Lawsuits and controversies

Lawsuits

According to the legal advocacy website PlainSite, Tesla has been party to 620 lawsuits as of June 2019. Ongoing cases include Musk's "Funding secured" tweet, CEO performance award, the acquisition of SolarCity, and allegations of whistleblower retaliation.

On-going lawsuits

"Funding secured" − $420 buyout proposal

On August 7, 2018, Elon Musk tweeted, "Am considering taking Tesla private at $420. Funding secured." The tweet caused a furor on social media and in Tesla's investment circle. Tesla's stock price rose quickly after Musk's statement, but crashed after it became clear that Musk's statements were untrue. Musk did not have any funding secured for a possible buyout, and the $420 price was a marijuana reference Musk chose to amuse his girlfriend.

Musk settled fraud charges with the Securities and Exchange Commission over his false statements in September 2018. According to the terms of the settlement: Musk was removed from his chairman role at Tesla temporarily; Tesla and Musk paid civil penalties of $20 million each; two new independent directors were appointed to the company's board; and Musk agreed to have his tweets reviewed by Tesla's in-house counsel. On October 16, 2018, the U.S. District Court for the Southern District of New York entered a final judgment approving the terms of the settlement.

A civil class-action shareholder lawsuit over Musk's statements is pending in the U.S. District Court for the Northern District of California. Tesla filed a motion to dismiss the case, but U.S. District Judge Edward Chen denied it in April 2020. The judge determined that Musk's tweets were false and misleading, and noted Musk's long-standing animosity towards short-sellers (such as tweeting weeks earlier "short burn of the century comin sic soon") as potential motive for the tweets.

Between October 17, 2018, and November 9, 2018, five derivative lawsuits were filed in the Delaware Court of Chancery against Mr. Musk and the members of Tesla's board of directors as then constituted in relation to statements made and actions connected to a potential going-private transaction. These cases have stayed pending resolution of the stockholder class action.

Litigation related to 2018 CEO Performance Award

On June 4, 2018, a purported Tesla stockholder filed a putative class and derivative action in the Delaware Court of Chancery against Mr. Musk and the members of Tesla's board of directors as then constituted, alleging that such board members breached their fiduciary duties by approving the stock-based compensation plan. The complaint seeks, among other things, monetary damages and rescission or reformation of the stock-based compensation plan. The trial is set for June 2021.

Musk received the first portion of his stock options payout, worth more than $700 million, in May 2020.

SolarCity acquisition

In 2016, Musk urged investors to approve the SolarCity acquisition despite publicly recusing himself from involvement in the deal. Musk revealed a solar roof tile in October 2016 during an event to gain investor support for the acquisition, but the tile later turned out to be fake. Members of the Tesla skeptic group TSLAQ have cited Musk's solar roof tile reveal as a major point of contention and an impetus for organizing.

Between September and October 2016, shareholders filed seven lawsuits in the Delaware Court of Chancery challenging Tesla's acquisition of SolarCity. The consolidated lawsuit alleges that Elon Musk knew SolarCity was going broke before the acquisition, that he and the board of directors overpaid for SolarCity, ignored their conflicts of interest and breached their fiduciary duties in connection with the deal, and failed to disclose “troubling facts” essential to an analysis of the proposed acquisition. The lawsuit also alleges that SolarCity hid information from its auditors about two payments due to lenders that should have been used to determine SolarCity’s financial condition. Tesla's directors later settled the lawsuit for $60 million in January 2020, leaving Musk as the lone defendant in the case. The case was set for trial in March 2020, but has been delayed until "concerns regarding COVID-19 have abated".

Whistleblower retaliation

In June 2018, according to Reveal, former Tesla safety official Carlos Ramirez filed a lawsuit alleging he was fired "in retaliation for reporting unsafe working conditions, such as chemical exposures and fires, and for refusing to go along with what he believed to be illegal practices."

In August 2018, former Tesla security employee Karl Hansen filed a whistleblower complaint accusing Tesla of illegally spying on workers by wiretapping and hacking their electronics, and ignoring or covering up complaints of "rampant theft and drug dealing" at the Nevada Gigafactory, including the alleged theft of more than $37 million worth of copper and other raw materials. The whistleblower later sued Tesla, claiming he was wrongfully fired from his job after filing the complaint. When asked for comment on Hansen's claims via Twitter direct message, Musk said, "This guy is super 🥜."

In January 2019, another former Tesla security manager and Hansen's supervisor Sean Gouthro filed a whistleblower complaint alleging that the company illegally hacked employees' phones and spied on them while also failing to report illegal activities to the authorities and shareholders.

