Reality Check
Tesla, Inc.
NASDAQ: TSLA
January 7, 2020
Author
Aaron Greenspan
Disclosures
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Executive Summary
Tesla, Inc. (NASDAQ: TSLA), a manufacturer of electric vehicles and solar panels, is
widely regarded as an American clean energy success story. Its market capitalization
has exceeded $80 billion at its peak, and it operates factories in California, Nevada,
New York and China. Yet recently released docu-
ments obtained by PlainSite affiliate Think Com-
TSLA Price Per Share
$450.00
puter Foundation reveal that the entire company
$400.00
is at this point built on a massive, multi-billion dollar
$350.00
fraud orchestrated by its CEO, Elon Musk, who for
$300.00
years has gone to extreme lengths to conceal his
$250.00
unlawful acts from shareholders. In parallel with
$200.00
this core fraud, under Musk’s leadership, Tesla de-
$150.00
frauded taxpayers in New York and California out
$100.00
of more than 1.2 billion dollars, while producing
$50.00
products with serious and sometimes fatal quality
defects that will likely put the company at risk in a
$0.00
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
projected 300 new lawsuits in 2020.
In 2016, Tesla acquired SolarCity Corporation, a company run by Musk’s cousins, Peter
and Lyndon Rive, for $2.6 billion. The acquisition, which made no financial sense for
Tesla, was a bailout for Musk and his relatives, whose companies faced near-certain
bankruptcy without emergency financing.
Since the merger, Tesla has been a financial disaster. In its nearly seventeen years of
existence, the company has never turned an annual profit. Even with billions of dol-
lars of subsidies from governments worldwide, it has managed to incinerate money
at an astounding pace. Despite having the lowest 5-year trailing earnings per share
growth of any NASDAQ company worth more than $50 billion, it also has the highest
forward price-to-earnings ratio in the class. Tesla’s astounding overvaluation is thanks
in large part to a coterie of devoted followers whose television appearances and
often fake social media accounts have whipped up a frenzy of hype. Many have also
targeted critics and short sellers with vitriol and harassment. While the company’s
advocates speak of “moats” that give Tesla a competitive advantage, the truth is that
Tesla has virtually no protectable intellectual property and it has pledged to open-
source its relatively few patents, besides. Management is in shambles. Meanwhile, the
coming decade is certain to feature new competitors in the electric vehicle space.
Simply put, Tesla cannot be understood through traditional quantitative metrics be-
cause its disclosed numbers are largely fraudulent. Tesla is a broken company, ef-
fectively a Ponzi scheme, founded upon the enthusiasm of brilliant hobbyists who
unknowingly partnered with a self-described narcissistic “bait and switch[er].” Today,
Tesla’s story is Musk’s story. And that story is much different than the PR narrative.
i
Tesla, Inc.
Table of Contents
Executive Summary
i
Corporate History
1
The Early Days
1
Securing Funding From Uncle Sam
4
Perceived Market Advantages..................................................................................................................... 5
The Charismatic Leader
5
Next-Generation Technology
5
The Model 3................................................................................................................................................. 6
Battery Production
6
Global Footprint......................................................................................................................................... 6
Unrecognized Risks
6
A History of Deliberate Deception for Personal Gain........................................................ 6
Elon’s Pyramid
7
The SolarCity Bailout
8
Securities Fraud, False Statements and Unfulfilled Promises
13
“Funding Secured”
13
October 24, 2018 Q3 2018 Earnings Call
15
January 30, 2019 Q4 2018 Earnings Call...........................................................................17
April 24, 2019 Q1 2019 Earnings Call
17
Misleading Vehicle Pricing............................................................................................................18
Rooftop “Money Printers”
19
Autopilot
22
Full Self-Driving (FSD)
26
Robotaxis
28
“Unusually High [Order] Volume”
29
Selective and Misleading Pre-Order and Reservation Disclosures.....................30
A Tale of Two Morgan Stanleys................................................................................................31
Other False Statements...............................................................................................................32
Product Defects
34
VIN Mismatch Issues
34
Fires
34
Project Titan
37
Reality Check
ii
Vehicle Quality Problems
37
Sudden Unintended Acceleration
39
Service Problems.............................................................................................................................40
Charging Station Wait Times and Breakdowns
42
A Culture of Secrets, Fear, and Abuse
42
Preventing Disclosures
42
Regulation FD Violations
43
The Secret Twitter Sitter
45
Executive Departures
45
The Greek Chorus
55
The Talking Heads
62
Accounting Fraud
67
Dangling The Carrot (For a Price).........................................................................................67
Zero Profitable Years.....................................................................................................................67
Cash Balances....................................................................................................................................67
Untrustworthy Numbers
69
Inventory Lots for Lots of Inventory....................................................................................71
Non-GAAP, Undefined, Proprietary Terminology.........................................................72
Deposit Refund Problems..........................................................................................................73
Vendor Non-Payment
74
The Fugitive in Accounts Payable
75
Warranty/Goodwill Misclassification
75
Selling Used as New......................................................................................................................76
Federal Investigations
77
The Trouble with Elon Musk..............................................................................................................77
Drugs......................................................................................................................................................77
Messiah Complex
78
Environmental Hypocrisy............................................................................................................79
Undisclosed Health Problems..................................................................................................81
A Pliant Board
82
Knowing When To Stop...............................................................................................................83
Too Many CEO Roles...................................................................................................................83
Other Red Flags
84
Government Subsidy Dependence
84
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Tesla, Inc.
Fleeing Lawyers
88
Criminal Counsel on Retainer
88
The Case of Cheryl Crumpton
89
Accelerating Lawsuits....................................................................................................................89
Incompetence
90
Short Sellers.......................................................................................................................................91
Tesla Insurance..................................................................................................................................92
China
93
Regulatory Failure
96
Congress
96
National Highway Traffic Safety Administration
97
United States Securities and Exchange Commission..........................................................98
Federal Trade Commission.................................................................................................................99
United States Department of Justice
99
State and Local Governments..........................................................................................................99
Conclusion
100
Acknowledgements
101
Reality Check
iv
Corporate History
The Early Days
Tesla Motors, Inc. was incor-
porated on July 1, 2003 in
Delaware and Septem-
ber 2, 2003 in California by
The tzero.
co-founders Martin Eberhard
Photograph: Tom Gage
and Marc Tarpenning. Eberhard and
Tarpenning had created a prototype
electric sports vehicle called the tzero with the engineering expertise
of AC Propulsion, a niche auto shop in Los Angeles run by Alan Coc-
coni, who had developed drivetrain electronic components for the
General Motors EV1.1
By October 23, 2003, news of the AC Propulsion tzero had reached
Harold Rosen, the brother of Compaq’s Chairman, Ben Rosen.2 In
a bizarre transaction that speaks to the frenzied nature of the dot-
com bubble, staid hardware manufacturer Compaq had purchased
The once ubiquitous Compaq DeskPro
South African entrepreneur Elon Musk’s first company,3 Zip2, for $307
386s. Photograph: M. Blair Martin
million in February 1999.4,5 Compaq had already acquired Digital
Equipment Corporation about a year prior for $9.6 billion, and the
AltaVista search engine, which had originated in Digital’s Network
Systems Laboratory and Western Research Laboratory to show off
DEC’s 64-bit Alpha microprocessors, was part of the package deal. In
theory, Compaq hoped to enhance AltaVista with Zip2’s technology,
which internet users today would think of as a combination of Yelp
and Google Maps. Practically speaking, it made flipping AltaVista even
more lucrative for Compaq: ten months after the Zip2 acquisition,
The Zip2.com home page in 1996.
Compaq offloaded 83% of AltaVista, Zip2 and the forgotten website
Source: The Internet Archive
1
Niedermeyer, Edward W., Ludicrous: The Unvarnished Story of Tesla Motors, BenBella Books, 2019, Chapter 1.
https://books.google.com/books?id=h_SADwAAQBAJ
2
Musk, Elon, June 22, 2009, “In the Beginning.”
https://web.archive.org/web/20090624221445/http://www.teslamotors.com/blog2/?p=73
3
According to the California Secretary of State, Zip2 Corporation began as Global Link Information Network, Inc. on
November 3, 1995—months after Elon Musk claims he “deferred” his enrollment in a Stanford University Ph.D. program
after two days to work on his internet business instead. As reported by Ashlee Vance in Appendix I of his biography
Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future, according to a June 22, 2009 document sent to Musk from
the Stanford University Office of the Registrar, Musk never actually enrolled. As recently as December 28, 2019, Musk
claimed to have bootstrapped his way through “Queens Univ with scholarship & debt, then same to UPenn/Wharton
& Stanford,” but Vance also reports that, “Errol Musk gave his sons $28,000 to help them through” as they got started in
Palo Alto.
https://books.google.com/books?id=L8-HCgAAQBAJ
4
The Wall Street Journal, February 17, 1999, “Compaq Is Buying Zip2 To Broaden AltaVista.”
https://www.wsj.com/articles/SB919181288287063500
5
After the sale, physicist John O’Reilly, who had met Musk repeatedly, sued Musk for stealing the idea for Zip2 from him.
J. O’Reilly v. E. Musk, Superior Court of California, County of Santa Clara, Case No. 2007-1-CV-083172.
https://www.plainsite.org/dockets/3mrphnzz7/superior-court-of-california-county-of-santa-clara/j-oreilly-v-e-musk/
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Tesla, Inc.
Shopping.com to high-flying CMGI for $2.3 billion.6
Ten months after that, CMGI had lost 80% of its
value.7 Today, despite those stratospheric valua-
tions, Digital, Compaq, AltaVista, Zip2, and CMGI
have all long since ceased to exist.
Aside from being Ben Rosen’s brother, Harold
Rosen happened to be the boss of a talented en-
gineer named JB Straubel. Straubel e-mailed Elon
Musk to discuss electronic aircraft and cars, and
over lunch, in Musk’s words, “They told me about a
Elon Musk, shown wearing an ill-fitting tan suit and fancy watch in
company called AC Propulsion that had developed
a 1999 documentary in which Musk states, “Raising $50 million
an all electric sports car called the tzero with a
is a matter of making a series of phone calls, and the money is
range of 300 miles, a 0 to 60 mph time of under 4
there.” Source: https://www.youtube.com/watch?v=eb3pmifEZ44
seconds and a lithium ion battery pack with seven
thousand cells.” When Musk asked, AC Propulsion
wasn’t interested in commercializing its vehicle, but it knew who might
be: their partners at Tesla Motors. Eberhard e-mailed Musk himself
on March 31, 2004 seeking investment, having previously met him at
Stanford Mars Society conference in 2001.8
After earning two bachelor’s degrees from the University of Penn-
sylvania9, Musk had applied to and been accepted by a Stanford Uni-
versity Ph.D. program, but he never formally enrolled. Thanks to that
decision, his father’s financial support, and the eventual sale to Com-
paq, Musk had gone from nearly broke to incredibly wealthy overnight.
He found even more incredible dot-com luck when five months after
founding X.com in November 1999 as an on-line bank, the company
merged with Peter Thiel’s, Max Levchin’s and Luke Nosek’s Confin-
ity, best known for its product designed to beam money between
JB Straubel in
2012. Photograph:
Steve Jurvetson
PalmPilots using their infrared ports, called PayPal. Musk was the CEO
for six months, after which he was ousted in a coup and replaced by
Thiel.10 Years later, for extending credit to customers who had abso-
lutely no creditworthiness, Thiel would describe Musk as, “The man who knew noth-
ing about risk.”11
6
CNet, January 2, 2002, “CMGI buys AltaVista for $2.3 billion.” https://www.cnet.com/news/cmgi-buys-altavista-for-2-3-billion/
7
The Wall Street Journal, October 15, 2000, “CMGI Stock Has Lost 80% of Its Value Since January, Sits at 22-Month Low.”
https://www.wsj.com/articles/SB971467239104182477
8
Business Insider, November 11, 2014, “The Making Of Tesla: Invention, Betrayal, And The Birth Of The Roadster.”
https://www.businessinsider.com/tesla-the-origin-story-2014-10
9
According to Ron Ozio, Director of Media Relations for the University of Pennsylvania, “Elon Musk earned a B.A. in phys-
ics and a B.S. in economics (concentrations: finance and entrepreneurial management) from the University of Pennsylva-
nia. The degrees were awarded on May 19, 1997.” Musk attributes the two-year delay to a missing credit.
10
According to Chapter 5 of Vance’s biography, Musk had insisted on using Microsoft server software over Linux despite
reliability problems and was loyal to the X.com brand over “PayPal.”
11
Quartz, November 14, 2018, “What happened when Elon Musk gave a credit card to anyone who wanted one.”
https://qz.com/1463422/elon-musk-gave-a-credit-card-to-anyone-who-wanted-one/
Reality Check
2
This description of Elon Musk explains almost every sub-
sequent event in his career, where raw ambition mixed
with a healthy dose of condescending hubris—masked by
humor but reinforced by dot-com bubble financial suc-
cess—consistently served as Musk’s guiding force, no mat-
ter the risk involved. As an avid science fiction reader, he
already had plenty of ideas about what the future should
look like, and the billions of dollars that had showered
down upon him and others thanks to Alan Greenspan’s
easy monetary policy12 gave him no reason to doubt his
own decision-making abilities, or the notion that hard work
always paid eight- to nine-figure dividends in short order.
Consequently, when Musk met Martin Eberhard to discuss
electric cars, one of his lifelong interests, Musk agreed to in-
vest $6.35 million after some cursory questions about the
feasibility of manufacturing. Eberhard remained CEO. (JB
Tesla co-founder Martin Eberhard with a red Tesla
Straubel joined soon after.) The company’s initial product,
Roadster in 2006. Photograph: Nicki Dugan
the Roadster sports coupe, was arguably the first mass-
market electric car to use lithium-ion battery cells. With
a required deposit of $100,000 for early models, it was
targeted at wealthy enthusiasts in California who could af-
ford the luxury of spending more than many people earn
in a year to experiment with what was perceived to be
the next big thing in clean energy. As documented in Ed-
ward W. Niedermeyer’s book Ludicrous: The Unvarnished
Tesla’s original logo, designed at Musk’s request by the
Story of Tesla Motors, the fledgling Tesla Motors was not at
designers of the SpaceX logo, sought to emulate those
all prepared for the serious challenges of producing an ac-
frequently used by other automobile manufacturers.
Neither the logo nor the name “Tesla Motors” reflect-
tual car, and worked closely with Lotus Cars in the United
ed any plans for the company’s foray into other parts
Kingdom to achieve its previously unthinkable goals. Even
of the energy sector, such as batteries and solar panels.
with Lotus’s engineering assistance, the notion that the
Roadster would ever be profitable was a pipe dream.13
Lotus’s parts had to be modified by hand when they arrived in the United States, and
the Roadster was plagued by quality problems, causing its celebrity owners, such as
George Clooney, to ask why they were always stranded on the side of the road in
their fancy electric car.
Undeterred as usual, in an August 2, 2006 blog post, Elon Musk outlined his “master
plan”: an affordable, mass-market vehicle that required no gasoline whatsoever, built
using the money earned from selling a sports car (the Roadster) and a slightly more
12
The Los Angeles Times, October 16, 1998, “Fed, in Surprise Move, Cuts Interest Rates; Dow Up 330.”
https://www.latimes.com/archives/la-xpm-1998-oct-16-mn-33138-story.html
13
Niedermeyer, Edward W., Ludicrous: The Unvarnished Story of Tesla Motors, BenBella Books, 2019, Chapter 2.
https://books.google.com/books?id=h_SADwAAQBAJ
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Tesla, Inc.
affordable mass-market car (the Model S and Model X).14 The
first trick would be actually building any car, at scale, for a profit.
The second trick would be convincing the world that the plan
was working, even if none of the cars in the first two steps were
generating any consistent profit at all.
Accordingly, the company pinned its hopes on Whitestar, a code
name for what came to be known as the Model S: a mid-size
sedan that looked similar to a Toyota Camry. With Tesla’s em-
ployee roster growing and technical challenges multiplying, com-
pany management was increasingly at odds with one another.
Musk’s attention-seeking nature began consuming Tesla’s limited
human resources. Eventually, there was a falling out between
Eberhard and Musk, and on May 26, 2009, Eberhard sued Musk
in San Mateo County Superior Court for libel, slander, breach
of contract, conversion, negligence, and a host of other claims,
including the incorrect presumption that Musk had lied about
having graduated from Penn.15 The lawsuit ultimately settled,
Musk at the Tesla annual shareholder meeting
with Musk contractually permitted to refer to himself as a “co-
in June 2019. Photograph: Steve Jurvetson
founder” of the company according to the settlement terms.
Eberhard had effectively been pushed out.
Securing Funding From Uncle Sam
In order to survive as a company, Eberhard and Tarpenning turned to two sources of
income: customer deposits (hoping to finance their cars in the same manner as air-
planes) and the federal government. On Tesla’s behalf, Musk lied to customers early
on, telling them via e-mail, “the Department of Energy informed Tesla last week that
they expect to disburse funds from our $350M loan application within four to five
months,” referring to a loan application submitted to the United States Department
of Energy that had not actually been approved. Per a Freedom of Information Act
(FOIA) request by Edward W. Niedermeyer, “[Tesla’s] December 2, 2008, application
had been rejected due to insufficient data to verify efficiency claims and environmen-
tal regulation compliance. Tesla’s successful application to the loan program wouldn’t
be filed until May 4, 2009, months after Musk’s claim about imminent disbursement.”16
After years of development, in the burgeoning world of electric cars, the Model S
was a major success. Though hardly cheap, it was far less expensive than the Road-
ster—essentially the only electric car that a well-to-do middle class family in Palo Alto
14
Musk, Elon, August 2, 2006, “The Secret Tesla Motors Master Plan (just between you and me).”
https://www.tesla.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me
15
Martin Eberhard v. Elon Musk et al, Superior Court of California, County of San Mateo, Case No. CIV484400.
https://www.plainsite.org/dockets/3cberzj42/superior-court-of-california-county-of-san-mateo/martin-eberhard-v-elon-musk-et-al/
16
Niedermeyer, Edward W., Ludicrous: The Unvarnished Story of Tesla Motors, BenBella Books, 2019, Chapter 6.
https://books.google.com/books?id=h_SADwAAQBAJ
Reality Check
4
or Mountain View, California might actually consider buying to help save the environ-
ment. Consequently, the Model S was the best-selling plug-in electric car in 2015
and 2016. Yet it was still not successful enough to make Tesla Motors profitable on
an ongoing basis. By the end of 2016, Tesla’s retained earnings totaled negative three
billion dollars.
Using the Model S platform, the company’s next car was the Model X, which Tesla
started producing in 2015: a modernized, electric homage to the 1980s silver DMC
DeLorean featured in the Back To The Future series of films. While its falcon-wing
doors made it somewhat popular, it too was not profitable enough to swing Tesla
consistently into the black. But Musk’s apparent fascination with John DeLorean, a
charismatic former General Motors executive who sought to build a new American
car company and ended up arrested on drug charges,17 would prove intriguing.
