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Should I put Teflon tape on the coolant/engine temperature sensor before installing it on the intake manifold? I thought yes, to keep it from leaking, but I have heard someone lately say NO because it won't ground well with tape around it and that will cause it to give a false reading.
I generally don't use Teflon® tape because those devices ground through the case.
But an aftermarket sensor I purchased once came with *one* wrap of that stuff on the threads and I installed it like that and it seems to have been working for a few years now.
Yes, seal with tape. The tape will tear at the tight points and ground just fine. Personally I use liquid thread sealant for these types of things. Note that you should NEVER use teflon tape to seal an oil pressure sender or fitting, only thread sealant.
I use Teflon tape awa thread sealant with PTFE. The tape goes on 2 threads back of the end and the sealant covers the last 2 threads. I started doing that when I couldn't get any of my air fittings to seal perfectly with either tape or sealant. But, the combination doesn't leak whatsoever.
The concern with tape is that some of it might get loose and find it's way into whatever stream is being sealed. By keeping the tape 2 turns back of the end there is no way any of the tape can get into the stream - on this installation. However, when you take the fitting apart you do stand that chance unless you are careful to get any stray bits out of the tapped hole.
I use this process on sending units and have had no problem with them grounding.