployment. Our data indicate that the agency's efforts in the 
area of consumer education and manufacturers' providing depowered air 
bags were successful in reducing air bag fatalities even before 
advanced air bag requirements were implemented.
    As always, we are concerned about the potential safety implication 
of any temporary exemptions granted by this agency. In the present 
case, we are addressing a petition for a temporary exemption from the 
advanced air bag requirements submitted by a manufacturer of an 
electric-powered, high-performance sports car.

II. Overview of Petition for Economic Hardship Exemption

    In accordance with 49 U.S.C. 30113 and the procedures in 49 CFR 
part 555, Tesla has petitioned the agency for a temporary exemption 
from certain advanced air bag requirements of FMVSS No. 208. The basis 
for the application is that compliance would cause substantial economic 
hardship to a manufacturer that has tried in good faith to comply with 
the standard. The requested exemption would apply to Tesla Roadster 
model vehicles and would extend for a period of three years.

III. Statutory Background for Economic Hardship Exemptions

    A manufacturer is eligible to apply for a hardship exemption if its 
total motor vehicle production in its most recent year of production 
did not exceed 10,000 vehicles, as determined by the NHTSA 
Administrator (49 U.S.C. 30113).
    In determining whether a manufacturer of a vehicle meets that 
criterion, NHTSA considers whether a second vehicle manufacturer also 
might be deemed the manufacturer of that vehicle. The statutory 
provisions governing motor vehicle safety (49 U.S.C. Chapter 301) do 
not include any provision indicating that a manufacturer might have 
substantial responsibility as manufacturer of a vehicle simply because 
it owns or controls a second manufacturer that assembled that vehicle. 
However, the agency considers the statutory definition of 
``manufacturer'' (49 U.S.C. 30102) to be sufficiently broad to include 
sponsors, depending on the circumstances. Thus, NHTSA has stated that 
an entity may be deemed to be a sponsor and thus a manufacturer of a 
vehicle assembled by a second manufacturer, if the sponsor had a 
substantial role in the development and manufacturing process of that 
vehicle.
    Finally, while 49 U.S.C. 30113(b) states that exemptions from a 
Safety Act standard are to be granted on a ``temporary basis,'' \3\ the 
statute also expressly provides for renewal of an exemption on 
reapplication. Manufacturers are nevertheless cautioned that the 
agency's decision to grant an initial petition in no way predetermines 
that the agency will repeatedly grant renewal petitions, thereby 
imparting semi-permanent exemption from a safety standard. Exempted 
manufacturers seeking renewal must bear in mind that the agency is 
directed to consider financial hardship as but one factor, along with 
the manufacturer's on-going good faith efforts to comply with the 
regulation, the public interest, consistency with the Safety Act, 
generally, as well as other such matters provided in the statute.
---------------------------------------------------------------------------

    \3\ 49 U.S.C. 30113(b)(1).
---------------------------------------------------------------------------

IV. Petition of Tesla and Notice of Receipt

    Background. Tesla is a small, start-up motor vehicle manufacturer 
that was founded in California in July 2003. The company plans to 
produce its first model, the Tesla Roadster, shortly. Tesla is not 
affiliated with any other automobile manufacturer, and currently 
employs approximately 170 people in the United States, the United 
Kingdom, and Taiwan.
    This application concerns the Tesla Roadster (the first model of 
vehicle that Tesla plans to produce) which as the company states will 
be an electric vehicle that will achieve the performance equivalent to 
a high performance car. The vehicle utilizes an energy storage system 
that provides power to the entire vehicle, and Tesla expects the 
vehicle will be able to travel approximately 200 miles on a single 
charge. To date, Tesla has not produced any vehicles for sale in the 
U.S. or other markets.
    According to the petition, Tesla had originally planned to produce 
a vehicle that would comply with the advanced air bag requirements in 
effect since September 2006. The Tesla Roadster utilizes the chassis 
and several other systems of the Group Lotus plc (Lotus) Elise, which 
at the time of design was a vehicle that was intended to comply with 
the advanced air bag requirements by 2006. However, Lotus could not 
achieve compliance with the requirements by that date, and was granted 
an exemption for the Elise on August 31, 2006. This deprived Tesla of a 
FMVSS No. 208-compliant air bag system that could have been used in the 
Roadster.
    The petitioner stated that it first became aware of Lotus's 
inability to obtain a compliant advanced air bag system in mid-2005, 
after it had committed to base the Roadster on the Elise platform. 
Tesla therefore argued that it tried in good faith, but cannot bring 
the vehicle into compliance with the advanced air bag requirements, and