Perceived Market Advantages
The Charismatic Leader
Tesla’s greatest asset is its first major investor, Elon Musk. Musk is a household name
from the United States to South Africa to China to Japan, whose reputation for be-
ing a freewheeling, science-driven innovator precedes him wherever he goes. In turn,
Musk’s greatest asset is his sense of humor, which he deploys frequently to deflect
criticism and endear fans, many of whom view him as a demigod who can do no
wrong. As of the writing of this report, Musk boasts 30 million followers on the Twit-
ter social network. Of those 30 million, Musk most often interacts with roughly a
dozen accounts, giving the illusion that he is accessible to just about anyone.
Next-Generation Technology
Tesla has been undeniably ahead of other car companies in deploying technologies
that are taken for granted in Silicon Valley, but which are less frequently associated
with Detroit. Tesla’s vehicles are equipped with wireless internet connectivity for
downloading “over-the-air” software updates that can enhance the car’s features,
Bluetooth-enabled locks, and a sophisticated touchscreen-based entertainment con-
sole that makes BMW’s iDrive knobs and arrows look about as modern as a cassette
deck. The company’s image recognition software, commonly referred to as employing
“artificial intelligence,” can handle basic object recognition and lane centering in many
cases, and does not use Light Detection and Ranging (LIDAR) sensors, lowering the
expense of deployment.
17
The Washington Post, August 17, 1984, “DeLorean Acquitted Of All Eight Charges In Drug-Scheme Trial.”
https://www.washingtonpost.com/archive/politics/1984/08/17/delorean-acquitted-of-all-eight-charges-in-drug-scheme-
trial/3a2de886-9c81-468f-80ff-386f4e527201/
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Tesla, Inc.
The Model 3
The Tesla Model 3 is the first ever mass-market
electric vehicle that is affordable on a middle-class
family budget, with a base price near
$35,000.
With an austere, touchscreen-based interior that
appeals to a generation accustomed to iPads, the
Model 3 is considerably more popular than any
other electric vehicle on the market at present,
and has received generally positive reviews for
its safety features. The Model 3 also shares many
Tesla Model 3 vehicles in their natural habitat: Palo Alto, California.
Photograph: PlainSite
of its components with the forthcoming Model Y,
which makes manufacturing easier.
Battery Production
Under Musk’s leadership, Tesla has invested heavily in battery production for its own
cars via a partnership with Panasonic in order to reduce the price per unit. High bat-
tery costs present a significant challenge to delivering an affordable electric vehicle
for every automaker. By agreeing to purchase an enormous volume of batteries from
Panasonic in advance and by building a dedicated plant in Storey County, Nevada
(near Reno), Tesla has been able to leapfrog its competition, which is only now start-
ing to catch up.
Global Footprint
Although it is based in the United States, Tesla now has a car factory in China, as well
as plans to build a factory in a suburb of Berlin in Germany. Once up and running,
its distributed global manufacturing operations will give Tesla the ability to produce
cars more cheaply than it otherwise could, while saving on substantial shipping costs.
China is also a potentially large market for the sale of electric vehicles, and Tesla ap-
pears to have the backing of the government there.
Unrecognized Risks
A History of Deliberate Deception for Personal Gain
In Ludicrous, Niedermeyer documents the fact that Elon Musk’s history of fraudulent
behavior dates back to at least as early as 2009, when Tesla was struggling to survive
as it sold the Roadster electric sports car to its wealthy, early-adopter customers.
Since then, Musk’s burgeoning empire has grown far more complex, as have the lies.
Reality Check
6
Elon’s Pyramid
Elon Musk is known for being the CEO or Chairman of three major companies that
combined into two after the 2016 SolarCity deal: Space Exploration Technologies
Corporation, or SpaceX for short; Tesla, Inc., formerly known as Tesla Motors, Inc.; and
SolarCity Corporation.
In an April 27, 2016 Wall Street Journal article, Musk revealed that the
intertwined nature of his enterprises is as much a vulnerability as it is
an advantage when he was quoted as stating that it is “important that
there not be some sort of house of cards that crumbles if one ele-
ment of the pyramid of Tesla, SolarCity and SpaceX falters.”18 Another
key entity not mentioned was the Elon Musk Revocable Trust Dated
July 22, 2003, which owns a majority stake in SpaceX.
The “pyramid” analogy sets the stage for the balancing act that Musk
has attempted to master since the early 2000s. Each company on
its own aspired toward an audacious goal: dramatically reducing the
expense and complexity of space travel (and colonizing Mars) for
The logos of the three main
companies in Elon Musk’s self-
SpaceX; making electric vehicles fun and affordable for Tesla; and en-
described “pyramid.”
abling a long-overdue shift to renewable energy for SolarCity. On
the surface, raw ambition aside, these goals are laudable, and with the
possible exception of colonizing Mars, involve a clear societal benefit. But the devil,
as is often said, is in the details.
The truth is that to fully describe Elon Musk’s financial arrangements, a pyramid
(whether its base is triangular or square) hardly has enough sides. Musk is associated
with on the order of 20 additional LLCs, set up to manage and shield from public
scrutiny his various assets: real estate, private jets, and new business ventures.19
In the Vernon Unsworth v. Elon Musk federal court case concerning Musk’s alleged
libel of a British cave diver who assisted with the rescue of boys trapped in a cave in
Thailand, it was revealed that Musk’s “family office” limited liability company is called
Excession, LLC.20,21 Excession is also a 1997 science fiction novel by Iain M. Banks. This
complex proliferation of shell companies, managed by a former wealth management
advisor named Jared Birchall from a law firm office in Burlingame, California, has given
Musk a convenient way to plausibly deny that any of his companies has ever paid for
or been connected to any kind of suspicious or untoward activity. To pin down what
Musk has been up to, one must learn to play his shell game.
18
The Wall Street Journal, April 27, 2016, “Elon Musk Supports His Business Empire With Unusual Financial Moves.”
https://www.wsj.com/articles/elon-musk-supports-his-business-empire-with-unusual-financial-moves-1461781962
19
PlainSite. https://www.plainsite.org/tags/elon-musk-companies/
20
Vernon Unsworth v. Elon Musk, California Central District Court, Case No. 2:18-cv-08048-SVW-JC.
https://www.plainsite.org/dockets/3cddrxs4o/california-central-district-court/vernon-unsworth-v-elon-musk/
21
Vernon Unsworth v. Elon Musk, California Central District Court, Case No. 2:18-cv-08048-SVW-JC, Document 77.
https://www.plainsite.org/dockets/download.html?id=285067557&z=9927c50f
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Tesla, Inc.
The SolarCity Bailout
SolarCity was founded in 2006 by Lyndon and Peter Rive, Elon Musk’s cousins. Musk
himself was the Chairman of the Board of Directors, having reportedly provided the
initial impetus to start the company by suggesting that there might be opportunities
in the clean energy space. By that point, Musk had been an investor in Tesla Motors
for three years, and had been leading SpaceX for four.
To keep the companies afloat, and because on rare occasion it may have actually
made sense, Tesla, SolarCity and SpaceX sometimes engaged in undisclosed related-
party transactions, such as SolarCity buying cars from Tesla, or SpaceX purchasing so-
lar panels from SolarCity. These transactions were alluded to but not fully described
by Tesla Directors during depositions. In the words of former Tesla Director Brad
Buss, “We would just—you know, we might buy solar panels for something. They may
be buying batteries and stuff from our perspective. You know, I think they bought
some cars.”22 But by 2015, these cozy transactions were not enough to make up for
what was fundamentally a failing business for SolarCity.
SolarCity’s business model was more
complex than simply earning cash to install
the DSCR was 1.23, which is below the 1.25 trigger for an Insurance Sweep Period. As of the July 2019
payment period, the DSCR was 1.26. KBRA will continue to monitor the transaction.
or manufacture solar panels. Instead, the
SolarCity LMC Series IV, LLC - Historical DSCR
2.20
company leased its solar panels to custom-
2.05
1.90
ers, who would pay for them in monthly
1.75
1.60
installments. The revenue streams from
1.45
1.26
1.23
1.26
1.30
the leases were then securitized, allowing
1.15
1.00
third-party investors to buy up the oppor-
0.85
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
tunity to profit from financing America’s
DSCR
DSCR/Insurance Sweep*
Early Amortization
Class B Interest Deferral
* A DSCR/Insurance Sweep Period will commence if the DSCR is less than or equal to 1.25. During a DSCR/Insurance Sweep Period,
transition to “green energy.”
funds after making principal payments to the Notes will be deposited into the liquidity reserve account, up to the Note balance.
An August 2019 Kroll ABS surveillance report for SolarCity LMC Series IV,
LLC, Series 2015-1 showed that SolarCity is still in rocky terrain, having just
SolarCity was not the only company em-
missed an early amortization trigger level in January. SolarCity’s successor
ploying this “solar-as-a-service” model.23 It
began suing a number of Arizona customers for non-payment later in 2019.
was, however, one of the largest players.
With names like SolarCity LMC Series V,
LLC, Series 2016-1 and SolarCity FTE Series 2, LLC, Series 2017-A, the company
securitized tens of thousands of solar panel arrays installed on homes and businesses
across the United States. Unfortunately, by 2016, these securitization vehicles were
starting to run into serious financial trouble.
To make matters more complex, by 2016 SolarCity had disclosed 212 subsidiary
companies to the SEC—mostly headquartered in Delaware, but also in Mexico, Aus-
22
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attach-
ment 1, Exhibit 3, Transcript Page 42. https://www.plainsite.org/dockets/download.html?id=285647386&a=1&z=fd4ffdbe
23
Massachusetts Institute of Technology, July 2016, “Solar Securitization: An Innovation in Renewable Energy Finance.”
https://energy.mit.edu/wp-content/uploads/2016/07/MITEI-WP-2016-05.pdf
Reality Check
8
tralia, the Cayman Islands, and Hong Kong.24 One of those subsidiaries, Megalodon
Solar, LLC, was involved in a 2015 loan agreement referred to as the “Kronor Facility,”
which would later become key to SolarCity’s fate.25
By 2016, SolarCity’s CEO, Lyndon Rive, was starting to panic. The company required
a bridge loan to avoid defaulting on its revolving debt, and no one was willing to pro-
vide it.26 The cousins had strategized a buyout over a conversation at Lyndon Rive’s
second home at Lake Tahoe in February 2016.27 He attempted to tell his cousin and
Board Chairman, Musk, how dire the situation was, but Musk seemed distracted by
other issues. When discussing whether SolarCity should raise equity by May 2016,
Musk asked, “Can it wait a month?”28 Any buyout would need to be approved by
shareholders, and given the horrific financials and the conflicts of interest between
the Board members, that was going to be tricky.
For Elon Musk, failure was not an option. Because SpaceX owned 77% of SolarCity’s
bonds, a SolarCity bankruptcy would potentially have catastrophic consequences for
SpaceX, and in turn, the Elon Musk Revocable Trust. The damage to his reputation
alone could spell serious trouble for cash-strapped Tesla, as well, causing a cascade
of events that could plausibly lead to Musk’s personal bankruptcy and long-term
alienation from banks and capital markets. He was therefore motivated to take
extreme—even illegal—measures to prevent such
an occurrence from taking place.
Here, a majority of the Tesla Board received personal benefits because they
owned SolarCity stock. The Acquisition diluted Tesla stockholders who did not also
own SolarCity stock. Elon Musk, Kimbal Musk, Gracias, Jurvetson, and Buss were
Musk schemed with his cousins and both Boards
able to offset that dilutive effect by virtue of their substantial holdings in SolarCity:
of Directors to make it appear as though his plan
Defendant
SolarCity Shares
Value in Tesla Conversion44
for a vertically integrated energy company was
Elon Musk45
22,162,870
$451,063,162.81
Kimbal Musk46
147,541
$3,002,783.94
widely supported and had made perfect sense
Antonio Gracias47
211,854
$4,311,694.98
Steve Jurvetson48
1,672,381
$34,036,632.59
all along. In reality, the Tesla, SolarCity, and even
Brad Buss49
37,277
$758,668.96
SpaceX Boards were all against the deal. Tesla
Defendants do not dispute these facts. Instead, Defendants argue that these
stood to acquire a massive amount of debt from
benefits did not pose a conflict of interest because of their high “net worth.”50
SolarCity, and there was little realistic overlap be-
However, there is no exception to directors’ “uncompromising duty of loyalty”51 that
tween manufacturing, selling and financing solar
would permit directors to pursue self-interested transactions so long as they are
panels and manufacturing and selling cars.
independently wealthy.
An excerpt from the plaintiffs’ Reply Brief in Further Support of
That the deal made absolutely no sense was
Their Motion for Partial Summary Judgment, indicating that Elon
Musk stood to gain almost half a billion dollars from pushing the
widely known. As Linette Lopez wrote in Busi-
Tesla-SolarCity merger through. Directors stood to gain millions.
ness Insider, “[T]he merger that Musk called a ‘no-
24
SolarCity Corporation SEC Form 10-K, December 31, 2015, Exhibit 21.1, List of Subsidiaries of SolarCity Corporation (as of
February 10, 2016). https://www.sec.gov/Archives/edgar/data/1408356/000156459016012549/scty-ex211_9.htm
25
SolarCity Corporation SEC Form 10-K, December 31, 2016, Exhibit 10.22, Credit Agreement dated as of March 31,
2016. https://www.sec.gov/Archives/edgar/data/1408356/000156459016018711/scty-ex1022_620.htm
26
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 335, Attach-
ment 1, Exhibit 152, Page 30. https://www.plainsite.org/dockets/download.html?id=285647394&a=1&z=e01b3d84
27
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attachment 2,
Exhibit 12, Transcript Pages 98-106. https://www.plainsite.org/dockets/download.html?id=285647386&a=2&z=fd4ffdbe
28
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attach-
ment 2, Exhibit 11, Transcript Page 103. https://www.plainsite.org/dockets/download.html?id=285647386&a=2&z=fd4ffdbe
9
Tesla, Inc.
CONFIDENTIAL
brainer’ appeared to be anything
Page 142
Page 144
but. No other company was bid-
1
Q.
you'll see that this
1
THE WITNESS: No.
2 document has the same -- it does have the same
2 BY MR. BERGER:
ding to buy SolarCity, and accord-
3 entry -- makes the same reference,
3
Q. Why not?
4
4
Did SpaceX's board refuse to do it?
ing to internal emails, it was also
5
You don't remember Goldman refused to lend
5
A. I don't know what the -- who refused to do
6 to you because they also had an issue that you
6 it. And I was told no. So maybe it was SpaceX's
struggling to find financing for a
7 failed the credit approval?
7 board that said no.
8
A. I don't remember what Goldman's was. One
8
Q. How much were you trying to raise from the
$200 million bridge loan that it
9 of the two had the stock voting issue.
9 solar bonds?
10
Q. One of the two what?
10
A.
100 million, but we would like to raise
needed immediately.”29 In the
11
A. Had the stock voting issue.
11 more. But a minimum of 100 million.
words of Lyndon Rive recorded
12
Q. One of the two had a stock voting issue.
12
Q. You ended up raising 100 million.
13
A. Yes.
13 Originally, you wanted to raise more than
in an e-mail about one of Solar-
14
Q. Did one of the two have an issue that
14 100 million in the solar bonds. Originally, the
15 SolarCity failed credit approval?
15 idea was to raise something like 150 million from
City’s loan agreements (and then
16
A. I can't remember what the reasons why we
16 SpaceX, but SpaceX wouldn't do it; isn't that right?
17 could not get the deal done.
17
A. I can't remember exactly the process and
redacted), “If we breach [K]ronor,
18
Q. Okay. Thank you. I'm done with that
18 how it went through.
19 document.
19
I forget exactly the
we’re dead.”30
20
So I think that you told us that, unable
20 amount.
21 to get 200, $300 million in financing anywhere else,
21
Q. So what you ended up doing was raising
22 you turned as a last resort to solar bonds; is that
22
$100 million where, if I have this correct, Mr. Musk
23 right?
23 bought 65 million and you and your brother each
According to Tesla’s own General
24
A. Correct.
24 bought $17 1/2 million of solar bonds; correct?
25
MR. SORRELS: Object to form.
25
A. Correct.
Counsel at the time, Todd Maron,
the deal was worse than nonsensi-
An excerpt of the recently unredacted transcript of the deposition of Lyndon Rive, CEO
cal: it would actually harm Tesla. As
of SolarCity, from Case No. 12711-VCS before the Delaware Court of Chancery.
he wrote,
“[T. Rowe Price] said what Tesla is trying to accomplish in the automotive space is
very complex and to add SolarCity to the mix raises the operational and financial risk
profile of the company, especially given SolarCity’s financial challenges as a company.”
Advisors Evercore Partners LLC and Lazard also insisted that the deal was prob-
lematic, even looking at numbers that painted an overly optimistic picture due to
an enormous mathematical error. Everywhere Musk turned with proposals to save
SolarCity, he heard a loud “no.” Both Goldman Sachs and Morgan Stanley refused to
lend money on the basis that SolarCity had failed credit checks. Even the Board of
SpaceX—a company controlled by Musk—“said no” to investing, according to newly
unredacted testimony by SolarCity CEO Lyndon Rive. Other than Elon Musk, the
number of parties formally interested in rescuing SolarCity was precisely zero. But he
couldn’t pull off a deal entirely on his own.
The Tesla Board finally cracked under pressure from Musk. Virtually all of the Direc-
tors could only be described as obviously and hopelessly conflicted. Kimbal Musk—
who somehow managed to claim under oath that he didn’t perceive any conflict at
all31—was Elon’s brother and business partner dating back to his Zip2 days. Steve
Jurvetson and/or his funds owned 1.67 million shares of SolarCity stock.32 Ira Eh-
29
Business Insider, October 30, 2019, “The future of Elon Musk’s empire was in peril in 2016, and new documents reveal
more about the desperate plan to save it.”
https://www.businessinsider.com/elon-musk-tesla-solarcity-merger-frenzied-plan-new-filings-show-2019-10
30
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 358, Attach-
ment 1, Exhibit 11, Transcript Page 28. https://www.plainsite.org/dockets/download.html?id=286421807&a=1&z=d10716fd
31
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attach-
ment 2, Exhibit 10, Transcript Page 12. https://www.plainsite.org/dockets/download.html?id=285647386&a=2&z=fd4ffdbe
32
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attach-
Reality Check
10
renpreis was invested in SpaceX through a secret Special Purpose Vehicle—the only
one of his firm’s investments that apparently necessitated an SPV.33 But old-fashioned
nepotism alone still wasn’t enough to push the deal through.
