Northern California Record

Thursday, November 14, 2019

Federal court throws out Tesla shareholders' Model 3 production lawsuit


By Carrie Salls | Sep 6, 2018

General court 09

SAN FRANCISCO – The U.S. District Court for the Northern District of California recently dismissed a lawsuit filed against Tesla Inc. by shareholders who claimed the company “misled the public regarding the progress of production on the ‘Model 3.’”

In the class-action lawsuit, lead plaintiff Gregory Wochos alleged that Tesla knew it could not reach the production goals it set for the Model 3 “long before it disclosed this fact to the market, and that it defrauded investors by failing to revise its projections earlier.”

However, U.S. District Judge Charles Breyer, in his ruling filed Aug. 27, said that the shareholders can legally only prosecute a lawsuit for failing to meet production goals if the company did not include qualifying statements in the documentation outlining the production goals.

“Because plaintiffs fail to allege that defendants made any projections that were not so qualified, their claims fail,” Breyer wrote in the order. “Federal securities laws do not punish companies for failing to achieve their targets.”

Specifically, the court said Tesla informed investors in a quarterly report that there were “a host of uncertainties regarding the production process,” and that it could not rule out delays for a variety of reasons, including the fact that it had never tried to mass produce a vehicle like it planned to do with the Model 3.

The court said in the order that initial interest in the Model 3 was good, with more than 500,000 buyers paying a deposit toward the purchase of the vehicle. The order said the need to mass produce the all-electric car put Tesla in “unchartered territory,” as no other company had ever tried to do so.

“However, production did not proceed as expected,” the order said, forcing Tesla to publicly declare that it would fall short of its third-quarter 2017 production projections.

Although Tesla made changes to its manufacturing method and production locations in an attempt to produce the promised number of vehicles by the first quarter of 2018, the plaintiffs said “Tesla knew it would be impossible to reach this goal.”

Breyer gave Wochos until Sept. 28 to file an amended complaint, if it chooses to do so.

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