[[Page 4946]]

would incur substantial economic hardship if it cannot sell vehicles in 
the United States.
    Eligibility. As discussed in the petition, Tesla is an independent 
company formed in 2003. The entire organization currently employs 
approximately 170 people. The Roadster will be manufactured under 
Tesla's supervision at Lotus's automobile factory in the United 
Kingdom. However, Lotus has no ownership interest in Tesla, and the 
reverse is likewise true. No other entity has an ownership interest in 
Tesla. Stated another way, Tesla is an independent automobile 
manufacturer which does not have any common control or is otherwise 
affiliated with any other vehicle manufacturer.
    The company is a small volume manufacturer that has never produced 
any motor vehicles for sale. According to its current forecasts, Tesla 
anticipates that worldwide production of the Roadster would be 
approximately 800 vehicles in the first year of production, and 
projected production would be 3,000 vehicles per year in the two years 
after that. Tesla also expects to produce a second model of automobile, 
the White Star, beginning in 2010, but believes that the company's 
total production will be less than 10,000 vehicles per year during the 
duration of the exemption request.
    As indicated earlier, a manufacturer is eligible to apply for a 
hardship exemption if its total motor vehicle production in its most 
recent year of production did not exceed 10,000 vehicles, as determined 
by the NHTSA Administrator (49 U.S.C. 30113). Moreover, in determining 
whether a manufacturer of a vehicle meets that criterion, NHTSA 
considers whether a second vehicle manufacturer also might be deemed 
the manufacturer of that vehicle.
    As we noted in our July 2007 notice of receipt of petition, in this 
case, it appears that Lotus, as well as Tesla, may be considered a 
manufacturer of the vehicle. Tesla indicated in its petition that in 
addition to utilizing the chassis and several other systems of the 
Lotus Elise, ``the Roadster will be manufactured under Tesla's 
supervision and direction at a factory owned by Lotus * * * .'' The 
term ``manufacturer'' is defined as a person ``manufacturing or 
assembling motor vehicles or motor vehicle equipment'' or ``importing 
motor vehicles or motor vehicle equipment for resale.'' See 49 U.S.C. 
30102. It appears that Lotus is manufacturing or assembling the 
vehicles at issue in its factory under contract.
    We noted, however, that Lotus is a small manufacturer, and NHTSA 
granted a temporary exemption regarding this same issue for the Lotus 
Elise. See 71 FR 52851; September 7, 2006. Moreover, the combined 
production of vehicles for Lotus and Tesla is fewer than 10,000 
vehicles in the year preceding the petition. Therefore, we believed 
that Tesla, for purposes of this petition, was eligible for a hardship 
exemption. We also noted that as production of the Tesla vehicles 
proceeds, there could be an issue of whether combined production of 
Lotus' own vehicles and those it builds under contract may increase to 
more than 10,000 vehicles per year. The agency requested comments to 
assist it in further evaluating this situation; specifically, whether 
it should influence the eligibility for future exemptions, or the 
duration of the current exemption, if granted.
    Requested exemption. Tesla stated that it intends to certify the 
Tesla Roadster as complying with the rigid barrier belted test 
requirement using the 50th percentile adult male test dummy set forth 
in S14.5.1(a) of FMVSS No. 208. The petitioner stated that it 
previously determined the Tesla Roadster's compliance with rigid 
barrier unbelted test requirements using tests of prototype vehicles. 