Never one to back down, and
completely ignoring the fact that
his plan would violate numerous
federal and state laws, Musk de-
vised a solution to save himself: a
fake product demonstration. He
would announce and launch a
“Solar Roof Tile,” proving that the
supposed vertical integration be-
tween SolarCity and Tesla had al-
ways been meant to be. On Oc-
tober 26, 2016, the demonstration
took place on the set of the televi-
sion show Desperate Housewives,
carefully orchestrated to keep the
star-struck press corps from catch-
ing onto the fact that the entire
presentation was a hoax.34 The
product didn’t work, didn’t really
exist, and it wasn’t hooked up to
the electric grid. It was all for show
to induce shareholders to approve
Top: Musk e-mailed his cousin on September 16, 2016 pointing out that feedback from
a multi-billion dollar securities
major investors was “very negative” on the SolarCity deal.
transaction that would save Musk
Bottom: In response, Musk lied to investors on stage, telling them that a block of useless
material was actually a technological breakthrough that justified the deal. As usual, the
and his family members from likely
media breathlessly reported Musk’s false claims without asking too many questions.
bankruptcy. And it worked.
Photograph: CNBC
When Tesla and SolarCity share-
holders voted on the merger deal, they were falsely told that Elon Musk had been
“recused” from the decision making process—a massive lie. Court documents reveal
that Musk guided the process at every step along the way, even as every other party
saw the clear danger in what he proposed.35 Investors were not told, however, that
SolarCity was at risk of breaching key loan covenants, that it had been rejected by at
least two major investment banks for credit, that the Board had been informed about
cash concerns for months, that every financial advisor asked had advised against the
ment 1, Exhibit 5, Transcript Page 49. https://www.plainsite.org/dockets/download.html?id=285647386&a=1&z=fd4ffdbe
33
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 358, Attach-
ment 1, Exhibit 13, Transcript Page 18. https://www.plainsite.org/dockets/download.html?id=286421807&a=1&z=d10716fd
34
Vanity Fair, August 25, 2019, “He’s Full of Shit”: How Elon Musk Fooled Investors, Bilked Taxpayers, and Gambled Tesla to
Save SolarCity.” https://www.vanityfair.com/news/2019/08/how-elon-musk-gambled-tesla-to-save-solarcity
35
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS.
https://www.plainsite.org/dockets/32atfyhh5/court-of-chancery-of-delaware/in-re-tesla-motors-inc-stockholder-litigation/
11
Tesla, Inc.
deal, or that SolarCity solar panels might be using defective components that ideally
would need to be recalled to avoid fire risk. Despite lacking this crucial information
and trying to keep it sealed, confidential, and redacted in court throughout 2019 and
early 2020, Tesla’s Board still maintains that shareholders were fully informed.
However one characterizes them, shareholders blindly followed their leader and
voted to approve the deal. Musk got exactly what he wanted, managing to convince
people he was a “visionary” as a bonus. And Tesla got saddled with billions of dol-
lars of SolarCity’s looming debt. The lesson of the SolarCity merger, only partially
revealed three years after it completed, could be summarized as follows: far from the
reserved, quirky engineer he once was, Elon Musk would do anything to get ahead—
including committing criminal acts and trying to cover them up.
In deposition testimony regarding the merger in June 2019, Elon Musk repeatedly as-
serted that while “we certainly believed that the long-term growth of megawatts de-
ployed would be very significant,” he had also needed to re-allocate all of SolarCity’s
resources, including staff, to Model 3 production, or else Tesla’s very survival would
have been in jeopardy. In Musk’s words,
“It takes time to refactor a product line. It takes time to restructure a company. And
our focus last year was the Model 3 program. And so Tesla as a whole, if I did not
take everyone off of solar and focus them on the Model 3 program to the detriment
of solar, then Tesla would have gone bankrupt. So I took everyone from solar, and said,
‘Instead of working on solar, you need to work
on the Model 3 program.’”36
SolarCity/Tesla Megawatts Deployed
300
253
But this strange ex post facto rationaliza-
250
245
tion—that unless Tesla acquired SolarCity
211
201
for its labor pool, Tesla would go out of
200
189
176
177
177
176
business—completely contradicts what
150
150
143
investors were told at the time in 2016.
137
107
109
Nor does this line of reasoning appear in
100
93
82
87
84
discovery materials from 2016, or line up
76
73
with any other person’s recollection of the
47
43
50
29
discussions leading up to the deal. It also
0
strains belief that SolarCity shareholders
would have willingly agreed to sacrifice
their company for the good of another
After the merger completed in Q4 2016, Tesla’s solar business declined 85%
until it hit a new low in Q2 2019. Source: Tesla, Inc.
corporation that was already on life sup-
port. At no point did Tesla disclose that
it would require thousands of additional employees to make the Model 3 program
work, let alone that the only way to hire them would be to acquire a company whose
36
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 328, Attachment
2, Exhibit 9, Transcript Pages 37-38. https://www.plainsite.org/dockets/download.html?id=285647386&a=2&z=fd4ffdbe
Reality Check
12
staff had no experience whatsoever with vehicle manufacturing or sales. Effectively,
Musk argued under oath that SolarCity was doomed to fail no matter what: if Tesla
had not purchased SolarCity, then it would have been forced to declare bankruptcy,
but because Tesla did, since Tesla was already on the verge of bankruptcy itself, Solar-
City was stripped of its assets and left to rot, as was supposedly the plan all along. Yet
somehow, despite the complete and deliberate decimation of the business, Musk still
believed “the long-term growth of megawatts deployed would be very significant.”
The striking inherent contradictions in this line of reasoning make it sound like Musk
was lying under oath. Either way, the results of Musk’s resource shift are visible in
the numbers. SolarCity was reduced to a shadow of its former self after the merger,
negating any ex post facto justification regarding “synergies” or “vertical integration.”
Given the amount of legal hassle its long-term lease agreements continued to gen-
erate for Tesla—which found itself embroiled in land trespass lawsuits,37 mortgage
cases, and foreclosure litigation galore, not to mention the expense of handling So-
larCity’s various Asset-Backed Securities and 200+ subsidiaries—it is a near certainty
that keeping the solar business alive for the sake of appearances cost Tesla far more
money than it was actually worth.
Securities Fraud, False Statements and Unfulfilled Promises
Tesla’s market valuation is considerably higher than many of its competitors, despite
its failure to even once sustain a profit for a full year. Some of the stock’s buoyancy
can be attributed to Elon Musk’s star power, but beyond that, it is crucial to recognize
that Musk and the company are constantly making false promises to customers and
investors—many of them provably false—in an effort to (unlawfully) boost the stock
price. This is possibly because Elon Musk’s compensation package—a scheme called
“extraordinary” by the Harvard Law School Forum on Corporate Governance—is
entirely composed of stock options potentially worth billions of dollars, depending
upon the share price.38 Since the United States Securities and Exchange Commission
(SEC) has largely been missing in action, these efforts to manipulate markets have,
for the most part, worked, leaving 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5—the
bedrock of American securities law—almost completely unenforced.
“Funding Secured”
Many people who had not been following Tesla’s stock learned of it for the first time
from an incident in August 2018 that is still today the single most egregious instance
of securities fraud in the history of the stock market. At 9:48 A.M. on Tuesday, August
7, 2018, during trading hours, Elon Musk tweeted, “Am considering taking Tesla private
at $420. Funding secured.” He quickly added, “Shareholders could either to sell [sic]
37
Dixon v. Tesla, Inc. et al, Superior Court of California, County of Contra Costa, Case No. CIVMSC18-01286.
https://www.plainsite.org/dockets/3gsr73jbl/superior-court-of-california-county-of-contra-costa/dixon-v-tesla-inc-et-al/
38
Harvard Law School Forum on Corporate Governance, May 22, 2018, “Elon Musk’s Compensation.”
https://corpgov.law.harvard.edu/2018/05/22/elon-musks-compensation/
13
Tesla, Inc.
at 420 or hold shares & go private.”
This was a lie. Funding to take Tesla private was not se-
cured, and never had been. The tweet would set in motion
a series of events as markets and regulators attempted to
grapple with the implications. Three days later, lawyers
filed the first of fourteen resulting lawsuits in federal court
and three in state courts.39 Most of the cases were ulti-
Funding was not secured.
mately consolidated into one, which remains ongoing after
a year-long detour to the Ninth Circuit Court of Appeals
to resolve the question of who should serve as lead plain-
tiff: those with losses from both long and short positions, or those with the greatest
losses overall from short selling Tesla when it skyrocketed on Musk’s fake news.40
Two of the federal suits were filed by the United States Securities and Exchange
Commission, which despite a general hands-off policy thanks to the Trump Adminis-
tration’s laissez-faire, pro-crime approach to financial regulation, still felt pressure to
do something. Unable to reach an agreement with Musk and Tesla, the SEC took both
cases to court in the Southern District of New York. In short order, Musk settled, with
both Musk and Tesla agreeing to pay $20 million fines each, Musk agreeing to step
down as Chairman of Tesla’s Board of Directors, new requirements for independent
directors imposed by the Commission, and pre-approval of Musk’s tweets required
going forward.
The “funding secured” incident was a landmark event the
history of financial markets for a number of reasons. For
those who previously hadn’t paid much attention to Elon
Musk, it put him on the radar in a shocking and unflattering
manner, attracting even more short interest in Tesla’s stock.
It also demonstrated how social media could be used to
manipulate financial markets in an instant, while regula-
tors scrambled to keep up. The settlement also showed
executives a new low in what could be gotten away with.
Musk seemingly can’t stop and won’t stop tweeting
Practically speaking, the settlement made little difference
material, false information. These tweets, pre-approved
to Musk, who clearly felt emboldened. On December 9,
by no one despite the 2018 SEC Consent Decree, re-
2018, Musk appeared on CBS News’s flagship program, 60
sulted in charges of contempt of court. Ultimately,
Tesla did not “deliver” 400,000 cars in 2019.
Minutes, stating, “I want to be clear. I do not respect the
SEC. I do not respect them,” directly into the camera. He
also openly admitted that he had been violating the SEC’s
binding Consent Decree.41 From that point forward, he was confident that he could
39
PlainSite. https://www.plainsite.org/tags/funding-secured/
40
Bridgestone Investment Corp v. USDC-CASF, Court of Appeals for the Ninth Circuit, Case No. 19-70031.
https://www.plainsite.org/dockets/3tnszbhyq/court-of-appeals-for-the-ninth-circuit/bridgestone-investment-corp-v-usdccasf/
41
CBS News 60 Minutes, December 9, 2018, “Tesla CEO Elon Musk: The 60 Minutes Interview.”
Reality Check
14
Tesla Worker Rights Cases Filed Over Time
8
6
4
2
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Tesla has faced an increasing number of lawsuits, many of them class-action suits, alleging unsafe and racist working conditions at Tesla’s
factories across the United States. There have also been several lawsuits alleging pervasive sexual harassment.
say or do anything he wanted to with zero repercussions. And he did.
On February 19, 2019 at 4:15 P.M., Musk posted new guidance on his Twitter account:
Tesla would manufacture 500,000 cars in 2019. Four and a half hours later, he at-
tempted to walk it back, but it was too late. The SEC finally dragged Musk back to
court in April 2019 to subject him to contempt proceedings. But Musk still didn’t
need to worry. The SEC’s trial lawyer, Cheryl Crumpton, made such a poor showing
that Judge Alison Nathan chalked up Musk’s deliberate and inexcusable antics to a
mere misunderstanding. Sounding more like a kindergarten teacher coaching parents
of feuding children than a federal judge, she stated, “My call to action is for every-
one to take a deep breath, put your reasonable-
ness pants on and work this out.” Musk promptly
walked out of the courtroom and declared victory.
Two months later, the SEC attorney he had been
negotiating with left the SEC to work for Tesla’s
lobbying partner. Despite highly questionable cir-
cumstances surrounding the amended Consent
Decree that the SEC finally ironed out, Judge Na-
than never bothered to follow up.
October 24, 2018 Q3 2018 Earnings Call
During the regulated earnings call on October
24, 2018, Musk claimed, “This quarter, we started
rolling out Version 9.0 of our software which is
the biggest software upgrade in three years. And
Model 3 received a 5-Star safety rating in every
category and subcategory. And it got less prob-
ability of injury of any car that the U.S. govern-
ment has ever tested.”42 In fact, according to what
NHTSA told Reuters two weeks before, “NHTSA
The first page of NHTSA’s October 17, 2018 letter to Elon Musk
does not distinguish safety performance beyond
informing him that it had referred Tesla to the FTC Bureau of
Consumer Protection.
https://www.cbsnews.com/news/tesla-ceo-elon-musk-the-2018-60-minutes-interview/
42
The Motley Fool, October 24, 2018, “Tesla Motors Inc (TSLA) Q3 2018 Earnings Conference Call Transcript.”
https://www.fool.com/earnings/call-transcripts/2018/10/25/tesla-motors-inc-tsla-q3-2018-earnings-conference.aspx
15
Tesla, Inc.
the star rating with five stars being the highest safety rating a vehicle can achieve.
Thus, there is no NHTSA ‘safest’ ranking within the five-star category.”43 By the time
of the call, Musk had also received a letter addressed directly to him from NHTSA
expressing exasperation that Tesla had repeatedly “failed to comply with the terms of
[NHTSA] Guidelines.” His false claims had led NHTSA to refer Tesla to the Federal
Trade Commission (FTC)—a fact that Tesla did not ever disclose to shareholders.
Instead, the letter was obtained by Think Computer Foundation via a FOIA request.
Musk and Laurie Shelby, Tesla Vice President, EHS, also made statements on the call
regarding the manner in which Tesla provides healthcare for employees who work at
its Fremont, California factory:
“...We’ve also just opened a new and improved health clinic, so when injuries do occur
we get the absolute best care for our associates. And it’s actually overseen by one of
California’s leading orthopedic surgeons. And we did that, because most of our injuries,
like we said like 80%, 85% are those sprains and strains. So now they get that best
care here on site. And we have 24/7 care. We are actually staffed by three full-time
doctors and nurses. And I am really super happy with the care they’re giving, and I
think the employees are as well.”
These comments were likely in response to investigative reporting by Reveal reporter
Will Evans, who starting in April 2018 took the company to task in a series of detailed
articles and radio programs for its dismal track record taking care of injured employ-
ees, including some who suffered serious burns. Not mentioned by Ms. Shelby was
the fact that Dr. Muhannad Hafi, one of the doctors hired by Tesla’s medical contrac-
tor, Access Omnicare (merely a DBA name for a hand surgeon named Dr. Basil Besh),
was facing revocation of his medical license at the time he was hired. His license was
formally revoked by the California State Medical Board on December 21, 2018 for
having sexually assaulted numerous prior patients.44 Another doctor whose name
appears on Access Omnicare medical records provided to Reveal worked for Access
Omnicare for all of one week.
Therefore, Musk’s statement that Tesla’s medical care was “the absolute best” could
not possibly be true, as no objective observer would consider an unlicensed sex of-
fender and a physician absent after one week to be “the absolute best” health care
providers available. Musk went on to refer to Access Omnicare as “a really immedi-
ate first-class healthcare available right on the spot, when people need it. And this
not just for workplace, this for workplace and non-workplace.” Reveal’s reporting
suggests that this too was a lie. In fact, Tesla was sending employees to the hospital
in Lyft vehicles to avoid having to report injury statistics or pay for ambulance trips.45
43
Reuters, October 9, 2018, “U.S. agency says Tesla safety claim goes beyond its analysis.”
https://www.reuters.com/article/us-autos-tesla/u-s-agency-says-tesla-safety-claim-goes-beyond-its-analysis-idUSKCN1MJ2HR
44
ArsTechnica, December 11, 2018, “Doctor, once hired by clinic that sees Tesla workers, just lost his license.”
https://arstechnica.com/tech-policy/2018/12/doctor-once-hired-by-clinic-that-sees-tesla-workers-just-lost-his-license/
45
Reveal. https://www.revealnews.org/tag/tesla/
Reality Check
16
Despite these efforts to prevent negative metrics from ever surfacing, Tesla’s injury
rates still ballooned out of control.46 With no sense of irony, Laurie Shelby described
Tesla’s care practices as “super exciting” on the call. Musk went even further, stating, “if
you like become injured right off for any reason then there is healthcare immediately
on site.” In fact, Tesla’s on-site medical facilities were and are quite limited, requiring
frequent transportation to actual health care facilities.
Investors listening to these false statements might have been reassured that Tesla
had its workplace injury program under control. In reality, it was fined by CalOSHA
numerous times for violations, and its practices have led to no fewer than 80 employ-
ment-related lawsuits.47
January 30, 2019 Q4 2018 Earnings Call
By January 30, 2019, Musk knew or should have known that the pace of Model 3 sales
was drastically slower in January than it had been during Q4 2018. On December 31,
2018, a federal tax incentive for electric vehicle purchases began to phase out, erod-
ing a significant incentive for potential customers to purchase Tesla vehicles. Despite
the knowledge that sales had slowed markedly, Musk still assured investors on the
earnings call that future demand looked strong. On the call, with 30 days of sales data
at his disposal, he nonetheless stated, “I’m optimistic about being profitable in Q1 and
all quarters going forward.”
Three months later, Tesla announced a $702 million loss, which would have ap-
proached $1 billion had the company not factored in one-time sales of emissions
credits—a far cry from profitability.
April 24, 2019 Q1 2019 Earnings Call
On Tesla’s Q1 2019 earnings call, Musk declared, “We expect to return to profitability
in Q3 and significantly reduce our loss in Q2,” once again reversing his previous pre-
diction of a profit made only weeks prior. Yet again, Musk likely knew this statement
to be false at the time he made it, but sought to increase Tesla’s declining stock price.
Musk also made the compound false statement, “All Tesla class vehicles today have all
the hardware necessary for full self-driving and over-the-air updates will enable our
customers to use the Tesla ride-hailing network fleet and generate income, which as
we said on Autonomy Day a few days ago we think is somewhere between $10,000
and $30,000 a year, in some cases, perhaps more.” He also made the outrageous
claim that, “…in 2020, we expect to have a million robotaxis on the road with the
hardware necessary for full self-driving.” Tesla vehicles do not have the hardware
46
The Drive, March 3, 2019, “Tesla Had 3 Times as Many OSHA Violations as the 10 Largest US Plants Combined.”
https://www.thedrive.com/news/26727/tesla-had-3-times-as-many-osha-violations-as-the-10-largest-us-plants-combined
47
PlainSite. https://www.plainsite.org/tags/tesla-worker-rights/
17
Tesla, Inc.
necessary for full self-driving, because even in the year 2020, there is no such thing.