Resolved lawsuits

Model 3 production numbers

In September 2018, Tesla disclosed that it was under investigation by the FBI regarding its Model 3 production figures. Authorities were investigating whether the company misled investors and made projections about its Model 3 production that it knew would be impossible to meet. In July 2017, Elon Musk tweeted "Looks like we can reach 20,000 Model 3 cars per month in Dec", but Tesla ended up producing only 2,700 Model 3s for all of 2017.

A stockholder class action lawsuit related to Model 3 production numbers was dismissed in Tesla's favor in March 2019.

Walmart solar panel fires

In August 2019, Walmart filed a multi-million dollar lawsuit against Tesla, claiming that Tesla's "negligent installation and maintenance" of solar panels caused fires at seven Walmart stores going back to 2012. According to the lawsuit, "Tesla had engaged in widespread, systemic negligence," and Walmart's inspections revealed numerous fire hazards associated with the solar panels, including hotspots, faulty connections, sharp points, exposed wires, and improper grounding. Walmart noted that it had received inspection reports in which Tesla itself identified 48 "action items" that reflected conditions where sites were "unsafe or potentially unsafe."

Walmart reached a settlement with Tesla in November 2019, although the terms of the settlement were not disclosed.

Whistleblower retaliation against Martin Tripp

In June 2018, a Tesla employee named Martin Tripp leaked information that Tesla was scrapping or reworking up to 40% of its raw materials at the Nevada Gigafactory. After Tesla fired him for the leak, Tripp filed a lawsuit and claimed Tesla’s Security team gave police a false tip that he was planning a mass shooting at the Nevada factory. According to Bloomberg, Musk "set out to destroy" Tripp and Tesla’s PR department "spread rumors that Tripp was possibly homicidal and had been part of a grand conspiracy."

The court ruled in Tesla's favor on September 17, 2020.

Unionization

In September 2019, a California judge ruled that Musk and other Tesla executives have been illegally sabotaging employee efforts to form a union.

Controversies

Outside of the courts, Tesla has been the subject of other public controversies, ranging from securities fraud allegations to product delays to workers' safety complaints. Slate ranked Tesla number 14 on their "Evil List" of most dangerous tech companies in 2020.

Accounting issues

In 2013, Tesla was accused of using "fancy accounting gimmicks" to show positive cash flow and quarterly profits; also "Bloomberg has questioned whether Tesla's financial reporting violates Generally Accepted Accounting Principles (GAAP) reporting standards. In 2016, Tesla used controversial pro-forma accounting. In 2018, analysts expressed concerns over Tesla's accounts receivable balance. In 2019, hedge fund manager David Einhorn publicly questioned Tesla's accounting practices, telling Musk that he was "beginning to wonder whether your accounts receivable exist." In September 2019, the SEC questioned Tesla CFO Zach Kirkhorn about Tesla's warranty reserves and lease accounting.

Battery swap technology

From 2012 to 2014, Tesla earned more than $295 million in Zero Emission Vehicle credits for a battery-swapping technology that was never made available to customers. Staff at California's Air Resources Board were concerned that Tesla was "gaming" the battery swap subsidies and recommended eliminating the credits in 2013. Tesla originally claimed that the battery swap would be fully automated, and could be done in just 90 seconds, but they never released details of how it would actually work.

COVID-19 pandemic in the US

At the onset of and during the COVID-19 pandemic in the United States, Elon Musk repeatedly downplayed the risks of COVID-19. In March 2020 Musk tweeted that "the coronavirus panic is dumb", and incorrectly predicted that new cases in the U.S. would be "negligible" by the end of April. On an earnings call in April 2020, Musk called state and local stay-at-home orders "fascist."

Later in May 2020, while Alameda officials were negotiating with the company to reopen the Fremont factory on the 18th, Musk defied local government orders by restarting production at the factory on the 11th, tweeting that he was doing so "against Alameda County rules." This act was in non-compliance with the governor's order for the state of California during the crisis: "Counties emphasis added can choose to continue more restrictive measures in place based on their local conditions, and the state expects some counties to keep their more robust stay at home orders in place beyond May 8." Tesla also filed a lawsuit against Alameda County on the 11th but later rescinded it after the Fremont factory was given approval to reopen. Tesla published its detailed plan for bringing employees back to work and keeping them safe, but within days of reopening at least 6 of the 10,000 workers at the factory tested positive for the coronavirus and CNBC reported some employees continued to express concern over lax coronavirus precautions.