As such, Tesla requested an exemption for the Tesla Roadster from the 
advanced air bag requirements (S14), with the exception of the belted, 
rigid barrier provisions of S14.5.1(a); the rigid barrier test 
requirement using the 5th percentile adult female test dummy (belted 
and unbelted, S15); the offset deformable barrier test requirement 
using the 5th percentile adult female test dummy (S17); and the 
requirements to provide protection for infants and children (S19, S21, 
and S23).
    Tesla did not make an explicit statement that it intends to comply 
with the advanced air bag requirements of the FMVSS upon the expiration 
of the temporary exemption period. We noted, however, that Lotus 
signaled such an intention in its petition for the Elise, and the Tesla 
Roadster uses the Elise's safety system.
    Economic hardship. Publicly available information and also the 
financial documents submitted to NHTSA by the petitioner indicate that 
the Tesla Roadster project will result in financial losses unless Tesla 
obtains a temporary exemption. Over the period 2003-2006, Tesla has had 
net operational losses totaling over $43 million. As of the time of the 
application, Tesla has invested substantially on the design and 
development of the Tesla Roadster.
    The company has stated that Lotus could not acquire or develop an 
advanced air bag system for the Elise, on which the advanced air bag 
system was to be designed, and furthermore that Tesla does not have the 
technical or financial resources to independently develop an advanced 
air bag system. As it does not have the ability to independently build 
or acquire an advanced air bag system, Tesla states that without an 
exemption, it will have to cancel its pending development of an 
electric-powered sedan, and would ultimately have to terminate its 
operations.
    Good faith efforts to comply. As stated above, Tesla's compliance 
with the advanced air bag requirements are based upon the ability of 
Lotus to design or acquire an advanced air bag system. Tesla initially 
planned to produce vehicles that were fully compliant with all FMVSS 
requirements, but after it had committed to using the design and 
manufacturing facility of the Lotus Elise, Lotus determined that that 
vehicle could not be supplied with a compliant advanced air bag system. 
Tesla based its petition on Lotus's good faith efforts to comply with 
the requirements in its September 28, 2005 petition for exemption 
(Docket NHTSA-2006-25324-3). Tesla stated that it does not have the 
technical or financial resources to develop an advanced air bag system 
independent of Lotus, and will, therefore, need a similar exemption in 
order to produce Roadster models for the U.S. market. Tesla provided no 
further information in its petition on its own independent efforts 
beyond this statement.
    Tesla argues that an exemption would be in the public interest. The 
petitioner put forth several arguments in favor of a finding that the 
requested exemption is consistent with the public interest and would 
not have a significant adverse impact on safety. Specifically, Tesla 
argued that the vehicle will have a variant of the bonded aluminum 
chassis structure of the Lotus Elise, dual standard air bags, and pre-
tensioning, load-limiting seat belts. Furthermore, the company 
emphasized that the Tesla Roadster will comply with all other 
applicable FMVSSs.
    Moreover, the petitioner stated that the requested exemption will 
have a negligible impact on motor vehicle safety because of the limited 
number of vehicles sold. Tesla stated that it is unlikely that young 
children would be passengers in the Roadster, so an exemption from the 
advanced air bag requirements that are designed to