Misleading Vehicle Pricing
Tesla’s website, where customers can configure their vehicles for purchase, has long
used a misleading pricing calculator to suggest that its cars cost less than they actually
do. Effectively, Tesla has pioneered the deceptive advertising method of selectively
including theoretical future savings in the final price of a product, even when the
actual outlay of funds by the customer is far higher than the number presented. For
example, if a Model 3 actually costs $40,000 up-front but could potentially lead to
$3,000 in savings on gasoline in the future, Tesla would advertise the car as costing
$37,000 in the present. Of course, this ignores other, less convenient future realities,
such as the fact that using more electricity to power the car at home, or at a charg-
ing station, might drastically increase a customer’s utility charges, or that some homes
do not have the electrical wiring needed to safely charge a vehicle, necessitating the
expense of hiring a contractor.48 It also ignores a reality that has given numerous Tesla
customers sticker shock: the fact that insuring Tesla vehicles is extremely expensive
relative to non-Tesla vehicles.
No other company in the United States has ever been permitted to use this kind of
pricing model, whether for car sales or other products, which is illegal on its face given
that it is intended to deceive.
The Chinese Customs Debacle
On March 5, 2019, the Chinese English-language publication Caixin published an ar-
ticle with the headline “China is currently holding 1,600 Teslas at customs,”49 setting
off a plunge in Tesla’s stock price. This news was picked up by Reuters and syndicated
to other financial news websites such as CNBC (which later deleted the article).50
Later on March 5th, Reuters published a second article announcing that the issue
in China had been resolved, immediately lifting Tesla’s stock.51 The Reuters article
was based on a single source “familiar with the matter,” who convinced Reuters that
“China’s customs authorities have accepted electric carmaker Tesla Inc’s plan to rem-
edy problems.” An initial version of the article suggested that the source was a Tesla
employee.
48
According to HomeAdvisor, a 240V EV garage charging station costs $702 to install.
https://www.homeadvisor.com/cost/garages/install-an-electric-vehicle-charging-station/
49
Caixin, March 5, 2019, “China Is Currently Holding 1,600 Teslas at Customs.”
https://www.caixinglobal.com/2019-03-05/china-is-currently-holding-1600-teslas-at-customs-101388002.html
50
CNBC, March 5, 2019, “We’re sorry, the page you were looking for cannot be found.”
https://www.cnbc.com/2019/03/05/reuters-america-china-suspends-customs-clearance-for-tesla-model-3-imports--caixin.html
51
Reuters, March 5, 2019, “China agrees on solution to Tesla customs issue: source.”
https://www.reuters.com/article/us-china-tesla-response-idUSKCN1QM1WY
Reality Check
18
This representation, that a “plan” fromTesla had
been “accepted” by the Chinese government,
proved to be false. In fact, the issue with Chi-
nese customs remained unresolved for weeks,
contrary to what Reuters had reported on its
wire service. Tesla had failed to include labels
for the cars printed in the correct language for
the Chinese market, and the actual number of
vehicles affected was much higher than previ-
ously reported: over 4,600. On March 14th,
Bloomberg published a much more detailed
article explaining that China had finally cleared
Tesla vehicles to proceed through customs.52
If in fact Tesla deliberately provided false and/
A graph of Tesla’s stock price on March 5, 2019, when news about
or misleading information to the press, a ma-
a Chinese customs problem broke, but was quickly “resolved” per an
terial and significant violation of 15 U.S.C. §
anonymous source. That source was later shown to be incorrect. Source:
TradingPhysics.com
78j(b) and 17 C.F.R. § 240.10b-5 took place.
Rooftop “Money Printers”
On three occasions, either the @Tesla or @ElonMusk Twitter accounts have referred
to Tesla solar panels as “money printers,” presumably in reference to the expected
savings on energy bills post-installation.53,54,55 Unfortunately, for many actual custom-
ers, their solar installations have been anything but. Several lawsuits have been filed
against SolarCity and Tesla alleging that solar installations actually made utility bills
increase thanks to a proliferation of hidden fees.56
Phrases such as “money printer” are not subtle: they deliberately convey the sense
of a risk-free product that will instantly result in profit for the owner. Given the
complexity of solar financing arrangements, such a description is reckless and false,
and likely violates the Federal Trade Commission (FTC) Act, as well as related state
consumer protection statutes.
The money printer tweets also raise the question of who actually controls and has ac-
cess to the @Tesla Twitter account, and if that person is ever Elon Musk. If so, the SEC
Consent Decree from September 2018 (and the amended version thereafter) would
presumably be binding upon Musk, whether he chooses to post from his personal
account, the @Tesla account, or any other social media account. While the amend-
52
Bloomberg News, March 14, 2019, “China’s Customs Said to Lift Tesla Model 3 Import Suspension.”
https://www.bloomberg.com/news/articles/2019-03-14/china-s-customs-is-said-to-lift-suspension-on-model-3-imports
53
Twitter, August 18, 2019. https://twitter.com/elonmusk/status/1163025594180726784
54
Twitter, September 7, 2019. https://twitter.com/elonmusk/status/1170431020358758401
55
Twitter, December 13, 2019. https://twitter.com/Tesla/status/1205693814024753153
56
PlainSite. https://www.plainsite.org/tags/tesla-solar/
19
Tesla, Inc.
Twitter
Court
Elon Musk has taken to referring to Tesla solar panels as
In Kolibas v. SolarCity Corporation, filed in November 2019 in the Supe-
“money printers” in order to lure consumers. This phrasing
rior Court of Middlesex County, New Jersey, the plaintiffs accused Tesla of
is false, deceptive, and unlawful under the FTC Act and nu-
charging hidden fees and ruining their roof. As SolarCity’s acquiror, Tesla has
merous state consumer protection statutes. Yet despite nu-
incurred significant legal liability due to roof damage from solar panel weight,
merous lawsuits over Tesla’s solar business, no government
fire, and snow.
agency has taken action so far.
ments to the Consent Decree limited the types of posts that require pre-approval,
Musk hardly has a free pass to break the law by posting false and misleading state-
ments. The characterization of Tesla products as “money printers” could conceivably
violate the Securities and Exchange Act as well as the Consent Decree itself, which
explicitly requires Musk to abide by the law. Furthermore, the question of who, if
anyone, approved these tweets remains open. Tesla has never identified the so-called
“Twitter Sitter” tasked with overseeing Musk’s external communications.
Reality Check
20
Vehicles as “Appreciating Assets”
Cars depreciate in value as soon as
they are driven off the dealer lot.57
Some depreciate more than oth-
ers, but this phenomenon is com-
monly known to apply to all cars,
of all makes and models, since time
immemorial. At some point well
past a car’s typical lifespan, scarcity
may lead to appreciation in value
for certain antique or collector’s
edition cars, but this is relatively
rare.
Even before Elon Musk started fraudulently touting Tesla’s solar panels as “money print-
On April 12, 2019, in an inter-
ers,” customers alleged in legal filings that the panels actually make their monthly utility
bills higher, not lower, and come with hidden fees. Above, an excerpt from the complaint
view broadcast on YouTube with
in Garcia et al v. SolarCity Corp. et al, Superior Court of California, County of San Mateo,
a self-described machine learning
Case No. 18CIV03640.
expert, Musk stated, “Buying a car
today is an investment into the fu-
ture. I think the most profound thing is that if you buy a Tesla today, I believe you are
buying an appreciating asset—not a depreciating asset.”58 Musk is not claiming that
Teslas will be valuable antiques: quite the opposite. He is asserting that their moder-
nity will make them worth more later on. This might be true if production of all cars
in the future were to suddenly cease—an extraordinarily unlikely possibility that is not
Musk’s implication in any way—but otherwise it is a clear lie.
Musk’s outrageous claim has its roots in the fact that because Tesla vehicles are ca-
pable of receiving wireless software updates, they will supposedly appreciate in value
over time because Tesla can always make the car better.59 Three months after he first
proposed the theory, in July, Musk doubled down on the claim, with Bloomberg News
running the headline, “Musk Stands by His Tesla Appreciation Claim That Was Called
‘Really Dumb.’”60
Perhaps the individual best positioned to disprove this nonsensical claim is Musk him-
self. In August 2018, in a video interview posted to YouTube,61 Musk acknowledged
the obvious fact that advances in technology lead to lower, not higher, prices. In his
words, “[W]e’re probably, I don’t know, on the thirtieth version of, of, of a cell phone.
57
CARFAX, “Car Depreciation: How Much Value Will a New Car Lose?” https://www.carfax.com/blog/car-depreciation
58
YouTube, April 12, 2019, “Elon Musk: Tesla Autopilot | Artificial Intelligence (AI) Podcast.”
https://www.youtube.com/watch?v=dEv99vxKjVI
59
Electrek, April 12, 2019, “Tesla vehicles are now ‘appreciating assets’ due to self-driving capability, says Elon Musk.”
https://electrek.co/2019/04/12/tesla-vehicles-appreciating-assets-self-driving-elon-musk/
60
Bloomberg News, July 16, 2019, “Musk Stands by His Tesla Appreciation Claim That Was Called ‘Really Dumb.’”
https://www.bloomberg.com/news/articles/2019-07-16/musk-stands-by-tesla-appreciation-claim-called-really-dumb
61
YouTube, August 17, 2018, “Talking Tech with Elon Musk!” https://www.youtube.com/watch?v=MevKTPN4ozw&t=6m8s
21
Tesla, Inc.
Or, um, and... And with each successive
design iteration, uh, you can add more ca-
pability, you can design— you can integrate
more things. You can figure out, uh, bet-
ter ways to produce it, so it actually gets
better and cheaper. But, it’s like, a natural
progression of any new technology” (em-
phasis added).
An analysis by Autolist showed that the Tesla Model S depreciates less,
but definitely in line with, various internal combustion engine vehicles.
Musk’s remarks are clearly self-contradic-
Source: https://www.autolist.com/news-and-analysis/tesla-model-x-model-s-depreciation
tory. The key question is why within the
span of eight months he changed his po-
sition on a basic economic principle for
which there is ample evidence that Tesla vehicles do not appreciate, and never have.
It goes without saying that making such false promises would be consistent with ef-
forts to stimulate demand in the short term in order to satisfy Wall Street expecta-
tions and boost Tesla’s stock price.
Notably, Tesla customers have reported that Tesla itself believes that its vehicles de-
preciate, even if the CEO suddenly does not. In the words of one customer,
“I contacted Tesla for a trade in value. Tesla quoted 15% below the average Kelly blue
book value and 36% below the original MSRP. When I was purchasing the Tesla, they
taught-ed that depreciation at 50k miles was roughly 28% and was number one in
the industry, well that ship has sailed since the launch of the Model [3]. It is evident
that due to the Model 3 the value on the Model S is evaporating on a monthly basis.
The Model 3 is going to continue to crush the value of Model S and I would anticipate
a sharp drop in MSRP, probably in the neighborhood of $15k to $20k, especially con-
sidering the tax break is about to be reduced”62
It is unclear why regulators have allowed Musk to continue to claim that Tesla vehicles
appreciate in value while Tesla itself continues to recognize depreciation when its own
cars are traded in by repeat customers.
Autopilot
Tesla’s hallmark software feature, at least as of early 2020, is the so-called Autopilot
functionality that in certain, limited situations allows the car’s camera sensors to guide
its speed and steering with minimal driver input. Of course, the name “Autopilot”
implies more, suggesting that the car is capable of driving itself. It isn’t. The fine print
in the Tesla owner manual instructs drivers to always keep their hands on the wheel.
It’s a directive that is almost universally disregarded.
62
Tesla Motors Club Forums, December 19, 2018, “Depreciation on Model S is Horrible.”
https://teslamotorsclub.com/tmc/threads/depreciation-on-model-s-is-horrible.138350/
Reality Check
22
It’s not just the company’s customers who feel
comfortable risking their lives and the lives of
others on the roads and highways they drive
on. During a 60 Minutes interview with Les-
lie Stahl, Musk infamously drove Stahl and a
cameraman in a Tesla vehicle on U.S. Interstate
101-N, using Autopilot with his hands clearly
off the wheel, in what might have been the
most reckless bit of technology showmanship
ever broadcast. The stunt led to an internet
meme poking fun at Tesla’s Autopilot claims, in-
volving Musk, a pair of maracas, and a colorful
sombrero.63
Some Autopilot customers have engaged in
predictable abuse of the technology to work
around the limited warning chimes and auto-
matic shut-off features that Tesla has built in.
Photographs abound on Twitter of car owners
using water bottles, fruit, and other small items
to trick the vehicle hardware into thinking that
Tesla’s disclosures revealing “% Autopilot time with hands on wheel”
hands are on the steering wheel. It goes with-
frequently under 1% prior to a car accident.
out saying that this is insanely dangerous, com-
pletely reckless, and likely illegal.
Aside from Tesla’s outright lies about the tech-
nology (starting with its name), simply due to
the nature of what it is designed to do, Autopi-
lot is deceptive in the sense that it appears to
the casual observer to be more capable than
it really is, until it suddenly isn’t. The danger
lies in these so-called “corner cases,” as they
are referred to in the world of software devel-
opment—untested situations where Autopilot
suddenly, and without warning, fails—because
Elon Musk demonstrated Autopilot for 60 Minutes correspondent Les-
while corner cases for many computer pro-
lie Stahl in a deceptive and dangerous manner with his hands far from
grams might only result in a window disap-
the steering wheel, prompting the “¡Piloto Automático!” meme on Twit-
ter. Source: Twitter User @Keubiko
pearing from a screen, a crash on an interstate
at 65 miles per hour can easily result in the
loss of life.64 That has already begun to happen
63
There is a rich tradition of memes ridiculing Musk, including one from Russia in which posters jokingly attempt to one-up
Musk with elaborate-looking but fundamentally stupid inventions.
BuzzFeed News, August 22, 2018, “Russians Are Trolling Elon Musk By Tweeting Terrible Inventions At Him And People
Love It.” https://www.buzzfeednews.com/article/krishrach/russian-trolling-elon-musk-memes-invention-twitter
64
YouTube, September 15, 2016, “Tesla autopilot crash in China.” https://www.youtube.com/watch?v=fc0yYJ8-Dyo
23
Tesla, Inc.
when Autopilot has been involved.
To date, Tesla has been sued at least 20 times in cases
involving Autopilot.65 Many of those lawsuits have in-
volved accidents where fatalities were directly caused
by the driver’s reliance on Autopilot—the tragic
and predictable consequence of the technology be-
ing released without sufficiently testing.66 Separate
from litigation, an anonymously-run website called
tesladeaths.com has begun to track the number of
deaths linked to Tesla vehicles.67
Concern is warranted. In Mountain View, not far from
Tesla’s headquarters, an Apple engineer named Wei
Lun “Walter” Huang died when his Tesla Model X col-
lided head-on with a concrete divider separating the
highway from a ramp for an elevated express lane on
CA 85-S. Huang’s Model X was set to use Autopilot
at the time of the crash, and the software had fol-
lowed what it believed was a lane marker painted on
the highway directly into the barrier without slowing
down at all. In fact, before he was killed, Huang had
noticed Autopilot’s tendency to deviate from the cor-
rect path at that spot, and had brought it to Tesla’s at-
tention repeatedly. After his death, his family sued; the
lawsuit is ongoing.68
A response to a Freedom of Information Act request
by Think Computer Foundation revealed that the Na-
tional Highway Transit Safety Administration (NHTSA)
regularly subpoenas Tesla for information regarding
A Think Computer Foundation FOIA request response re-
collisions that involve Autopilot.69 Tesla and NHTSA
vealed that NHTSA reguarly subpoenas Tesla, Inc. for infor-
have also held regularly scheduled meetings to discuss
maton regarding crashes involving Autopilot. What NHTSA
Tesla’s self-driving technology, and to provide in-per-
actually does with the information it obtains is unclear.
son demonstrations for federal regulators.
65
PlainSite. https://www.plainsite.org/tags/tesla-autopilot/
66
Tesla tests many of its cars on a short loop near its Palo Alto headquarters that extends from Page Mill Road to Inter-
state 280-S, Sand Hill Road, and back again on El Camino Real. On an average day, the weather conditions on this loop
are considerably more pleasant than, for example, typical winter conditions in Boston, Massachusetts. This is perhaps
why many Model 3 owners in colder climates were surprised to find that the “innovative” Model 3 door handles had a
propensity to freeze shut, locking them out of their cars, often in unforgiving weather.
67
Since Autopilot is deactivated as soon as the driver presses the break pedal, and it’s common to press on the breaks just
before a collision, it is possible that the number of Autopilot-related accidents has been under-reported.
68
Sz Huang et al v. Tesla Inc. dba Tesla Motors, Inc. et al, Superior Court of California, County of Santa Clara, Case No.
19CV346663. https://www.plainsite.org/dockets/3y1d4wlms/superior-court-of-california-county-of-santa-clara/sz-huang-
et-al-v-tesla-inc-dba-tesla-motors-inc-et-al/
69
PlainSite, August 6, 2019, “Tesla NHTSA FOIA Response.”
https://www.plainsite.org/documents/fnrhg/tesla-nhtsa-foia-response/
Reality Check
24
An appeal of NHTSA’s FOIA response, at-
tempting to wrangle the release of over 400
pages of documents that NHTSA had with-
held, yielded a few more pages, but with re-
dactions in key places.70 For example, Tesla
insisted that the version of its software vehi-
cles were running when they were involved in
Autopilot-related accidents was a trade secret,
even though this information is crucial to de-
termining whether a flaw in a particular ver-
sion of Tesla’s software may have been at least
partially responsible. Several court cases have
addressed a related problem involving the fact
that after a collision, Tesla retains ownership of
the vehicle’s data, making it nearly impossible
for drivers, passengers, or affected victims to
figure out what went wrong without issuing
a subpoena to Tesla for their own car’s data
first.71
Incredibly, Tesla’s form letter in response to
On August 7, 2019, Elon Musk wrote to the author of this report stat-
those who threaten legal claims due to Auto-
ing, “The data is unequivocal that Autopilot is safer than human driving
pilot includes the warning that, “To the extent
by a significant margin. It is unethical and false of you to claim other-
your client intends to pursue a product claim
wise. In doing so, you are endangering the public.” Above, the result of
Tesla’s request to NHTSA that all information concerning an Autopilot
against Tesla, we reserve the right to claim the
collision be redacted as “Confidential Business Information”—one of
physical evidence from the vehicle has been
many such requests by Tesla, all granted.
spoilated if it is not being preserved in its post-
incident condition.” In other words, Tesla ex-
pects victims of its design flaws to keep severely damaged vehicles in storage indefi-
nitely while it withholds the digital evidence necessary to move forward with a case.