In June 2020, Tesla fired an employee who criticized the company for taking inadequate safety measures to protect workers from the coronavirus at the Fremont factory. Three more employees at Tesla's Fremont factory also say they were fired for staying home out of fear of catching COVID-19, despite Musk telling workers in May if "you feel uncomfortable coming back to work at this time, please do not feel obligated to do so."

Environmental violations

Environmental violations and permit deviations at Tesla's Fremont factory have increased dramatically since 2018 with the production ramp of the Model 3. Author Ed Niedermeyer warned that Tesla's "apparent disregard for environmental compliance has led to a pollution problem whose magnitude we may never fully understand."

In June 2019, Tesla began negotiating penalties for 19 environmental violations from the Bay Area Air Quality Management District. The violations centered on Tesla Fremont's paint shop, where there have been frequent fires since 2014. Air quality inspectors found many potential fire risks at the facility, and cited Tesla for improper disposal of flammable materials. The U.S. Environmental Protection Agency also investigated Tesla for violations of the Clean Air Act, and fined Tesla for hazardous waste violations in April 2019, having found that Tesla failed to 'promptly clean up flammable paint and or solvent mixtures,' left two 55-gallon containers of hazardous waste open with 'no gasket or locking mechanism,' and violated air emission standards for three leaky transmission lines that the waste moved through.

Flawed battery design and fires

In June 2012, Tesla knew the battery cooling system in its Model S cars had a flawed design that made it susceptible to leaks, which could short the battery or cause a fire. Tesla continued to sell Model S cars with this flawed cooling system through late 2012, even as employees found these parts leaking on the production line.

In October 2019, the National Highway Traffic Safety Administration (NHTSA) began investigating Tesla's Model S and X vehicles for potential battery defects that could cause "non-crash" fires. The NHTSA launched the investigation after receiving a defect petition asking them to look into the "alarming number" of fires in Tesla vehicles that have occurred worldwide. Tesla released two over-the-air software updates in May 2019 that reduced the range in older Model S and X vehicles by as much as 50 miles. Tesla claimed the updates were "designed to improve battery longevity," but the NHTSA is investigating whether they were actually made because of the fires. According to consumer attorney Edward Chen, "Tesla is using over-the-air software updates to mask and cover-up a potentially widespread and dangerous issue with the batteries in their vehicles."

Giga New York

Tesla's Giga New York factory, which was built and equipped using nearly $1 billion in New York taxpayer money, has faced criticism and legal actions regarding allegations of inflated job promises, cost overruns, construction delays, bid rigging, a perceived lack of effort from Musk, and claims that the deal was, in effect, a bailout of Musk's cousins Peter and Lyndon Rive. The New York state comptroller released a "scathing" audit of the project, concluding that it presented many red flags, lacked basic due diligence, and produced only 54 cents in economic benefits for every $1 spent by the state (compared to the benchmark set for these types of projects of $30 in economic benefits for every $1 spent).

Short sellers

As of January 15, 2020, Tesla stock was the most-shorted in U.S. equity markets. Over 20% of its stock was shorted at that time, with many shorters losing large amounts of money as the stock price climbed much higher later in the year. TSLAQ is an informal and largely anonymous group of Tesla shorters and critics, mainly organized online.

In mockery of Tesla short sellers, the company unveiled velvet red short shorts for "$69.420" on their website. Within minutes, the shorts were sold out.

Worker safety & rights

According to former employees at Tesla's Fremont factory, Tesla has systematically denied medical care to injured workers, forced injured workers to return to the production line without relief, and insisted that seriously injured workers be sent to the emergency room in a Lyft rather than call 911. An investigation by Reveal found that Tesla "failed to report some its serious injuries on legally mandated reports, making the company's injury numbers look better than they actually are." Their factory injury rates are worse than the industry average, despite Musk claiming otherwise.

From 2014 to 2018, Tesla's Fremont factory had three times as many Occupational Safety and Health Administration (OSHA) violations as the ten largest U.S. auto plants combined. According to the Reno Gazette-Journal, Tesla barred OSHA officers from conducting a comprehensive inspection of the Nevada Gigafactory for more than two months in 2019, "even denying entry when inspectors showed up with a sheriff's deputy and a warrant signed by a judge." Former safety experts at Tesla believe that the factory was "extremely dangerous", and the risk of injury was too high. They believe the factory lacked adequate yellow lane markings and caution tape because "Elon does not like the color yellow", and cut back on other standard safety signals such as warning signs and warning beeps on forklifts when backing up because Musk disliked those as well.