[[Page 4947]]

protect children will not create a significant safety issue. In 
addition, as with the Lotus Elise, the front passenger seat in the 
Roadster is fixed in its rearmost position, thereby reducing air bag 
risks to children and other passengers.
    Tesla asserted that granting the exemption will benefit U.S. 
employment, companies, and citizens. Affected individuals include both 
Tesla's current employees as well as those who are likely to be 
involved in selling and servicing the Roadster and other future Tesla 
models. Furthermore, Tesla states that it has plans to open a 
manufacturing facility in the United States in 2009, with approximately 
300 employees, a venture that will likely not go forward if the 
petition is denied.

V. Comments Regarding the Tesla Petition

    The agency received four comments in response to the notice of 
receipt of petition. These comments came from Tesla, Group Lotus, Miles 
Automotive Group (Miles), and David H. Nguyen.
    Miles Automotive Group was the only commenter that indicated it did 
not support the granting of the exemption. Miles stated that it is 
developing an electric vehicle that will meet all applicable NHTSA 
standards, including the advanced air bag provision. It is concerned 
that the granting of temporary exemptions to electric vehicles will 
affect the potential acceptance of those vehicles, as they may be 
perceived as less safe than gasoline-powered vehicles.
    Miles asserted that the vehicle for which Tesla seeks exemption is 
far different from the vehicle for which Lotus has received a temporary 
exemption. This is based on the addition of the lithium ion cells in 
the Tesla Roadster, which will add substantially to the weight of the 
vehicle and the amount of energy that must be absorbed in the crash. 
Miles argued that the basic Lotus air bag system contained in the 
vehicle for which Lotus received a temporary exemption would yield far 
different results during testing had Lotus included in its vehicle the 
additional weight. Therefore, according to that company, the exemption 
for the Elise should not accrue to the Roadster, despite the two 
vehicles' similarity in design.
    Mr. Nguyen indicated support for granting the petition for the 
following reasons. First, because of the limited number of cars that 
would be sold and the limited exemption period, the overall safety 
impact will be negligible. Second, most buyers of exotic automobiles 
such as those produced by Tesla do not use their vehicles on a daily 
basis for transportation due to practical considerations such as 
comfort and utility. As a result, the Roadster would be driven 
considerably less than the average vehicle. Mr. Nguyen estimated that, 
based on Fatality Analysis Reporting System (FARS) data, the exemption 
would not result in any additional fatalities. Third, Mr. Nguyen 
suggested that the Roadster is already reasonably safe considering that 
it is equipped with standard air bags, safety features that many 
vehicles on the road today still do not have. Finally, Mr. Nguyen 
stated that there is strong societal interest in having electric 
vehicles available for sale and use in the U.S., as it will reduce 
America's dependence on foreign oil and provide cleaner air.
    Both Lotus and Tesla submitted comments responding to issues raised 
in NHTSA's notice of receipt of petition. Both companies asserted that 
Tesla was the sole manufacturer of the vehicle, and that Tesla and 
Lotus should be considered as unaffiliated companies with regard to the 
production of the Roadster.
    In its comments, Lotus argued that it should not be considered the 
sponsor of the Tesla Roadster. It stated that in the past, NHTSA has 
not aggregated production with regard to eligibility concerns when two 
companies had an ownership link, and therefore should not aggregate for 
two companies with total ownership independence operating through arms-
length contracts. Lotus also made several arguments demonstrating the 
operational independence of the two companies:
     The Elise was designed and engineered by Lotus long before 
Tesla even entered the picture.
     Tesla vehicles will be imported and sold both in the U.S. 
and elsewhere in the world by a dealer network totally independent of 
Lotus.
     The companies have totally independent management, sales 
and marketing personnel, after sales personnel, and headquarters; each 
has its own R&D and engineering staffs.
     The vehicles are vastly different--the Tesla Roadster is a 
Battery Electric Vehicle, whereas the current Lotus vehicles are all 
gasoline powered.
    Tesla made several arguments in its comments. First, Tesla stated 
that the issue of whether a manufacturer's production rising above 
10,000 vehicles per year during the term of the exemption is not 
relevant to that manufacturers' eligibility for a financial hardship 
exemption. Second, like Lotus, it argued that Tesla should be 
considered the manufacturer of the vehicle, and that Lotus should not 
be considered a sponsor. Third, Tesla argued that requiring the 
production of an assembler to be added to the production of a small 
independent vehicle manufacturer for exemption eligibility purposes 
would be contrary to the public interest.
    Regarding the first issue, Tesla stated that the language of 49 
U.S.C. 30113(d) is unambiguous, and that even if an eligible 
manufacturer's production increases above 10,000 during the term of an 
exemption, it would not act to void the exemption. Tesla stated that it 
is eligible for a hardship exemption under 49 U.S.C. 30113(d) because 
its ``production in the most recent year of production is not more than 
10,000'' [emphasis added in Tesla's submission].
    Tesla, like Lotus, also set forth an argument that Lotus should not 
be considered a manufacturer of the Tesla Roadster. Tesla argued that 
``the fact that Lotus is also the assembler of the Roadster under an 
arm's length contract with Tesla does not affect Tesla's status as the 
manufacturer of the Roadster vehicles.'' The company also stated that 
under a series of interpretations addressing the concept of 
``sponsorship,'' NHTSA has concluded that several entities, including 
those other than the assembler of the vehicle, can be considered the 
manufacturer. Tesla indicated that because the Roadster is built under 
its authority, and it maintains responsibility for the compliance, 
Tesla, and not Lotus, should be deemed the manufacturer.
    Tesla also stated that the arms length dealings between themselves 
and Lotus and the independence of the two companies should mean that 
the companies' production totals should not be aggregated.
    Finally, Tesla argued against aggregating the production numbers of 
an independent manufacturer to those of a contract assembler generally. 
Tesla argued that this would inhibit or preclude start-up companies, 
without production facilities, from obtaining hardship exemptions, 
since they would need to limit their search for an assembler to very 
small entities.