Then again, considering that Elon Musk reportedly hung up on the Chairman of the
National Transportation Safety Board (NTSB), Robert Sumwalt, during a probe into a
Tesla crash, this is hardly surprising.72
On December 18, 2019, European Union regulators forced Tesla to disable key por-
tions of Autopilot across Europe, causing the company to notify customers in multiple
languages that they would no longer be able to use features that they had already
paid for (in some cases thousands of Euros extra).73 Meanwhile, there is evidence
70
PlainSite, September 26, 2019, “Supplemental NHTSA FOIA Response.”
https://www.plainsite.org/documents/xk2bo/supplemental-nhtsa-foia-response/
71
Michael Casuga v. Tesla Inc., Superior Court of California, County of Santa Clara, Case No. 19CV360013.
https://www.plainsite.org/dockets/45a61pihc/superior-court-of-california-county-of-santa-clara/michael-casuga-v-tesla-inc/
72
ArsTechnica, May 5, 2018, “Elon Musk hung up on NTSB chief during call about Tesla crash probe.”
https://arstechnica.com/tech-policy/2018/05/elon-musk-hung-up-on-ntsb-chief-during-call-about-tesla-crash-probe/
73
CNet, December 18, 2019, “Tesla Autopilot neutered in Europe to meet new regulations.”
https://www.cnet.com/roadshow/news/tesla-model-s-model-x-autopilot-europe-regulations/
25
Tesla, Inc.
that NHTSA has actively tried to cover up devastating statistics on Tesla’s behalf. A
FOIA lawsuit lodged by Quality Control Systems Corporation74 forced NHTSA to
divulge documents indicating that “actual mileage at the time the Autosteer software
was installed appears to have been reported for fewer than half the vehicles NHTSA
studied. For those vehicles that do have apparently exact measurements of exposure
mileage both before and after the software’s installation, the change in crash rates as-
sociated with Autosteer is the opposite of that claimed by NHTSA.”75 In other words,
by using flawed data analysis, NHTSA whitewashed the fact that Autopilot actually
makes driving more dangerous.
As of the end of 2019, despite obvious warning signs and an outcry from public
watchdog groups and even Senator Markey of Massachusetts, Autopilot was still caus-
ing crashes on American roads.76
Full Self-Driving (FSD)
While Autopilot might fairly be described as a
driver assistance technology, Elon Musk is not the
kind of person who would merely be satisfied with
“driver assistance,” even assuming that such assis-
tance worked in 100% of scenarios and wasn’t
already responsible for numerous driver deaths,
injuries, and millions of dollars in property damage
and health care expenditures. To stay ahead of the
competition, Musk has additionally promised “Full
Self Driving” at Level 5 on the Society of Automo-
tive Engineers scale by 202077—a technology that
On Autonomy Investor Day, a presentation by Andrej Karpathy of
does not exist at present.78 Musk has not hesi-
Tesla’s LIDAR-free object recognition engine involved strange, flick-
tated to conflate the two technologies.
ering boxes around some—but not all—cars on the opposite side
of a major highway separated by a wide, grassy median. The video
makes it appear that the software is uncertain which side of the
To be clear, Tesla vehicles equipped with the com-
road the cars are on, or which direction they are headed. Source:
https://www.youtube.com/watch?v=Ucp0TTmvqOE&t=2h10m20s
pany’s “Autopilot” feature cannot, in fact, drive
themselves. Nor has Tesla achieved anything close
to Level 5 autonomy now that 2019 has drawn to a close, despite Musk’s promises
to the contrary.79
74
QUALITY CONTROL SYSTEMS CORP. v. U.S. DEPARTMENT OF TRANSPORTATION, District Of Columbia District Court,
Case No. 1:17-cv-01266-DLF. https://www.plainsite.org/dockets/35tgfcw4v/district-of-columbia-district-court/quality-
control-systems-corp-v-us-department-of-transportation/
75
Quality Control Systems Corporation, February 8, 2019, “NHTSA’s Implausible Safety Claim for Tesla’s Autosteer Driver
Assistance System.” http://www.safetyresearch.net/Library/NHTSA_Autosteer_Safety_Claim.pdf
76
YouTube, December 30, 2019. https://www.youtube.com/watch?v=i9r4nS5EjjQ
77
The Verge, April 22, 2019, “Here are Elon Musk’s wildest predictions about Tesla’s self-driving cars.”
https://www.theverge.com/2019/4/22/18510828/tesla-elon-musk-autonomy-day-investor-comments-self-driving-cars-predictions
78
Synopsys, “Dude, Where’s My Autonomous Car? The 6 Levels of Vehicle Autonomy.”
https://www.synopsys.com/automotive/autonomous-driving-levels.html
79
Automobile Magazine, April 23, 2019, “Tesla Promises Full Level 5 Autonomy by End of 2019, Model 3 Robotaxis by 2020.”
https://www.automobilemag.com/news/tesla-autonomous-driving-level-5-model-3-robotaxi/
Reality Check
26
On April 22, 2019, Tesla held an “Autonomy Investor Day” where Musk and several
engineers demonstrated the company’s progress on software and hardware in the
domain of autonomous driving. The audience of uniformly Tesla-friendly investment
analysts, mostly lacking the computer science background necessary to understand
what they were being told, managed not to ask too many probing questions. But
even with an audience of faithful cheerleaders, there were a few hitches.
First, a demonstration video of how Tesla’s autonomous driving software works re-
vealed that it appeared incapable of distinguishing between traffic on one side of a
highway versus the other side, where cars were traveling in the opposite direction,
even when separated by a wide median.
Second, Tesla’s software could not at the time recognize construction markers, such
as large orange reflective barrels. A video posted to YouTube months later on July 15,
2019 by a Tesla owner showed how his vehicle plowed head-on into ten orange bar-
rels in a row before he took control and stopped the car.80 Finally, in early December
2019, years after Tesla began deploying Autopilot while marketing it as safe—and long
after Elon Musk’s promises that Level 5 autonomy was merely months away—Tesla
added in recognition for orange barrels. Except that didn’t quite work, either.
On December 16, 2019, a news story began cir-
culating about a boy wearing an orange shirt in
Brazil who had been mistaken for a cone by Tes-
la’s software.81 While the boy was not hurt, the
story continued to raise serious questions about
Autopilot’s true abilities, the safety concerns as-
sociated with using it, and the veracity of Musk’s
claims about FSD technology being just around
the corner.
Tesla’s “fix” for the orange barrel problem caused a new problem:
the recognition of children wearing orange shirts as traffic cones.
The abuse of language by Tesla and Musk has been
so shocking that consumer watchdog group Consumer Reports issued a press re-
lease immediately after Tesla’s Autonomy Investor Day entitled, “Consumer Reports:
Tesla Must Prove Safety Before Claiming “Self-Driving” Ability.”82,83
80
YouTube, July 15, 2019, “AReallyBadDay: Tesla Crash into Construction Barrels.”
https://www.youtube.com/watch?v=i9r4nS5EjjQ
81
InsideEVs, December 16, 2019, “Tesla Autopilot Confuses Boy In Orange Shirt For A Cone In Brazil.”
https://insideevs.com/news/388253/tesla-autopilot-confuses-boy-for-cone/
82
Consumer Reports, April 22, 2019, “Consumer Reports: Tesla Must Prove Safety Before Claiming ‘Self-Driving’ Ability.”
https://advocacy.consumerreports.org/press_release/consumer-reports-tesla-must-prove-safety-before-claiming-self-driving-ability/
83
On May 8, 2019 a video inside a Tesla Model S was posted displaying the risks Tesla owners take by using Autopilot. To-
ward the end, the vehicle almost swerves into a stationary school bus parked outside an elementary school—but thanks
27
Tesla, Inc.
Musk has ignored these worrisome signs, instead pressuring his staff to work faster.
That pressure has had consequences, with mass departures from the Autopilot team
within Tesla making headlines in July 2019.84 The pressure was particularly acute on
the team because of Musk’s habit of making grandiose-yet-maybe-possible, baseless-
yet-aggressive public pronouncements. For example, on March 24, 2017, Musk wrote
on Twitter, “All Tesla cars built since Oct last year will be capable of self-driving as
software improves.”85 Musk repeated this claim on April 22, 2019 by stating on Twit-
ter, “All cars made since Oct 2016 either have the hardware needed for FSD or are
trivially upgradeable.”86
Since then, numerous customers have grown upset over promises that their vehicles
would be upgraded to “Hardware 3.0,” which Musk has claimed is necessary for
FSD capabilities. Yet no one seems to be able to get their hands on Hardware 3.0,
whatever it is, and accordingly, pre-paid upgrade fees for FSD functionality, typically
ranging from $5,000 to $6,000, have thus far paid for nothing save for an engorged
“Customer deposits” line item on Tesla’s balance sheet.
That Musk would even be focused on far-afield, risky gambits when it comes to pas-
senger safety is remarkable given data from Norway showing that electric vehicles
are already more dangerous on average than internal combustion engine vehicles. In
2018, 9% of internal combustion vehicles in Norway suffered some kind of accident
damage, while the rate was 13.5% for electric vehicles overall. But for Teslas, that
figure was the highest in the country: 20.4%. In other words, more than one in five
Tesla vehicles in Norway was involved in an accident in 2018.87 The main feature that
separates Teslas from other electric vehicles is assisted autonomous driving.
Robotaxis
Still not content with the fanciful notion that Tesla would achieve Level 5 autonomy
by year-end 2019, Musk decided to make an even bolder, more audacious prediction:
that by 2020 Tesla would deploy a “fleet” of one million self-driving “robotaxis”—es-
sentially, the same cars that customers had already purchased and put on the road,
but with software updated wirelessly to turn these vehicles into autonomous self-
driving taxis for commercial, as opposed to personal, use. The notion, seemingly
targeted at Wall Street analysts in an over-extended bull market hungry for hype, was
that in addition to its revenue streams from selling cars and solar panels, Tesla would
also soon compete with sharing economy heavyweights Uber and Lyft.
Some media outlets have called the idea questionable.88 Truly, it can only be fairly
to driver intervention, does not—even with the bus’s lights flashing. https://www.youtube.com/watch?v=c6YMY2m7GKI
84
ArsTechnica, July 9, 2019, “‘Close to 10%’ of Autopilot software team reportedly departs after shakeup.”
https://arstechnica.com/cars/2019/07/close-to-10-of-autopilot-software-team-reportedly-quits-after-shakeup/
85
Twitter, March 24, 2017. https://twitter.com/elonmusk/status/845281211626864641
86
Twitter, April 22, 2019. https://twitter.com/elonmusk/status/1120483430515585024
87
Bilbransje24, August 16, 2019, “Disse elbilene bulker mest.” https://bilbransje24.no/artikler/disse-elbilene-bulker-mest/471706
88
Engadget, April 22, 2019, “Tesla promises ‘one million robo-taxis’ in 2020.”
Reality Check
28
described as bonkers.
When questioned about how the com-
pany reached its conclusions at Autonomy
Investor Day, Musk responded, “We just
randomly threw some numbers on there.”
That sounds about right: Tesla, Uber, and
Lyft are all fundamentally unprofitable
companies, with Uber losing over $5 bil-
lion dollars in the single quarter of Q2
Uber-like “robotaxis” were a major focus of Autonomy Investor Day, but the
2019. Why any CEO would want to emu-
topic was quickly abandoned in public statements thereafter.
late such a business is an open question
Source: https://www.youtube.com/watch?v=Ucp0TTmvqOE&t=3h12m56s
subject to debate. But for Elon Musk to
both have that desire, and to condition it upon the provably false promise of deploy-
ing a technology that does not exist, suggests some actual motive for making the claim
other than sheer delusion. Keeping Telsa’s stock price up is one possible motive.
Strangely, no reference to robotaxis ultimately appeared in the company’s secondary
offering prospectus in early 2019. Like Tesla’s securities lawyers, experts at MIT also
doubt that such a service would be cost effective.89 On the other hand, it’s still pos-
sible that Silicon Valley startups (as well as Valley-based divisions of large automotive
manufacturers) will pilot autonomous taxi services in the near future. Computer vi-
sion engineer Anton Troynikov wrote about how such a competitive landscape might
unfold in March 2018.90 As of January 2020, no services have launched thus far.
“Unusually High [Order] Volume”
On March 19, 2019, the official @Tesla Twitter account claimed, “Due to unusually
high volume, Tesla was unable to process all orders by midnight on Monday, so the
slight price rise on vehicles is postponed to midnight Wednesday.”91
(This post was
also re-tweeted by Musk’s personal @ElonMusk account.) There was no evidence
for this suspicious claim at the time, and the company’s Q1 2019 financial report
confirmed it to be a two-part lie: Tesla’s servers were fine, and there was no spike in
order activity that caused them to experience any problems.
Fundamentally, Tesla’s rosy narrative about being a “growth” company, still believed by
much of Wall Street, is misleading given that its sales have plateaued or decreased
in the United States since 2018. Data from New York State, which publishes VIN-
level information monthly, indicates that new registration of Tesla vehicles just barely
https://www.engadget.com/2019/04/22/tesla-elon-musk-self-driving-robo-taxi/
89
FT Alphaville, April 29, 2019, “The questionable economics of autonomous taxi fleets.”
https://ftalphaville.ft.com/2019/04/29/1556557142000/Scoop--the-questionable-economics-of-autonomous-taxi-fleets/
90
Troynikov, Anton, March 28, 2018, “Thoughts on the Autonomous Vehicle Industry.”
http://troynikov.io/thoughts-on-autonomy/
91
Twitter, March 19, 2019. https://twitter.com/Tesla/status/1108007729170255875
29
Tesla, Inc.
Tesla, Inc. New York Vehicle Registrations (Excluding Renewals)
1,400
2
3
3
1,200
223
264
228
1
1,000
2
102
275
176
285
265
1
181
197
2
800
168
177
104
127
201
1
1
600
248
109
275
104
257
120
1
4
103
99
97
164
225
400
799
221
783
149
3
769
734
1
727
109
140
78
61
1
1
573
148
65
73
248
69
1
154
473
434
450
200
61
198
111
91
340
149
310
293
297
123
34
179
109
254
227
122
134
142
141
13
114
73
79
98
8
40
63
52
82
0
1
1
15
1
11
10
14
Model 3
Model S Model X Roadster
Data compiled from New York State vehicle registrations as of January 3, 2020 demonstrates that Tesla’s growth in one of its key states has
plateaued, and sales may in fact be falling. The periodic wedge pattern is consistent with big end-of-quarter sales pushes in March, June,
September and December. As of December 31, 2019, federal electric vehicle tax credits are no longer available to Tesla buyers.
peaked in September 2019, scraping by levels from December 2018. The company’s
efforts to meet quarterly delivery targets have historically brought demand forward
at the end of each quarter, causing significant drop-offs in the following month.
Selective and Misleading Pre-Order and Reservation Disclosures
For a time, Musk was pleased to boast about the number of reservations for the
Model 3, each of which involved a deposit. By April 24, 2019, on the Q1 2019 Tesla
earnings call, his attitude had completely shifted and he stopped disclosing anything
about reservations, claiming that they no longer mattered. In Musk’s words,
“I think we don’t want to comment on the granularity of deposits. Again, people read
too much into this. We’re not playing off the Model Y because we’re just not in produc-
tion so you can’t really read anything into Model Y orders at this point.”
His mind changed again when it came to the Cybertruck, a product whose launch
turned into a spectacle when Musk launched a steel ball at not one, but two windows,
breaking both.92 Musk broadcast the number of Cybertruck reservations on his
Twitter account almost immediately, posting one number after another despite wide-
92
A video Musk posted of the backstage prep for the launch revealed why the truck’s windows broke. In practice runs,
the car doors were left slightly ajar and covered by padding, making it difficult to see that they had room to give when
the ball hit each window. On stage, the doors were firmly shut. The sledgehammer used to “prove” the toughness of
the truck appeared to be a dead blow hammer, designed to minimize direct striking force. The hammer was rotated 90º
when used to strike the competing truck, maximizng its effectiveness. In other words, the demonstration was a sham.
Reality Check
30
spread reports of depositors complaining
about multiple, unintended pre-orders and
payment card charges.
Musk clearly uses transparency to his ad-
vantage, preaching the value of openness
when it is convenient and secrecy when it
is not. He is hardly the only Silicon Valley
CEO to do so. This is exactly why regula-
tors such as the SEC and FTC should take
a close look at regulations that require
In Case of Emergency, Break Glass. Musk collected (in some cases, multiple)
deposits from those willing to pay for the show. Photograph: NBC News
companies to disclose key metrics on a
consistent basis, since otherwise investors
are left in the dark when transparency is needed most.
A Tale of Two Morgan Stanleys
Morgan Stanley sell-side analyst Adam Jonas covers a number of companies in the
automotive industry, including Ferrari, Ford, General Motors, Hertz, and Tesla. Like
many sell-side analysts, he publishes periodic “research” that summarizes the bank’s
views on a company’s prospects, and he also speaks with institutional investors about
risk factors that might affect relevant investments.
Even armed with the knowledge that sell-side analysts such as Jonas are, on average,
“useless,”93 many investors were nonetheless surprised to learn that the story Jonas
has been telling publicly about Tesla was considerably different than the one he whis-
pered in private. Specifically, in May 2019, a conference call recording of Jonas speak-
ing to favored Morgan Stanley clients leaked out.94,95 In the call, Jonas told his clients
that Tesla had transformed “from a growth story to a distress credit and restructuring
story.” He further argued, consistent with his public March 2019 report, that demand
for Tesla’s products was lacking. On the matter of Tesla’s debt, Jonas stated, “No one
really cares about debt. No one cares about the [credit default swaps] as long as
you’re growing. When questions are called into your growth these numbers start to
be noticed.”
A few days after the call leak, the market largely forgot that it had ever happened.
Morgan Stanley never amended its public disclosures to reflect the direct sentiments
expressed by Jonas on the call. Instead, in December 2019, Jonas expanded his target
range from $10 to $500,96 calling the stock, “fundamentally overvalued, but potentially
93
FT Alphaville, December 12, 2018, “How accurate are sell-side analysts?”
https://ftalphaville.ft.com/2018/11/13/1542091438000/How-accurate-are-sell-side-analysts-/
94
Paul M. Huettner via Dropbox, May 22, 2019.
https://www.dropbox.com/s/q1v1qew51xrquwj/Morgan_Stanley_Tesla_Call_2019_05_22.pdf?dl=0
95
Bloomberg News, May 22, 2019, “Tesla Woes Make It a ‘Restructuring Story,’ Morgan Stanley Says.”
https://www.bloomberg.com/news/articles/2019-05-22/tesla-called-a-restructuring-story-by-morgan-stanley-analyst
96
FT Alphaville, December 6, 2019, “Tesla is worth $10, $250 or $500.”
