Posted: June 10th, 2018
By: Nathaniel Reiff
As today’s consumer seeks new and innovative ways to save money and preserve the environment, it may be a while until they achieve this objective with the cars they drive. Tesla Inc., the American international corporation renowned for its electric vehicle production, has been hit with a score of lawsuits that could put the energy-giant in a nasty predicament.
Last October, shareholders filed a securities fraud lawsuit claiming Tesla gave false public statements about the progress of producing its Model 3 sedan. The complaint identifies that shareholders bought “artificially inflated” shares of Tesla because Elon Musk, Tesla’s Chief Executive Officer, and other executives misled them with such statements. Tesla counters that since the vehicle was “the first of its kind,” the company had experienced numerous “bottlenecks.” The company said it provided the shareholders in “frank and in plain language” that the challenges the company faced with the Model 3 derived from problems with the battery module process at its Nevada Gigafactory to general assembly at its Fremont plant.
In early May 2018, Tesla was hit with a $2 billion lawsuit from rival Nikola Motor, accusing Tesla of patent violations for stealing certain aspects of its semi-truck design when Tesla unveiled its plans to produce the Tesla Semi in April 2017. The lawsuit alleges that Nikola received six design patents for various elements of its hydrogen-electric Nikola One truck. Nikola claims its truck has already received $6.3 billion in customer deposits and is to begin production on more than 7,000 trucks in 2020.
Recently, a judge refused to dismiss another shareholder suit accusing Tesla of improperly acquiring the energy company SolarCity. The class-action claim alleges that Musk and a few board members improperly benefited from the acquisition, a move which the shareholders maintain was not made in their best interest. At the time of the deal, SolarCity had $3 billion in debt, which was absorbed by Tesla as part of the arrangement.
While these are only a handful of the many legal woes recently brought against Tesla, they ultimately reflect the electric car company’s continuing downfall. In late May, Moody’sdowngraded Tesla’s corporate rating to B3.Furthermore, the company’s outstanding junk bond hit its lowest-ever level of 89 cents on the dollar. The company has also seen its stock fall 8.2% after one of its autonomous vehicle was involved in a fatal crash. John Chanos, famous for predicting and profiting from the downfall of Enron Corp., claims that Tesla will be the “poster child” of the next bear market for U.S. stocks.
As Tesla continues to expand its presence in the burgeoning tech industry, litigation against the company seems inevitable. Companies looking to tap into the electronic car market must acknowledge Tesla’s troubles if they are to successfully capitalize on this opportunity.
Nathaniel Reiff is a second-year law student at Wake Forest University School of Law. He holds a Bachelor of Arts in Business Administration and a Master of International Business from the University of Florida. Upon graduation, he intends to practice corporate and tax law.