Pension fund accuses Tesla of misleading investors

In a complaint the fund said Tesla's claims about production in Nevada and California were false

Tesla says the suit is without merit

In August, a federal judge dismissed similar claims against Tesla

Tesla Inc. and its CEO Elon Musk are known for making bold claims about the company’s production capabilities.

But when it comes to making Model 3 vehicles and the batteries that power them, some of those claims crossed the line from bold to misleading, according to a legal complaint by a Teamsters pension fund that invested in the company in August 2017.

The filing doesn't say how much the fund invested, but it says the investment was part of a $1.8 billion offering underwritten by several investment banks, which are among the defendants.

The Teamsters fund says it's bringing the case as a class action that could cover thousands of members.

A Tesla spokesperson said the suit is meritless.

“In fact, the same claims have previously been dismissed in Federal court,” a Tesla spokesperson wrote in an email to the RGJ. “Tesla will vigorously defend against this copycat lawsuit and expects a similar outcome.”

The complaint was filed Nov. 2 in California Superior Court in Santa Clara County by attorneys for the Inter-Local Pension Fund, a retirement fund for members of the International Brotherhood of Teamsters. It says a prospectus, or circular, distributed to potential investors included misleading claims about the company’s ability to produce 5,000 Model 3s per week, a number Musk and other company leaders touted.

“Just two months after the issuance of the Notes, the Company admitted that it would be unable to make 5,000 vehicles per week by 2017,” the complaint states. “In addition, the Company has since admitted that its battery factory, the ‘Gigafactory 1,’ did not have the ability to make the batteries in the needed amounts for the Model 3 throughout 2017, and still did not as of February 2018.”

The Gigafactory in Storey County east of Sparks is where Tesla manufactures batteries and power trains for the Model 3. The company decided to build in Nevada after the state legislature and governor approved a public subsidy package worth an estimated $1.3 billion over 20 years. The factory employs several thousand people and the company has already spent billions on construction.

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The complaint accuses Tesla, Musk and seven investment banks of violating California law and the Securities Act of 1933 by making “false and misleading statements” and omitting “material facts in connection with the Offering.”

The plaintiffs say claims about Model 3 production were important because mass production of the vehicle is critical to the company’s ability to turn a profit.

The complaint highlighted claims in the circular about the company’s ability to produce at both the automotive factory in Fremont and the battery-producing Gigafactory in Nevada.

At one point, the circular stated, “We are ramping to volume production and deliveries of Model 3, and are planning to produce 5,000 Model 3 vehicles per week by the end of 2017, and 10,000 Model 3 vehicles per week at some point in 2018.”

At another, it stated, “Gigafactory 1 is designed to supply enough batteries to support the annual production of over 500,000 vehicles at our Fremont Factory as well as our energy storage product line.”

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The complaint says those claims were false and misleading because the company lacked the ability to meet those numbers.

It cites numerous articles detailing production problems both in California and Nevada that published in the weeks and months after Tesla issued the investment circular.

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Tesla eventually reached the goal of 5,000 Model 3s in a single week in June, according to reports.

Tesla hasn’t responded to the California court in writing, but a spokesperson for the company pointed to an Aug. 24 decision by U.S. District Judge Charles R. Breyer that dismissed claims similar to those by the Teamsters’ fund.

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In that case, shareholder Gregory Wochos argued Tesla misled the public by over-estimating the number of vehicles it could produce.

However, Breyer dismissed that complaint by saying Musk and documents filed with the Securities and Exchange Commission included enough warnings and cautionary statements to alert investors that there were circumstances that could cause the company to miss such ambitious goals.

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Breyer wrote, “The company repeatedly represented that it had set an aggressive production schedule, and that it was not certain it would be able to meet the deadlines it had set.”

The Teamsters suit isn't the company's only recent legal dispute. Musk and the company were each recently fined $20 million by the SEC after Musk tweeted in August that funding was secure to take the company private at $420 per share.

The funding didn't materialize and in addition to the fines, Musk relinquished his role as Chairman of the Board but retained his CEO title.

The company is also engaged in legal disputes with two former Gigafactory employees who claim they were wrongly fired after reporting problems.