31
Tesla, Inc.
strategically undervalued.”97 This kind of
squishy, ridiculous nonsense would hardly
March 12, 2019 04:01 AM GMT
MORGAN STANLEY & CO. LLC
pass for analysis in any graduate-level sta-
Tesla Inc
| North America
Adam Jonas, CFA
EQUITY ANALYST
Adam.Jonas@morganstanley.com
+1 212 761-1726
tistics course, but on Wall Street, it’s in-
Demand Air Pocket? Cutting
Armintas Sinkevicius, CFA, CPA
EQUITY ANALYST
Armintas.Sinkevicius@morganstanley.com
+1 212 296-5469
Price Target to $260
George M Dailey
credibly common. As observed by Law-
RESEARCH ASSOCIATE
George.Dailey@morganstanley.com
+1 +1-212-761-1711
Stock Rating
Industry View
Price Target
Tesla Inc ( TSLA.O, TSLA US )
rence Fossi,
Equal-weight
Cautious
$260.00
Autos & Shared Mobility / United States of America
Stock Rating
Equal-weight
Industry View
Cautious
For what many investors believe to be a high growth tech
Price target
$260.00
Shr price, close (Mar 11, 2019)
$290.92
firm, TSLA has made notable moves to cut costs/prices &
Mkt cap, curr (mm)
$49,749
52-Week Range
$387.46-244.59
stimulate orders. We see TSLA hitting an air pocket in demand
Fiscal Year Ending
12/18
12/19e
12/20e
12/21e
“It never fails. It’s like the swallows returning
that is coming earlier than we expected. We reduce our Model
EPS ($)**
(1.08)
1.30
6.69
9.89
Prior EPS ($)**
-
4.17
10.22
12.66
3 forecast & ATPs across the range, hitting ests & our target.
ModelWare EPS ($)
(5.75)
(3.59)
2.64
5.71
to Capistrano. The analysts whose collective
Tesla Inc (TSLA.O)
From
To
framework
Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare
WHAT'S
Price Target
$283.00
$260.00
** = Based on consensus methodology
e = Morgan Stanley Research estimates
‘analysis’ is factored into the consensus fig-
CHANGED
Join our Autos & Shared Mobility Equity Research Analyst (Adam Jonas) and Credit
ure, must each year reduce what begins as
Desk Analyst (Jake Gomolinski-Ekel) Tuesday March 12th, 2019 at 11AM as they
assess the debates and opportunities across the capital structure on Tesla. The
a profitable future earnings forecast until the
company is undergoing multiple transitions with sales momentum slowing, shift to
online channels, management changes, setting a foot into China and the early
Model Y unveil among other developments which escalate the bull-bear debate.
forecast finally converges with reality, which is
Key changes to 2019 earnings forecast:
Unit volume. We cut 1Q19 Model 3 deliveries by 23% to 48k units, which
negative.”98
we believe may be modestly below consensus to allow for sluggish US
sales and potential impediments to international deliveries. Our FY19 total
company volume of 362k units is at the low end of the company’s 360k to
400k range.
Jonas is one of those very analysts with the
ATPs. We’ve reduced M3 average transaction prices by between $1k to
$2k/unit vs. our prior forecasts… settling out near $53k by 4Q19. We’ve cut
Model S and X prices by 3% to 4% on average this year to reflect recent
curious trait of cyclical optimism who has
(net) price cutting actions.
Auto gross margin. The volume and pricing actions remove roughly 170bps
had to repeatedly temper his expectations
of Auto gross margin from our Q1 estimate (to 22.3%) and 150bps of Auto
gross margin from the full year (to 22.6%).
Morgan Stanley does and seeks to do business with
for Tesla’s earnings per share. In March
companies covered in Morgan Stanley Research. As a
result, investors should be aware that the firm may have a
Net income. Our 1Q19 net loss is revised to negative $311mm from negative
conflict of interest that could affect the objectivity of
$32mm previously.
Morgan Stanley Research. Investors should consider
2019, Jonas lowered his EPS estimate from
Morgan Stanley Research as only a single factor in making
their investment decision.
Cash flow. Changes to our forecast take our Q1 free cash flow to negative
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
$4.17 to $1.30.99 And he’d done it before:
$935mm (before ABL borrowing) vs. our previous forecast of negative
report.
“Jonas cut his
2016 EPS estimate from
1
$1.28 to $0.43.”100 And before that: “Jo-
Morgan Stanley analyst Adam Jonas issued a price target of $260.00 for
nas lowered his 2015 earnings per share
Tesla’s stock on March 12, 2019, approximately two months before he told
estimate for Tesla to $2.45 from $4.39.”101
select investors that he believed Tesla was destined for “restructuring,” i.e.
In baseball, the rule is “three strikes and
bankruptcy. Morgan Stanley was also one of the underwriters on Tesla’s $2.5
billion May 2019 raise.
you’re out.” Even these reduced estimates
always proved far too optimistic. But un-
like baseball teams, sell-side investment banking analysts never appear to lose.
Other False Statements
Whether it has been Tesla speaking for Musk, or Musk speaking for Tesla, the com-
pany has literally issued too many false statements to count. In September 2018,
Tesla posted a public update based on an “internal” e-mail message to employees.102
https://ftalphaville.ft.com/2019/12/06/1575627500000/Tesla-is-worth--checks-notes---10---250-or--500/
97
CNBC, June 19, 2019, “Morgan Stanley isn’t sure how to value Tesla anymore.”
https://www.cnbc.com/2019/06/19/morgan-stanley-isnt-sure-how-to-value-tesla-anymore.html
98
Seeking Alpha, January 3, 2020, “My Fearless Forecasts For Tesla’s 2020.”
https://seekingalpha.com/article/4315085-fearless-forecasts-for-teslas-2020
99
CNBC, March 12, 2019, “Morgan Stanley’s Jonas: Tesla stock to drop because price cuts reveal demand ‘air pocket.’”
https://www.cnbc.com/2019/03/12/tesla-headed-for-demand-air-pocket-morgan-stanley-sees-10percent-downside.html
100
Forbes, February 3, 2016, “What Is Going On With Tesla’s Stock?”
https://www.forbes.com/sites/chuckjones/2016/02/03/what-is-going-on-with-teslas-stock/#5355b1682589
101
TheStreet, November 19, 2014, “Tesla retreats after analyst lowers Model X delivery forecast.”
https://www.thestreet.com/investing/tesla-retreats-after-analyst-lowers-model-x-delivery-forecast-12960112
102
Tesla, Inc. https://www.tesla.com/blog/company-update
Reality Check
32
Referring to Q3 2018, this update claimed that, “We are about to have the most
amazing quarter in our history, building and delivering more than twice as many cars
as we did last quarter.” This proved to be false: according to Bloomberg News, Tesla
produced 28,578 Model 3 vehicles in Q2 2018, and 53,239 Model 3 vehicles in Q3
2018.103 Twice the Q2 2018 production figure would have been 57,156 vehicles, or
7.35% more than were actually produced. The post also made unsubstantiated claims
about the electric vehicle battery market share of Tesla’s Nevada-based factory. Then,
on December 26, 2018, Musk wrote on Twitter, “Brake pads on a Tesla literally never
need to be replaced for lifetime of the car.”104 That’s simply not true; Tesla’s own user
manual states, “Neglecting to replace worn brake pads damages the braking system
and can result in a braking hazard.”105
But Elon Musk’s most outrageous lie ever came on a November 12, 2019 podcast
with alternative media personality Lex Fridman in which Musk commented on his
vague idea for a brain-implantable microchip, Neuralink. Musk stated, “Neuralink, I
think, will at first solve a lot of brain-related diseases.”106
Taken alone, this immensely arrogant, ignorant claim is totally senseless. Musk then
went on to actually specify, “So, uh, could be like anything from autism, schizophrenia,
memory loss, like everyone experiences memory loss at certain points in age... So,
there’s a tremendous amount of good that Neuralink can do in solving critical—criti-
cal damage to brain or the spinal cord...” Presumably, these baseless, false statements
were not run past the United States Food and Drug Administration (FDA) before
being made in public.
To be clear, Elon Musk does not have a medical degree or background, and so far,
Neuralink is a non-peer reviewed, non-FDA approved, non-human tested, science
fiction-based, deeply uninformed idea of what medical treatment should look like
for those suffering from neurological diseases. Musk is so obsessed with his own
mythology, in fact, that he demanded that his name be the only one listed on the
solitary paper Neuralink has published.107 While measuring brain activity can be use-
ful—and is already done using a variety of FDA-approved medical devices—there is
zero chance that Musk’s whimsical, evidence-free notions about how the brain works
could provide any useful treatment for “autism, schizophrenia, [or] memory loss,” ever.
Neuralink would also carry enormous risk of surgical complications, including infec-
tion. Musk’s statements are completely false and misleading,108 likely to be misinter-
preted by many patients or families in desperate straits, and should be fully retracted if
103
Bloomberg News, 2018, “Tesla Tracker.” https://www.bloomberg.com/graphics/2018-tesla-tracker/.
104
Twitter, December 26, 2018. https://twitter.com/elonmusk/status/1078010341651492865
105
Jalopnik, January 9, 2019, “The Truth About Brake Pad Replacement in Teslas And Other EVs.”
https://jalopnik.com/the-truth-about-brake-pad-replacement-in-teslas-and-oth-1831591519
106
YouTube, November 12, 2019, “Elon Musk: Neuralink, AI, Autopilot, and the Pale Blue Dot | Artificial Intelligence (AI)
Podcast.” https://www.youtube.com/watch?v=smK9dgdTl40
107
Musk, Elon, July 16, 2019, “An integrated brain-machine interface platform with thousands of channels.”
https://www.biorxiv.org/content/10.1101/703801v1.full.pdf
108
Insider, November 21, 2019, “Elon Musk said his brain chips might ‘solve’ autism and schizophrenia. A neuroscientist who
implants brain chips has doubts.” https://www.insider.com/elon-musk-neuralink-wont-solve-autism-schizophrenia-2019-11
33
Tesla, Inc.
not sanctioned in some manner by the United States Food and Drug Administration.
Families of individuals suffering from mental illness are routinely buffeted with news of
hoax cures and hoax risks. Here, Musk has added fuel to the fire of medical misinfor-
mation. Investors should be concerned about placing their trust in a chief executive
willing to say absolutely anything, no matter how false or dangerous, just to prop up
his own frail ego.
Product Defects
VIN Mismatch Issues
There have been numerous reports of Tesla manufacturing
vehicles where Vehicle Identification Numbers
(VINs) are
mismatched on different parts or missing altogether. This is
shocking, because for most major vehicle manufacturers it
simply does not happen. In the world of auto manufacturing,
the VIN is somewhat sacrosanct: all sorts of quality control,
legal, insurance and sales processes depend upon it being cor-
rect. Tesla’s factories, for whatever reason, have had repeated
difficulty getting VINs right.109,110 Given the seriousness of the
problem, Tesla’s response to an inquiry by The Drive was rather
understated: “A mistake was made.” Some owners have also
reported finding blank VIN plates on their vehicles.
A Facebook user from Australia named Leonie
Fires
Campbell asked whether it is normal for her Tesla
Model 3 car doors to reflect different VIN num-
bers. It is not. Photograph: Leonie Campbell
Worldwide, a number of Tesla vehicles have spontaneously
caught fire, including numerous cases in the United States.111
Sadly, in some cases, vehicle fires have led to deaths, as Tesla failed to design a door
locking system that would always make it possible to unlock doors from the inside
in the event of an emergency.112,113 In the United Kingdom, an entire Tesla dealer-
ship ignited.114 Other Tesla vehicle fires have been reported in Shanghai, California,
109
The Drive, August 17, 2018, “New Tesla Model 3 Delivered to Customer With Mismatched Door Panels.”
https://www.thedrive.com/news/22951/new-tesla-model-3-with-mismatched-door-panels-is-a-new-kind-of-bespoke-build
110
Tesla Forums, November 20, 2018, “Tesla Installed Mismatched Glass in my Car and I Am Angry.”
https://forums.tesla.com/forum/forums/tesla-installed-mismatched-glass-my-car-and-i-am-angry
111
Various articles concerning Tesla fires can be found at https://www.kron4.com/news/national/tesla-catches-fire-inside-
garage-of-san-francisco-home/1975931200, https://futurism.com/the-byte/tesla-fire-shanghai-parking-garage,
https://www.sun-sentinel.com/local/broward/davie/fl-ne-electric-vehicle-battery-fires-20190225-story.html, and
https://abc30.com/video-tesla-model-s-bursts-into-flames-twice-in-1-day-in-ca/4935547/.
112
Engadget, April 9, 2019, “Jeweler who made Tesla ring for Elon Musk gets locked inside Model X.”
https://www.engadget.com/2019/04/09/ben-baller-tesla-model-x/
113
The Miami Herald, October 25, 2019, “Broward man’s Tesla turned into burning ‘death trap,’ lawsuit claims. Door wouldn’t
open.” https://www.miamiherald.com/news/local/article236605723.html
114
BBC News, March 2, 2019, “Crawley Tesla fire: Half of site damaged in fire.”
https://www.bbc.com/news/uk-england-sussex-47427311
Reality Check
34
FILED: NEW YORK COUNTY CLERK 08/20/2019 02:46 PM
INDEX NO. 654765/2019
NYSCEF DOC. NO. 1
RECEIVED NYSCEF: 08/20/2019
27 of 114
Top: An excerpt from a lawsuit against Tesla filed by
Walmart, Inc. in August 2019. Walmart alleged that Tesla
knowingly failed to resolve issues that led to rooftop solar
panel fires at several of its stores. After the lawsuit was filed,
news of “Project Titan” leaked, involving a coverup of known
defects in SolarCity and Tesla solar panels.
Left: From top, a Tesla Model 3 caught fire on August 11,
2019 in Mosow, Russia after slamming into a parked
tow truck. Autopilot has had trouble with parked vehicles.
Photograph: The Sun
Next, the Crawley service center in the United Kingdom on
March 2, 2019. Although the cause of the fire was not ini-
tially believed to be linked to Tesla vehicles or products and
originated in the service area of the building, the final report
of the West Sussex Fire and Rescue Service has not been
published publicly. Photograph: Harry Bullmore, The Argus
Next, the site of the fatal accident in Mountain View, Cali-
fornia on CA 85-S where a Model X on Autopilot collided
with a concrete divider. The collision resulted in a fire that
consumed most of the car. Photograph: KTVU Fox 2
Next, a Tesla Model S at a tire shop in Los Gatos, Cali-
fornia caught on fire twice in one day, first after sitting in
the parking lot, and again after it was towed to Campbell.
Photograph: KRON 4
Finally, a still frame of a video from Shanghai, China, where a
Tesla Model S exploded into flame after sitting parked in a
parking garage. Photograph: Bloomberg News / Twitter User
@ShanghaiJayin
35
Tesla, Inc.
Florida, New Hampshire, and Nevada, where an entire car carrier ignited.115 In April
2019, Linette Lopez of Business Insider reported that she had “counted at least 20
reported incidents of Teslas catching on fire since 2013 and five deaths in the past 14
months.”116
Electric vehicle fires present unique challenges for firefighters because of the way
that lithium (the main element present in lithium-ion batteries) reacts with water. by
producing hydrogen gas and lithium hydroxide in a rapid single displacement reaction.
Hydrogen is extremely flammable. Consequently, putting out a lithium fire can take
hours on end, after which the fire sometimes re-ignites hours later. For this reason,
some fire departments have begun to use enormous water tanks to hold and sub-
merge entire electric vehicles in water once they are damaged.
On November 1, 2019, NHTSA announced that it would launch a formal investiga-
tion of Tesla battery fires after an attorney for the plaintiff in a related lawsuit filed
a formal complaint.117 David Rasmussen sued Tesla on August 7, 2019 over Tesla’s
response to the fire problem: a wireless software update that reduced battery per-
formance across the board for its cars, regardless of what had been advertised to
customers at the time of purchase. The suit is ongoing.118
Tesla has also had highly publicized problems with its solar panels catching fire. On
August 20, 2019, Walmart, Inc. sued Tesla in the Supreme Court of the State of New
York for New York County over several solar panel arrays installed on Walmart stores
that had spontaneously erupted into flames. The lawsuit was a major news story, and
Tesla went to great lengths to placate its customer once the suit was filed. It was
settled soon after on November 4, 2019, but not before images from the lawsuit
made their way into the mainstream press.119 In addition, SolarCity and Tesla have
been sued several times by homeowners who have faced massive repair bills after
their solar panels or associated equipment caught on fire.
It should be noted that internal combustion engine vehicles also catch fire on a regu-
lar basis, though rarely without cause (such as when sitting parked in a parking lot) as
some Teslas have. NHTSA studied the issue in 2017 and found a comparable fire risk
between electric and traditional vehicles.120
115
Autoblog, October 2, 2019, “Trailer-load of Teslas burns in Nevada.”
https://www.autoblog.com/2019/10/02/trailer-loaded-with-teslas-burns/
116
Business Insider, April 26, 2019, “Life, death, and spontaneous combustion — here’s why the debate about Tesla fires just
got more fierce.” https://www.businessinsider.com/why-tesla-cars-catch-on-fire-2019-4
117
The Los Angeles Times, November 1, 2019, “Federal safety agency launches probe of Tesla battery fires.”
https://www.latimes.com/business/story/2019-11-01/federal-safety-agency-launches-investigation-of-tesla-battery-fires
118
Rasmussen v. Tesla, Inc., California Northern District Court, Case No. 5:19-cv-04596-BLF.
https://www.plainsite.org/dockets/40gtzb2vd/california-northern-district-court/rasmussen-v-tesla-inc/
119
Walmart Inc. (f/k/a Wal-Mart Stores, Inc.) v. Tesla Energy Operations, Inc. (f/k/a SolarCity Corporation), Supreme Court
of the State of New York, New York County, Case No. 654765/2019.
https://www.plainsite.org/dockets/40v40ia2y/supreme-court-of-the-state-of-new-york-new-york-county/walmart-inc-fka-
walmart-stores-inc-v-tesla-energy-operations-inc-fka-solarcity-cor/
120
Business Insider, May 21, 2019, “Tesla is facing scrutiny for its cars catching on fire, but electric cars could actually end up being
safer than gas-powered cars.” https://www.businessinsider.com/tesla-facing-scrutiny-for-car-fires-but-more-ice-fires-2019-5
Reality Check
36
Project Titan
Internally, Tesla was aware that its solar panels posed a fire risk due to defective com-
ponents manufactured by Amphenol Corporation. Rather than inform its custom-
ers—many of whom had placed these panels above the bedrooms where they and
their children slept—Tesla decided to undertake a stealth recall and repair program it
referred to as “Project Titan.” Strangely, this is the same name that Apple had given its
self-driving car program internally, which was surely not lost on management at Tesla.
The name may have been deliberately chosen to avoid search results pointing back
to Tesla if its existence were leaked to the press. Project Titan’s status is unknown.
Vehicle Quality Problems
As described by Edward W. Niedermeyer in Ludicrous, by May 2010, Tesla had defied
long odds to emerge as a company with a real path forward to long-term profitability.
It had managed to convince major, established players in the automotive industry to
invest; it had announced the Model S, even if doing so required a bit of stage magic;
and it had acquired the old New United Motor Manufacturing, Inc. (NUMMI) plant
in Fremont, California from Toyota at the bargain price of $42 million. It seemed as
though things could finally proceed smoothly from there.