VI. Final Decision

    The following discussion provides our decision regarding Tesla's 
temporary exemption request pertaining to the advanced air bag 
requirements of FMVSS No. 208.
    We are granting Tesla's petition to be exempted from the following 
portions of the advanced air bag requirements of FMVSS No. 208: S14 
(apart from section S14.5.1(a)), S15, S17, S19, S21, S23 and S25 of 
FMVSS No. 208. The exemption

[[Page 4948]]

does not extend to the provision requiring a belted 50th percentile 
male barrier impact test (S14.5.1(a)). In addition to certifying 
compliance with S14.5.1(a), Tesla must continue to certify to the 
unbelted 50th percentile barrier impact test in force prior to 
September 1, 2006 (S5.1.2(a)). We note that the unbelted sled test in 
S13 is an acceptable option for that requirement. The agency's 
rationale for this decision is as follows.

A. Issues Related to Eligibility

    As discussed above, a manufacturer is eligible to apply for a 
hardship exemption if its total motor vehicle production in its most 
recent year of production did not exceed 10,000 vehicles, as determined 
by the NHTSA Administrator (49 U.S.C. 30113). Moreover, in determining 
whether a manufacturer of a vehicle meets that criterion, NHTSA 
considers whether a second vehicle manufacturer also might be deemed 
the manufacturer of that vehicle.
    In considering the issue of eligibility in the present situation, 
Tesla Motors does not currently manufacture any vehicles. Therefore, 
there is no issue as to whether it manufactures vehicles other than the 
Tesla Roadster. We believe the petitioner can be considered a 
manufacturer of the planned Tesla Roadster as a ``sponsor,'' even 
though the vehicle will be assembled by Lotus. Tesla designed the 
vehicle, supervises its assembly, and is responsible for compliance 
with applicable standards.
    We next consider whether persons other than Tesla Motors can be 
considered to manufacture the Tesla Roadster. The answer is yes. Lotus 
will be a manufacturer of the Tesla Roadster by virtue of assembling 
it. See 49 U.S.C. 30102(a)(5).
    Given that both Tesla Motors and Lotus can be considered 
manufacturers of the Tesla Roadster, there are a number of potential 
issues concerning how the agency should analyze the petition, e.g., 
whether to consider one or both companies with respect to the 10,000 
vehicle limitation for eligibility, hardship, good faith efforts, etc.
    As we noted in the notice of receipt, however, Lotus itself is a 
small manufacturer, and NHTSA granted a temporary exemption regarding 
this same issue for the Lotus Elise. See 71 FR 52851; September 7, 
2006. This is the vehicle from which the Tesla Roadster obtains its 
chassis and various systems including air bag system. Also, Tesla 
Motors based its petition on Lotus's good faith efforts to comply with 
the requirements. Moreover, both Tesla Motors and Lotus separately meet 
the fewer than 10,000 vehicle limitation in the year preceding the 
petition, counting all vehicles they manufacture (including ones that 
may also be attributable to another manufacturer).
    Given these factors, we believe Tesla Motors is eligible to apply 
for an economic hardship exemption, and we also believe that Lotus' 
role in the manufacture of the Roadster should not preclude Tesla's 
eligibility to receive an exemption.
    In their comments, both Lotus and Tesla argued that Tesla should be 
considered the exclusive manufacturer of the Roadster. Both companies 
point to several examples where NHTSA concluded that a parent company 
of a smaller subsidiary would not be considered the manufacturer of the 
vehicle. For example, while Fiat (which would be ineligible for an 
exemption) owns Ferrari, we have stated that Fiat is not considered a 
manufacturer of Ferrari's vehicles because of the arms-length 
relationship and separation of resources between the two companies.\4\ 
Both Lotus and Tesla argued that they have even less of an affiliation 
than the owner-subsidiary relationships we have analyzed in the context 
of other economic hardship petitions.
---------------------------------------------------------------------------

