* Advertising more than 5-star rating "misleading" public-NHTSA
* New policy comes three months after Tesla touts 5.4-starrating
* Tesla now facing bad publicity, stock drop after three carfires
By Deepa Seetharaman
DETROIT, Nov 20 (Reuters) - U.S. regulators on Wednesdayblocked automakers from promoting vehicle safety ratings of morethan 5 stars, three months after Tesla Motors Inc touted an outsized score on its Model S electric car in a pressrelease.
The announcement adds to simmering tensions between theNational Highway Traffic Safety Administration and Tesla, nowgrappling with bad publicity and a federal probe after a seriesof car fires raised questions about the safety of the Model S.
Tesla said in late August that the Model S had achieved ascore of 5.4 stars, a figure based on Tesla's independentanalysis of NHTSA data.
Still, the news release prompted NHTSA, which issues thestar ratings, to update its marketing guidelines. NHTSA nowexplicitly bars companies from promoting safety scores higherthan 5 stars. The updated guidelines also state that the safetyscores are always whole numbers.
"Tesla's claim was an example of the potential confusion andinaccuracy that could be caused by incorrect use of the 5-Starratings information in advertising and marketing statements,"NHTSA said in a statement.
Tesla declined to comment. The 5-star safety rating systemhas been used by NHTSA since model-year 1994 vehicles and theagency does not issue scores above that threshold.
"Advertisers who claim more than 5 stars are misleading thepublic," NHTSA said, adding that violations could trigger actionby federal or state authorities.
NTHSA launched a probe this week into the Model S followingthree car fires that raised questions about the safety of thecar's design.
Tesla Chief Executive Elon Musk said in a blog post Mondaythat the automaker requested the recall, but that statement wasflatly denied by NHTSA administrator David Strickland onTuesday.
The first fire was reported in early October and the badpublicity has lopped off more than 37 percent of Tesla's marketvalue since Oct. 1. Tesla shares fell 3.9 percent to close at$121.11 on the Nasdaq on Wednesday.
NHTSA's investigation into the Model S could take up to sixmonths and cost Tesla about $13 million, Barclays Capitalanalyst Brian Johnson said in a research note Wednesday.
"The monetary cost of a recall is likely manageable,"Johnson wrote. "The real issue is to what extent the publicityover the fire is likely to crimp Tesla Model S sales growth."He also cut his price target on the stock to $120 from $141.
In the past, highly publicized safety probes have led to asales drop between 10 and 20 percent, Johnson said.
He noted Toyota Motor Corp's sticky-pedal issue in2010 and unintended acceleration on the Audi 5000 in the 1980s.Audi is Volkswagen AG's luxury brand.
"Even though both vehicles were later largely exonerated,each of these cases led to significant demand destruction,"Johnson said. (Editing by Matthew Lewis)
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