Almost a decade later, Tesla is
plagued by persistent quality prob-
lems, even after the company has
assured customers and the media
repeatedly that it has everything
under control. Each stage of grief
has yielded a pronouncement
from Elon Musk regarding a differ-
ent kind of “hell.” Musk is expert
at evoking pity for his lamentable
role as CEO of a multi-billion dol-
lar company, and has accordingly
complained bitterly of “production
hell,” “delivery logistics hell,”121 and
at one point, “traffic hell.”122
Tesla’s GA4 production line-in-a-tent, at a time when air quality in Fremont rivaled
Beijing for the worst on Earth, leaving workers exposed. Photograph: “Shorty Air Force”
For much of this, Musk has no one
/ Twitter User @Paul91701736
to blame but himself. His overly
aggressive production targets led
to the questionable decision to build a tent spanning approximately 920 feet in the
parking lot of Tesla’s Fremont factory to house an extra production line for the Model
121
Twitter, September 16, 2018, https://twitter.com/elonmusk/status/1041500594467270656
122
Twitter, June 7, 2017, https://twitter.com/elonmusk/status/872645445742231553
37
Tesla, Inc.
3, ultimately referred to as General Assembly line 4, or GA4. The GA4
tent solution to Tesla’s problem of overpromising quickly caused new
problems of its own. As CNBC journalist Lora Kolodny reported, em-
ployees working in the tent could not produce cars of the same quality
as the ones built in the factory proper. They sometimes skipped steps or
failed to properly torque bolts to keep the line moving, and would often
resort to using electrical tape to cover for errors.123 In November 2018,
the tent also exposed the employees themselves to the elements at a
time when California wildfires north of the San Francisco Bay Area made
merely breathing the outside air a health hazard.124
Overall, the Model 3 has suffered from numerous defects, including a pro-
pensity for rear bumpers to fall off in the rain; trunks to grow mold due
to poor insulation; soft undercarriage materials to droop, inadvertently
Tesla owners should take care to
avoid heavy rain and carwashes.
turning into snow and mud plows, and center consoles to reboot seem-
Water has been an issue with the
ingly at random. In addition, the Fremont factory’s paint shop has never
Model 3. Photograph: Twitter User
quite managed to achieve the type of quality customers expect, yielding
@Rvanleerdam
thousands of cars with sub-standard, thin paint coats that are more likely
to erode away or peel simply due to normal wear and tear.125,126 Cus-
tomers also frequently complain of creaking sounds at high speeds, missing bolts, and
problems with the Bluetooth audio system.127
Some of these problems are attributable to Tesla’s relative youth in the industry, but
others can be traced directly to decisions made by Musk. The Model X, with its sen-
sor-laden falcon-wing doors, has attracted more litigation than any other Tesla model.
One lawsuit128 involving an allegedly defective Model X listed problems starting with
(a) and ending with (uu), for a total of 47 reported “issues,” and 70 “incidents.”129 It
is hardly the only one.
As of late 2019, according to litigation records compiled by PlainSite, Tesla had been
sued over issues involving the Model X 93 times; involving the Model S, 89 times; and
involving the relatively newer Model 3, 35 times. It is likely that these rough tallies
underestimate the amount of litigation, however, because many court documents
could not be easily obtained. These figures also do not include arbitration disputes
123
A former Tesla employee confirmed, “I had to remove the tape!”
YouTube, August 1, 2019, “Ex-Tesla Employee Tells All; What It’s Really Like to Work For Elon Musk!”
https://www.youtube.com/watch?v=B7PQMTZLyko
124
CNBC, July 15, 2019, “Tesla employees say they took shortcuts, worked through harsh conditions to meet Model 3 produc-
tion goals.” https://www.cnbc.com/2019/07/15/tesla-workers-in-ga4-tent-describe-pressure-to-make-model-3-goals.html
125
PlainSite, July 2, 2019, “Tavarantarkastuskertomus (Finnish Model 3 Paint Assessment).”
https://www.plainsite.org/documents/f3mn9/tavarantarkastuskertomus-finnish-model-3-paint-assessment/
126
The Drive, August 2, 2019, “Finnish Tesla Model 3 Inspection Reveals Soft, Thin, Under-Spec Paint.”
https://www.thedrive.com/tech/29257/finnish-tesla-model-3-inspection-reveals-soft-thin-under-spec-paint
127
PlainSite. https://www.plainsite.org/tags/tesla-model-3/
128
Thomas v. Tesla, Inc., Illinois Northern District Court, Case No. 1:18-cv-07839.
https://www.plainsite.org/dockets/3mz1vndk9/illinois-northern-district-court/thomas-v-tesla-inc/
129
Thomas v. Tesla, Inc., Illinois Northern District Court, Case No. 1:18-cv-07839, Document 22.
https://www.plainsite.org/dockets/download.html?id=277907556&z=e5026f13
Reality Check
38
Case: 1:18-cv-07839 Document #: 22 Filed: 01/29/19 Page 2 of 39 PageID #:153
and confidential settlements. Some lawsuits have in-
cluded copies of contractual agreements that Tesla has
6.
Prior to said purchase, Plaintiffs had multiple conversations in person at the Villa
Park service center with various sales agents.
encouraged dissatisfied customers to sign, and these
7.
Since the time of said purchase, and as early as October 6, 2016, and through the
date of filing this Complaint, Plaintiffs have experienced the following issues with said vehicle:
agreements contain confidentiality clauses designed to
a.
Squeaking windows
b.
Squeaking brakes
keep negative news from getting out.
c.
Door sensors not working properly
d.
Steering wheel lights flickering
e.
Windshield wipers not working properly
f.
Vents/air not working properly
g.
Vehicle shocks minimally effective
h.
Loss of tire pressure
i.
Vehicle automatically starting kindle audiobook when approaching the
On May 30, 2019, “Aladdin” live star Mena Massoud
vehicle key fab without hitting the play button
j.
Radio station automatically changing when the vehicle is started
k.
Rainwater pouring into the vehicle when falcon doors are opened
sued Tesla in Los Angeles County Superior Court
l.
Doors not opening completely when no obstructions were present
m.
Doors opening too far and hitting obstructions
n.
Regenerative braking not functioning in cold weather
when one of his Model 3’s wheels allegedly spun off
o.
Vehicle battery using approximately three times the battery usage as
shown by mileage in cold weather
p.
Side windows frosting to the point of completely blocking visibility when
the heat was on in the cold weather
spontaneously due to a broken suspension.130 Tesla
q.
Vents/heat not functioning
r.
Automatic driving requiring driver to grip the steering wheel so tightly
that it made the use of the mechanism useless
argued that the wheel had detached as the result of a
s.
Mobile application not functioning in the cold weather
t.
Second row seat belts twisted
u.
Front door not closing completely in cold weather
collision with a tree, but for those who had been mon-
v.
Computer screen requiring multiple re-boots to function properly
w.
Side mirrors freezing in closed position in cold weather
x.
Mapping grid not functioning
itoring the company, the complaint looked familiar.131
y.
Unable to connect to Wifi at home
z.
Mobile application misrepresenting activity inside the vehicle
aa.
Floor heating not providing sufficient heat
bb.
Vehicle sensing obstacles at too far of a distance
Referred to as “whompy wheels” by on-line critics, the
cc.
Vehicle sensing parking opportunities in the middle lane of the road
dd.
Door closing without being instructed to close with the button or key fab
ee.
Battery insufficient to drive between Tesla charging stations along
problem had been reported for years in connection
highway drive
ff.
Charging stations charging at variable rates and not in accordance with
indicator on vehicle
with suspensions snapping due to weak metal alloys.
Page 2 of 39
Photographs132 and video footage appear to confirm
the existence of a problem.
Case: 1:18-cv-07839 Document #: 22 Filed: 01/29/19 Page 3 of 39 PageID #:154
gg.
Navigation arrow not accurately recording location
hh.
Vehicle emitting extremely loud noises when driving, stationary, and
On November 14, 2019, the Model 3 lost its endorse-
turned off
ii.
Vehicle audio ceasing to work
jj.
Window coming off of the track
ment from Consumer Reports because of the numer-
kk.
Cell phone calendar randomly not functioning at all or not updating
ll.
Favorites and Recent radio pages not properly functioning
mm.
Key fob not “summon” vehicle
nn.
Side door not locking in cold weather
ous defects associated with the vehicle.133 According
oo.
Front door frozen open
pp.
Vehicle locked with keys inside
qq.
Owners manual not displaying
to Consumer Reports, “reliability has been a weak
rr.
Bluetooth fails to work consistently
ss.
Autopark attempted to park perpendicularly for a parallel parking spot
tt.
Stop indicator on when approaching red light, breaking, and no vehicle in
spot for Tesla.”
front
uu.
Windows fogging when auto heat on
8.
Although there are 47 issues that have occurred with the vehicle, listed above,
Plaintiffs have recorded 70 incidents since the purchase of the vehicle.
9.
Although Plaintiffs have recorded 70 incidents since the purchase of the vehicle,
Sudden Unintended Acceleration
more incidents have occurred but were not recorded due to only one Plaintiff
being in the vehicle at the time and unable to record and drive at the same time.
10.
Plaintiffs have been required to have their vehicle repaired at least ten times since
More times than one might expect, Tesla vehicles have
the date of purchase.
been profiled on local news stations nationwide on
11.
Plaintiffs have been required to be without their vehicle for more than one day on
several occasions during the time that the vehicle was repaired.
account of their tendency to drive into buildings at
12.
Plaintiffs have been required to drive a smaller vehicle than the model X on
numerous occasions during the time that the vehicle was repaired, thus depriving
full speed. This phenomenon has been given the self-
Plaintiffs of the opportunity to take advantage of the significant space available in
explanatory name Sudden Unintended Acceleration,
the model X.
13.
Defendant has fully repaired some of the issues listed above.
or SUA, and it is the subject of at least 12 lawsuits and
Page 3 of 39
122 formal complaints to NHTSA.134
One Model X owner filed suit against Tesla and included a
Like Autopilot defects and some software bugs in gen-
list of 47 discrete problems with the car.
eral, SUA is a difficult problem to pin down because
the vehicle appears to work properly until it suddenly
130
Mena Massoud v. Tesla Motors. Inc., A Delaware Corporation, Superior Court of California, County of Los Angeles, Case No.
19STCV18879. https://www.plainsite.org/dockets/3z2zftgn3/superior-court-of-california-county-of-los-angeles/mena-
massoud-v-tesla-motors-inc-a-delaware-corporation/
131
https://www.businessinsider.com/aladdin-stars-problem-with-tesla-known-as-whompy-wheels-2019-6
132
Flickr, “Tesla -Whompy Wheels.” https://www.flickr.com/photos/136377865@N05/sets/72157658490111523/
133
Consumer Reports, November 14, 2019, “Tesla Model 3 Loses CR Recommendation Over Reliability Issues.”
https://www.consumerreports.org/car-reliability-owner-satisfaction/tesla-model-3-loses-cr-recommendation-over-reliability-issues/
134
https://www.tesladeaths.com/suddenacceleration.html
39
Tesla, Inc.
does not. The frequency of complaints, however,
suggests that the problem is real, and not merely a
case of one or two drivers pressing the accelera-
tor when they meant to press the break.
In addition to the steadily growing number of
photographs of Teslas inside buildings surrounded
by shattered glass and broken walls, a video from
Tu Noticia PR in Puerto Rico illustrated the SUA
phenomenon better than perhaps any evidence
so far. In the video, a white Model X appears to
A video camera in Puerto Rico captured the white Model X shown
be preparing to parallel park when it immediately
here on the right accelerating for a prolonged, uncontrollable state,
making an incorrect pedal choice unlikely. The incident caused
accelerates and begins careening uncontrollably,
damage and nearly hit a bystander. Photograph: Tu Noticia PR
crashing into several vehicles and almost running
over a pedestrian standing across the street.135
As numerous social media users have pointed
out,136 Tesla is not the only company to have ex-
perienced problems with unintended acceleration.
Some are convinced that no matter the car brand,
the problem is merely an excuse for confused
drivers who jammed the accelerator pedal instead
of the brake, which in an electric vehicle can, in
There have been numerous news alerts about Teslas crashing into
fact, lead to very rapid acceleration. However, the
buildings. Photograph: Victor Valley News / LLN
video footage from Puerto Rico showing a Model
X in a completely uncontrollable state for a long
duration strongly suggests against a pedal mix-up, at least in that particular situation.
For Toyota, the SUA problem resulted in congressional hearings, litigation, recalls, and
NHTSA investigations.137 Sticky pedals and defective floor mats were eventually
blamed, as opposed to Toyota’s controller software (which is far simpler than the
software that powers a Tesla today). The financial and reputational hit to Toyota was
significant, and ended up costing billions of dollars. It is unclear that Tesla could afford
a similar debacle in financial terms. At present, it is accumulating more SUA com-
plaints than Toyota despite selling a small fraction of the number of vehicles per year.
Service Problems
In late 2019, the Twitter hashtag #TeslaServiceIssues began to appear with increas-
135
Tu Noticia PR, August 13, 2019, “Video muestra vehículo Tesla descontrolado en Mayagüez punto de atropellar a una
persona.” https://www.tuvideopr.com/video/922212137-Videomuestraveh%C3%ADculoTesladescontroladoenMayagüez
puntodeatropellaraunapersona
136
Twitter, December 31, 2019. https://twitter.com/StrangerPensive/status/1212085892720017409
137
Safety Research & Strategies, Inc., “Toyota Sudden Unintended Acceleration.”
http://www.safetyresearch.net/toyota-sudden-unintended-acceleration
Reality Check
40
ing frequency on social media posts.138 While
Tesla used to be known for its customer-friendly,
Model S mobile service cars, the company has cut
back on service options to save on costs, and now
routes virtually all requests through its mobile app.
Car owners report difficulty reaching actual hu-
man beings and extreme levels of frustration.
One customer, Todd Randall, wrote on Twitter:
“@elonmusk @Tesla I took delivery of my M3 Satur-
day and need to schedule service but the app gives
me an error message. The Sales and Support experi-
ence has been horrible. How do I schedule service
with no phone numbers and an error message in your
A typical Tesla service interaction as described by an upset cus-
app?”139
tomer addressing the complaint directly to Elon Musk on Twitter.
Source: Twitter User @roryallen
Like many Tesla customers, his query was ad-
dressed directly to Musk on Twitter, perhaps un-
aware that Tesla’s CEO tends to respond to Twitter accounts with blue identity verifi-
cation checkmarks more often than others. It’s a reasonable strategy: by helping the
highest-profile customers with the most followers on average, Musk appears respon-
sive in a very visible way. But Musk can’t help everyone. Another customer with the
name “Mr. Churro” expressed their ire only a few minutes before:
“@Tesla @elonmusk why does it take longer to fix a Tesla than it does to order a brand
new one? Wish my insurance would just consider my model 3 totaled and order a
new one.”140
The answer to this question is that spare parts for Tesla vehicles are hard to come
by, and due to design and manufacturing flaws, they are in high demand, especially as
the Model 3 starts to age. In August 2019, a German car rental company called next-
move cancelled a $5 million order with Tesla for Model 3 vehicles because its man-
agement was so upset with Tesla’s service history. Managing Director Stefan Moeller
reportedly stated, “We had to insist on compliance with general quality standards and
processes in order to protect our renters and our business model.”141
138
Twitter. https://twitter.com/search?q=%23TeslaServiceIssues&src=typeahead_click&f=live
139
Twitter, December 30, 2019. https://twitter.com/ToddWRandall/status/1211822451677491200
140
Twitter, December 30, 2019. https://twitter.com/luiscastro383/status/1211781724490944512
141
Electrek, August 16, 2019, “Tesla loses major $5 million Model 3 order from rental company over service and quality
issues.” https://electrek.co/2019/08/16/tesla-loses-model-3-order-rental-company-service-quality-issues/
41
Tesla, Inc.
Charging Station Wait Times and Breakdowns
As Tesla’s so-called electric “fleet” has grown, the
demand for charging stations away from home has
grown with it. To keep up, Tesla has contracted
with shopping malls, gas stations, restaurants, and
other locales around the world, installing its electric
chargers wherever Tesla customers might routine-
ly drive. But even its substantial efforts at building
out a proprietary charging network haven’t been
enough. Now, new regulations may force Tesla to
upgrade many of those chargers so that custom-
ers can read pricing and status information on digi-
tal displays outside of their cars.
On social media, Tesla owners report excessively
long wait times in order to charge their vehicles,
“I love the car, but...” has become a familiar refrain. Social pres-
and pictures abound of long lines of Teslas that
sure amongst Tesla owners, who often wear their environmental
evoke memories for some of the Carter-era oil
consciousness as a badge of pride, seems to force customers to
crisis—the last time in modern memory significant
condition legitimate concerns with those five words (here, four).
Source: Twitter User @NathalieVeraTV
numbers of Americans had to queue for energy
necessary for transportation. Tesla has made weak
attempts to turn these waits into opportunities
for fun and entertainment, but as its own customers have
pointed out (usually directly to Elon Musk on Twitter), it’s
objectively absurd to spend longer waiting in line for a
charger than actually driving to get somewhere.
The problem with limited supply for charging infrastruc-
ture has been exacerbated in some cases by chargers that
are non-functional, sometimes because they or nearby
equipment upstream has caught on fire. In November
As chargers break down, charging queues are more
2019, CNBC reported on one such charger fire at a
common. Photograph: Twitter User @Undertrader
Wawa store in New Jersey.142
A Culture of Secrets, Fear, and Abuse
Preventing Disclosures
Secrecy culture is nothing new in Silicon Valley, but there is a notable difference be-
tween keeping secrets to promote customer anticipation of new products, and keep-
ing secrets to avoid disclosure of fraud and criminal wrongdoing. Companies like
142
CNBC, November 18, 2019, “Tesla Supercharger catches fire at a Wawa store in New Jersey.”
https://www.cnbc.com/2019/11/18/tesla-supercharger-fire-at-wawa-store-in-new-jersey.html
Reality Check
42
Apple Computer pioneered the former. Tesla excels at the latter.
In the SolarCity case before the Delaware Court of Chancery, Tesla went so far as to
cite Theranos to justify its preference of not disclosing the videotape of Elon Musk’s
deposition.143 It couldn’t have picked a worse precedent. The CEO of Theranos, Eliza-
beth Holmes, is now facing criminal charges in the Northern District of California.144
(Tesla’s headquarters is a short drive from Theranos’s former building on Page Mill
Road in Palo Alto.)
Tesla’s lawyers routinely make requests to federal and state government agencies to
keep information as secret as possible, whether it involves public safety (Autopilot)
or details that might conflict with Elon Musk’s promises to the public. In one case,
Tesla opted to disregard a court order that required it to turn over video evidence of
citizen journalist Randeep Hothi’s supposedly reckless driving as he sought to film a
demo vehicle being used to prepare for Autonomy Investor Day. Rather than disclose
the supposed evidence, Tesla dropped its case against Hothi.