    \4\ 55 FR 3785 (February 5, 1990).
---------------------------------------------------------------------------

    We believe that the discussion of owner-subsidiary relationships 
discussed in the Tesla and Lotus comments are not analogous to the 
situation in this case. In the previous instances, the parent company 
(e.g., Fiat) did not play a role (or played a minimal role) in the 
development of the vehicles at issue. There was no basis to consider 
the parent company a manufacturer of the vehicles in question other 
than the ownership interest between the companies. In that scenario, an 
analysis of the independent nature of the subsidiary company was in 
order.
    More generally, in a situation where more than one company can be 
considered a manufacturer of a vehicle that is the subject of an 
economic hardship exemption, there are a number of potential issues 
that may arise related to eligibility. We believe it is unnecessary in 
responding to the petition before us to resolve how we would address 
all of these potential issues in other situations. Specifically, these 
issues happen to be moot in this instance; we will address these issues 
as necessary in the context of a specific petition or contemplated 
manufacturer relationship that is brought before us.
    We note, however, that in considering the issue of eligibility it 
has been a longstanding practice for us to consider whether a second 
vehicle manufacturer also might be deemed a manufacturer of vehicles 
that are the subject of an economic hardship petition. If we were to 
consider a petition from a ``sponsor'' manufacturer without regard to 
the circumstances of the ``assembler'' manufacturer, large 
manufacturers could potentially avoid the statutory 10,000 vehicle 
limit by engaging in joint ventures with small companies and having the 
small company submit the petition. This is an issue we would carefully 
consider if we received such a petition. We also note that it has also 
long been our practice to consider all vehicles for which the 
petitioner might be considered a manufacturer. In a 2003 decision, for 
example, in considering the number of vehicles produced by Lotus for 
purposes of a petition for temporary exemption from certain 
requirements of FMVSS No. 201, we considered the vehicles it 
manufactured for Opel/Vauxhall.\5\
---------------------------------------------------------------------------

    \5\ 68 FR 10066; March 3, 2003.
---------------------------------------------------------------------------

B. Merits of Tesla's Petition and Responses to Other Comments

    In our September 2006 decision \6\ granting the economic hardship 
petition for the Lotus Elise, we stated that the advanced air bag 
requirements present a unique challenge because they would require 
Lotus to completely redesign a major structural part of the extruded 
aluminum chassis in its vehicles. While Lotus was aware of the new 
requirements for some time, it was not able to introduce a fully 
compliant vehicle by September 2006 as originally intended. 
Accordingly, it was determined that the Elise model, designed for the 
European market, would need to be sold in the U.S. market in order to 
generate revenue for a successor vehicle that complies with all U.S. 
requirements, including the advanced air bag requirements of FMVSS No. 
208. Although Lotus immediately engaged in homologation efforts, the 
company experienced a number of technical challenges precluding 
incorporation of advanced air bag into the Elise at that time. In the 
September 2006 document, we provided a discussion of why we believed 
that Lotus had made good faith efforts to bring the Elise into 
compliance with the applicable requirements until such time as it 
became apparent that there was no practicable way to do so.
---------------------------------------------------------------------------

    \6\ 71 FR 52851, September 7, 2006.
---------------------------------------------------------------------------

    As indicated earlier, the Tesla Roadster utilizes the chassis and 
several other systems of the Lotus Elise, which at the time of design 
was a vehicle that was intended to comply with the

[[Page 4949]]

advanced air bag requirements by 2006. However, Lotus could not achieve 
compliance with the requirements by that date, and was granted an 
exemption for the Elise in the decision published by NHTSA in September 
2006. This deprived Tesla of a FMVSS No. 208-compliant air bag system 
that could have been used in the Roadster. Tesla indicated that it 
first became aware of Lotus's inability to obtain a compliant advanced 
air bag system in mid-2005, after it had committed to base the Roadster 
on the Elise platform.
    Given these circumstances, including the linkage between the Lotus 
Elise and the Tesla Roadster, we believe it was reasonable for Tesla to 
rely on Lotus for designing a compliant air bag system. Moreover, by 
the time Tesla became aware that Lotus could not achieve compliance at 
the anticipated time, Tesla was already committed to basing the 
Roadster on the Elise platform. Finally, the technical problems faced 
by Lotus would have been even greater for Tesla, given the size of 
Tesla and the fact that it was basing the Roadster on a platform 
designed by Lotus. Therefore, it would not have been possible for Tesla 
to have separately designed a compliant air bag system for the Roadster 
at that time. Considering all of these factors, we believe Tesla made 
good faith efforts to bring the Roadster into compliance with the 
applicable requirements.
    We also conclude that Tesla has demonstrated the requisite 
financial hardship. In this instance, denial of the petition would be 
likely to put Tesla out of business in the U.S. and potentially 
worldwide.
    Traditionally, the agency has found that the public interest is 
served by affording consumers a wider variety of motor vehicles. 
Furthermore, the Tesla Roadster is one of the most advanced fully 
electric vehicles available. We believe that the public interest is 
served by encouraging the development of fuel-efficient and 
alternative-fueled vehicles.
    We believe this exemption will have negligible impact on motor 
vehicle safety because of the limited number of vehicles affected and 
because each vehicle is likely to travel on public roads only 
infrequently.
    The term of this exemption will be limited to three years and the 
agency anticipates that the Roadster will be sold in limited 
quantities. In total, based on Tesla's comment of August 29, 2007, we 
anticipate that Tesla will sell approximately 625 vehicles during the 
first year of the exemption, and 1,600 vehicles during each of the 
following two years. We anticipate that with the help of revenues 
derived from U.S. sales, Tesla will be able to develop its own 
production facilities, begin production of a fully-compliant, electric-
powered sedan, and either bring the Roadster into compliance with all 
applicable safety standards or cease production of the vehicle.
    We note that, as explained below, prospective purchasers will be 
notified that the vehicle is exempted from the specified advanced air 
bag requirements of Standard No. 208. Under Sec.  555.9(b), a 
manufacturer of an exempted passenger car must affix securely to the 
windshield or side window of each exempted vehicle a label containing a 
statement that the vehicle conforms to all applicable FMVSSs in effect 
on the date of manufacture ``except for Standard Nos. [listing the 
standards by number and title for which an exemption has been granted] 
exempted pursuant to NHTSA Exemption No. ------.'' This label notifies 
prospective purchasers about the exemption and its subject. Under Sec.  
555.9(c), this information must also be included on the vehicle's 
certification label.
    The text of Sec.  555.9 does not expressly indicate how the 
required statement on the two labels should read in situations where an 
exemption covers part but not all of a FMVSS. In this case, we believe 
that a statement that the vehicle has been exempted from Standard No. 
208 generally, without an indication that the exemption is limited to 
the specified advanced air bag provisions, could be misleading. A 
consumer might incorrectly believe that the vehicle has been exempted 
from all of Standard No. 208's requirements. Moreover, we believe that 
the addition of a reference to such provisions by number without an 
indication of its subject matter would be of little use to consumers, 
since they would not know the subject of those specific provisions. For 
these reasons, we believe the two labels should read in relevant part, 
``except for S14.5.2, S15, S17, S19, S21, S23, and S25 \7\ (Advanced 
Air Bag Requirements) of Standard No. 208, Occupant Crash Protection, 
exempted pursuant to * * *.'' We note that the phrase ``Advanced Air 
Bag Requirements'' is an abbreviated form of the title of S14 of 
Standard No. 208. We believe it is reasonable to interpret Sec.  555.9 
as requiring this language.
---------------------------------------------------------------------------

    \7\ We note that while Tesla did not specifically include 
paragraph S25 in its petition, it did ask for an exemption from the 
``advanced air bag requirements'' generally. We believe this to be 
an inadvertent omission.
---------------------------------------------------------------------------

    Miles Automotive raised two issues regarding potential adverse 
effects of granting the Tesla petition. First, it stated that the Tesla 
Roadster, while utilizing the same chassis as a Lotus Elise, is a 
substantially different vehicle. Among other attributes is the fact 
that with the electric power system, it is substantially heavier, and 
therefore there will be more energy that must be absorbed in the event 
of a crash. Second, Miles stated that while it supports the 
introduction of electric vehicles, it is concerned that electric 
vehicles released without meeting all FMVSSs will create the impression 
that electric vehicles are less safe than gasoline-powered vehicles, 
which will discourage their use and increase fuel consumption.
    With regard to Miles' first concern, because the Tesla Roadster 
will be manufactured in limited quantities and because each vehicle is 
likely to be operated only on a limited basis, the agency believes the 
exemption will have a negligible impact on vehicle safety. The agency 
also notes that the vehicles subject to this exemption are required to 
comply with all applicable FMVSSs with the exception of certain 
advanced air bag requirements, and that it is equipped with dual air 
bags. Regardless of any weight changes to the vehicle and the possible 
amount of energy absorbed in crashes, Tesla will be required to certify 
that the Roadster is compliant with all applicable FMVSSs except for 
the limited exemptions specifically granted in this document. Among 
other requirements, the vehicle must comply with the belted, rigid 
barrier provisions of S14.5.1(a).
    We also do not believe that granting a temporary exemption to the 
Tesla Roadster will have a negative impact on how safe electric-powered 
vehicles are in the minds of the American public. Miles has not 
presented any data indicating that consumers hearing that the Tesla 
Roadster has an exemption will assume that the exemption is for all 
electric vehicles, or that electric vehicles are generally less safe 
than gasoline-powered vehicles.
    In consideration of the foregoing, we conclude that compliance with 
the advanced air bag requirements of FMVSS No. 208, Occupant Crash 
Protection, would cause substantial economic hardship to a manufacturer 
that has tried in good faith to comply with the standard. We further 
conclude that granting of an exemption would be in the public interest 
and consistent with the objectives of traffic safety.
    In accordance with 49 U.S.C. 30113(b)(3)(B)(i), Tesla Motors, Inc. 
is granted NHTSA Temporary Exemption No. EX 08-01, from S14 (apart from 
section S14.5.1(a)), S15, S17, S19, S21, S23, and S25 of FMVSS No. 208. 
The exemption shall remain for three years

[[Page 4950]]

as indicated in the DATES section of this notice.

(49 U.S.C. 30113; delegations of authority at 49 CFR 1.50 and 501.8)

    Issued on: January 22, 2008.
Nicole Nason,
Administrator.
[FR Doc. E8-1359 Filed 1-25-08; 8:45 am]

BILLING CODE 4910-59-P