When PlainSite affiliate Think Computer Foundation filed two Rule 5.1(f) requests
with the Delaware Court of Chancery, Tesla’s Board of Directors and even SpaceX
fought to maintain the veil of secrecy protecting Elon Musk and his colleagues. Musk
even went so far as to schedule an announcement for “Version 3.0” of the infamous
Solar Roof Tile on the day documents were scheduled to be released. When the
release was delayed by a day, suddenly, so too was the announcement. When it finally
took place, there was no live demo, no video, and no real-world photography to
accompany it. Elon Musk was reduced to mumbling fantastic promises to his follow-
ers—appearing 35 minutes late—in the hope that they would at least be temporarily
distracted.145
Regulation FD Violations
Tesla has now held several conference calls for the purpose of distributing informa-
tion material to shareholders that has not been made available to the public as re-
quired by Regulation FD, 17 C.F.R. § 243.
February 28, 2019 “Media Call”: Immediately following the SEC’s February 25, 2019
motion to hold Elon Musk in contempt of court, Musk posted a series of tweets on
February 26th designed to intentionally mislead shareholders into believing that there
was some potentially positive new announcement coming at 5:00 P.M. EDT on Febru-
ary 28, 2019. In his words, across three separate posts, “Thursday 2pm / California /
143
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS.
https://www.plainsite.org/dockets/download.html?id=286913109&z=73289dbe
144
USA v. Holmes et al, California Northern District Court, Case No. 5:18-cr-00258-EJD.
https://www.plainsite.org/dockets/3tav6pn0w/california-northern-district-court/usa-v-holmes-et-al/
145
YouTube, October 25, 2019, “Tesla Solar Roof V3 Announcement.”
https://www.youtube.com/watch?v=GO4kVusg_FE&t=34m50s
43
Tesla, Inc.
Some Tesla news.”146
Tesla shares rose approximately 7% over the next two trading days. At 5:00 P.M. on
the 28th, Musk led an invite-only conference call for certain reporters. The Los Angeles
Times later described the call in the following manner in an article entitled, “Tesla’s
Elon Musk, facing contempt charges, says semi-secret meeting was a mistake:”147
“During the call, in which a cheaper version of the Model 3 electric sedan was an-
nounced, Musk said the company would be closing its retail stores and that it would
not, as originally forecast, post a profit for the current quarter. Participants were told
not to post recordings of the proceedings, and after the meeting Tesla said a recording
or transcript of the meeting would not be made available to the media or the general
public.”
Tesla’s initial refusal to make a recording or transcript of the call available is a clear
violation of 17 C.F.R. § 243.100(a) (“...the issuer shall make public disclosure of that
information as provided in § 243.101(e): (1) Simultaneously, in the case of an inten-
tional disclosure; and (2) Promptly, in the case of a non-intentional disclosure.”) This
intentional disclosure was neither simultaneous nor prompt.
Despite widespread publicity about this state of affairs, the SEC took no visible action
to follow up. Later, Tesla did post a recording and transcript of the call, but was not
reportedly required to pay any sort of penalty. The transcript includes the quote, at-
tributed to Musk, “We do not expect to be profitable in Q1. But we do think that
profitability in Q2 is likely.” This came only a month after he had expressed his opti-
mism about a Q1 profit. By the time of this statement Musk had enough data about
demand for Tesla vehicles to know that a Q2 2019 profit would be nearly impossible.
He was forced to walk this statement back only a few weeks later.
Musk also stated, “I’m certain we’ll be feature complete with full self-driving this year.”
Musk knew or should have known that this statement was false.
May 2, 2019 Tesla, Inc. Secondary Offering Call: On May 2, 2019, Tesla held a confer-
ence call regarding its imminent issuance of common shares via a secondary offering,
which also included the issuance of convertible bond notes. This conference call was
similarly “secret” in violation of Regulation FD. Based on leaked information, on this
call, Musk projected that Tesla would soon achieve a market capitalization of $500
billion;148 that as discussed previously, based on no evidence, Tesla vehicles “appreci-
146
Twitter, February 26, 2019. https://twitter.com/elonmusk/status/1100646870601220098.
147
The Los Angeles Times, March 5, 2019, “Tesla’s Elon Musk, facing contempt charges, says semi-secret meeting was a mis-
take.” https://www.latimes.com/business/autos/la-fi-hy-tesla-musk-mistake-20190305-story.html
148
CNBC, May 2, 2019, “Elon Musk to investors: Self-driving will make Tesla a $500 billion company.”
https://www.cnbc.com/2019/05/02/elon-musk-on-investor-call-autonomy-will-make-tesla-a-500b-company.html
Reality Check
44
ate” in value over time to the tune of $150,000 to $200,000 in three years;149 and
that Tesla would achieve collision repairs “in a matter of hours” despite the fact that
reports of missing Tesla spare parts are widespread.150
The Secret Twitter Sitter
When crafting its settlement agreement with Musk in the two aforementioned “fund-
ing secured” action, the SEC appears to have gone to great lengths to center its
corrective action around the idea of pre-approval. Specifically, Musk was supposed
to pre-approve any public communications on Twitter that could potentially contain
material information. What the SEC did not specify, and which later led to consid-
erable friction (including but not limited to the February 25, 2019 motion to hold
Musk in contempt of court), was who exactly was supposed to pre-approve Musk’s
communications. Musk interpreted his settlement agreement to mean that he could
“pre-approve” his own messages so long as they were “within Tesla corporate policy,”
while the SEC expected a “experienced securities attorney” to fill that role.
The SEC never specified publicly who the so-called Twitter Sitter would be, and nei-
ther did Tesla. Even in court filings concerning this issue, the specific identity of the
“experienced securities attorney” was never disclosed.
If the SEC’s true goal is to hold Musk accountable, it is clearly necessary to specify
who is part of the chain of accountability. At the moment, only an anonymous law-
yer can theoretically be held accountable. From the public’s perspective, there is no
guarantee that such a lawyer even exists, or that if he or she does, that person could
be brought before a judge to explain the actions on any given day. There’s also no
guarantee that the Twitter Sitter even still works for Tesla, if he or she ever did.
Executive Departures
Since 2016, Tesla has inspired a steady exodus of mid- to high-level executives from
the company. Presently, the number of notable departures is over 200, including two
Chief Financial Officers, two Chief Accounting Officers, and three General Counsels.
“Unusual” does not even begin to describe how incredibly strange such a tidal wave
of departures is for an $80 billion company. The General Counsel role remains vacant.
Table 1: Known Tesla Executive Departures
Departure Month Name
Title
Next Position (If Known)
1
January 2016
Jay Vijayan
CIO and VP, IT & Business Applications
2
February 2016
Paolo Cerruti
VP, Global Supply Chain and Operations Planning
3
March 2016
Guru Sankararaman
VP, Information Technology
149
CNBC, May 6, 2019, “David Einhorn calls Elon Musk’s Tesla promises ‘a lot of horse---t.’”
https://www.cnbc.com/2019/05/06/david-einhorn-elon-musk-tesla-promises-a-lot-of-horse---t.html
150
Twitter, May 3, 2019. https://twitter.com/Paul_M_Huettner/status/1124340593440829448
45
Tesla, Inc.
Departure Month
Name
Title
Next Position (If Known)
4
March 2016
Michael Zanoni
VP, Finance & Worldwide Controller
5
March 2016
Ricardo Reyes
VP, Global Communications
6
April 2016
James Chen
VP, Regulatory Affairs & Deputy General Counsel
7
April 2016
Omar Riviera
Director, Global Service Operations
8
April 2016
Stephen Ivsan
Director, Vehicle Purchasing
9
May 2016
Chris Van Wert
Director of Product Excellence
10
May 2016
Ganesh Iyer
VP, IT (Acting CIO)
11
May 2016
Greg Reichow
VP, Vehicle Production
Director, Manufacturing, Paint, Plastic & Coatings
12
June 2016
Rich Schmidt
Operations
13
July 2016
Rich Heley
VP, Products
14
August 2016
Bill Chen
Senior Engineering Manager, Maps & Navigation
15
August 2016
Gregory Ryslik
Head of Data Science, Service
16
September 2016
Georg Bauer
VP, Financial Services EU, APAC
17
September 2016
Josh Ensign
VP, Manufacturing
18
September 2016
Khobi Brooklyn
Head of Global Communications
19
October 2016
Mike Taylor
VP, Finance & Treasurer, New Markets
20
November 2016
Fedor Artiles
Director, EMEA Financial Services
21
November 2016
Gregg Hurley
VP, Real Estate, Store Design & Retail Development
22
December 2016
Alexandre Haag
Senior Manager, Autopilot
23
December 2016
Mateo Jaramillo
VP of Products & Programs (Tesla Energy)
24
December 2016
Mornie Robertson
VP, Human Resources
25
December 2016
Sterling Anderson
Director of Autopilot Programs
26
January 2017
Ardes Johnson
Sales Director of Tesla Energy
27
January 2017
Georgios Sarakakis
Senior Manager, Reliability Engineering
28
February 2017
Jinnah Hosein
Interim VP, Autopilot Software
29
February 2017
Mark Lipscomb
VP of HR
30
February 2017
Olivier Loedel
Country Director, France
31
February 2017
Satish Jeyachandran
Director of Hardware Engineering
32
March 2017
David Nistér
VP, Head of Autopilot
Founded Grohmann Engineering (purchased by
33
March 2017
Klaus Grohmann
Tesla in November 2016)
34
April 2017
Jason Wheeler
CFO
35
April 2017
Jennifer Kim
Director of HR, Engineering
36
May 2017
Alison Armstrong
Director, Powertrain Manufacturing
Co-Founder/CTO of Zep Solar (acquired by
37
May 2017
Jack West
SCTY)
38
June 2017
Chester Chipperfield
Global Creative Director
39
June 2017
Chris Lattner
Head of Autopilot Software Team
Associate General Counsel (VP, Deputy General
40
June 2017
Fred Norton
Counsel & Head of Litigation at SCTY)
CEO/Founder of SCTY/Tesla Energy Head of Sales
41
June 2017
Lyndon Rive
& Service
42
June 2017
Rene LeBlanc
Staff Process Development Engineer
43
July 2017
Kenny Handkammer
Global Director, Service Innovation
44
July 2017
Peter Rive
Co-founder/CTO of SCTY
45
July 2017
Raj Dev
VP, Talent Acquisition & Analytics
46
July 2017
Raj Singh
Director, Hardware Engineering
47
August 2017
Arnnon Geshuri
Head of HR
48
August 2017
Carlos Ramirez
Senior Director of EHS
49
August 2017
Kurt Kelty
Senior Director of Battery Technology
Reality Check
46
Departure Month
Name
Title
Next Position (If Known)
50
August 2017
Zean Nielsen
VP, Global Sales Operations & VP, EMEA Sales
51
September 2017
Andrea James
IR Associate/Consultant
52
September 2017
Beth Loeb Davies
Director, Learning & Development
53
September 2017
Diarmuid O’Connell
Head of Business Development
54
September 2017
Jon Wagner
Senior Director, Battery Engineering
Associate General Counsel (VP, Deputy General
55
September 2017
Phuong Phillips
Counsel & Head of Corporate Securities at SCTY)
56
September 2017
Ryan Hanley
Director, Grid Services
57
October 2017
Ben Hill
VP, EMEA
58
October 2017
Collette Bridgman
Senior Director, Global Marketing
59
October 2017
John Vardaman
Director, Construction Management
60
October 2017
Landon Mossburg
Director, Supply Chain Automation
61
October 2017
Robert Harmon Jr.
Director, Real Estate & Deputy General Counsel
62
October 2017
William J. Donnelly
President of Tesla Finance, LLC
63
November 2017
Jeff Evanson
Head of IR
64
December 2017
Erik Fogelberg
VP, Tesla Energy Commercial Sales (Americas)
65
December 2017
Ernest Villanueva
Senior Manager of Battery Module Design
66
January 2018
Alan Schoen
Director, Gigafactory Manufacturing Engineering
Senior Manager, Battery Tech, Cell Quality, and
67
January 2018
Celina Mikolajczak
Materials Analysis
68
January 2018
Jason Mendez
Senior Director, Manufacturing Engineering
69
January 2018
Will McColl
Senior Manager, Equipment Engineering
Founded WaveForm Design
70
February 2018
Jon McNeill
President, Global Sales & Service
COO, Lyft
71
March 2018
Charlotte Beard
Director, Energy Products Finance
72
March 2018
Eric Branderiz
Chief Accounting Officer & Controller
CFO of Enphase Energy
73
March 2018
James Radford Small
VP, Global Capital Markets
74
March 2018
Jimmy Knauf
Senior Director, Global Facilities
75
March 2018
Susan Repo
Treasurer and VP of Finance
CFO, Topia
76
April 2018
Eric Larkin
Director, Factory Software
77
April 2018
Georg Ell
Director, Western Europe
CEO, Smoothwall
78
April 2018
Jim Dunlay
VP, Powertrain Engineering
Head of Silicon Engineer-
79
April 2018
Jim Keller
VP, Autopilot
ing, Intel
80
April 2018
John Walker
VP, North America Sales
81
April 2018
Kanwal Safdar
Global Head of People Analytics
82
April 2018
Matthew Renna
Model S and X Program Manager
83
April 2018
Paul Durkee
Senior Mechanical Design Engineer, Battery
84
April 2018
William Drewery
Global Head of Capex Supply Management
Archan Padmanabhan
85
May 2018
Product Director, Stationary Storage
Rao
86
May 2018
Cal Lankton
VP, Energy Sales & Operations
87
May 2018
Doug Field
Senior VP of Engineering
Director of Field Performance Engineering &
88
May 2018
Matthew Schwall
Head of Field Safety, Waymo
Primary Contact for NTSB and NHTSA
89
May 2018
Robert Rudd
Director, Utility Sales
90
May 2018
Sameer Qureshi
Senior Manager, Autopilot Programs (Product)
91
June 2018
Brijesh Tripathi
Leader, Hardware Engineering (Autopilot)
92
June 2018
David Apps
Director, Auto Press Center
93
June 2018
David Erhart
Sr. Director of Quality, Reliability & Test
94
June 2018
David Schonberg
Director, Engineering - Energy
95
June 2018
Ganesh Srivats
VP Sales in North America
47
Tesla, Inc.
Departure Month
Name
Title
Next Position (If Known)
96
June 2018
Gary Clark
Chief Information Officer
Head, Advanced Manufacturing & Battery Enclo-
97
June 2018
George Ku
sure Manufacturing
Global Director, Business Development & Market
98
June 2018
Greg Callman
Entry
Senior Project Manager, Battery Tech & Cell Supply
99
June 2018
Jun Shin
Chain
100
June 2018
Karim Bousta
VP, Worldwide Service and Customer Experience
101
June 2018
Nick Kalayjian
VP, Engineering
Regional Director, Northern Europe (Previously
102
June 2018
Pål Simonsen
Head of Norway)
103
June 2018
Paul Lomangino
Director, Engineering Tools
104
June 2018
Ryan Anderson
Senior Group Manager, Supply Chain
105
June 2018
Yannick Roux
Director, Manufacturing Engineering
106
July 2018
Bryan Ellis
VP, US Energy Sales
107
July 2018
Chris Wahl
Senior Regional Sales Director (AZ & NV)
108
July 2018
Ganesh Srivats
VP Overseeing Retail, Delivery, and Marketing
CEO, Moda Operandi
Senior Manager, Vehicle Exterior & Plastics
109
July 2018
James Bellis
Engineering
Deputy General Counsel, Chief IP & Litigation
110
July 2018
Jeff Risher
Counsel
Senior Manager, Vehicle Integration & Dimensional
111
July 2018
Jonathan Sive
Engineering
112
July 2018
Lenny Louis
Director & GM, Canada
113
July 2018
Leon Keshishian
Regional VP, Energy Operations (D.C.)
114
July 2018
Martin Wylie
Senior Regional Sales Manager, Energy
115
July 2018
Nate Walker
Director, HQ Business Operations (Energy)
116
July 2018
Yangyang Chen
Director, APAC Tax
117
August 2018
Aaron Gillmore
Director, Solar City Business Development & Sales
118
August 2018
Dan Bailey
System Circuit Design Lead, Autopilot
119
August 2018
David Glasco
System Architecture Lead, Autopilot
120
August 2018
Jim Farley
Chief Platform Architect
121
August 2018
Lawrence Freeman
General Counsel, Europe
122
September 2018
Adam Happel
VP, Solar Marketing
123
September 2018
Albert Luu
Principal, Global Capital Markets
124
September 2018
Andrew Wilhelms
Head of Global Leadership Development
125
September 2018
Angelo Menotti
Senior Quality Engineering Manager S/X
126
September 2018
Antoin Abou-Haydar
Senior Director, Production & Quality
VP, Global Quality, Byton
127
September 2018
Ben Putterman
Global Leader, Learning & Talent Development
128
September 2018
Chris Lillywhite
Senior Manager, Manufacturing Engineering
Senior Manager & Founder, Remanufacturing
129
September 2018
Dane Conklin
Operations
130
September 2018
Dave Morton
Chief Accounting Officer
131
September 2018
David Hamm
Senior VP, Supply Chain (Solar)
Head of Global Sales Improvement & Sales
132
September 2018
Dustin Krause
Operations
Director, Logistics, Commercial & Outbound
133
September 2018
Flemming Frost
Finished Vehicles
Executive-in-Residence,
134
September 2018
Gabrielle Toledano
Chief People Officer
Comcast Ventures
135
September 2018
Gary Gaines
General Manager, Northeast
136
September 2018
Gilbert Passin
VP, Manufacturing
137
September 2018
Heather Henry
Director, Global Mobility (HR)
Reality Check
48
Departure Month
Name
Title
Next Position (If Known)
Senior Engineering Program Manager, Thermal/
138
September 2018
Izabelle Back
Aero
Director Operations, Tesla Energy (Prev. Regional
139
September 2018
James Cahill
VP @ SCTY)
140
September 2018
Jennifer Schonher
Director, Digital Products Engineering
141
September 2018
Jens Peter Clausen
VP, Gigafactory
Head of Global Business Development & Special
142
September 2018
Jeremy Snyder
Projects
143
September 2018
Jimmy Bergeron
Senior Manager, Residential Field Services
Director, Commercial Project Development,
144
September 2018
John Conley
Americas
145
September 2018
John Sweigart
Global Director, Service
146
September 2018
Josh Hedges
Senior Director, HR
147
September 2018
Justin McAnear
VP, Worldwide Finance & Operations
Director Engineering Operations, Business Devel-
148
September 2018
Keith Witek
opment, & Associate General Counsel
Chief Procurement Officer
149
September 2018
Liam O’Connor
VP, Global Supply Management
/ Head of Bikes & Scooters,
Lyft
150
September 2018
Lynn Yeager
Director, Sales for California & Hawaii
Senior Director & Worldwide Controller, Revenue
151
September 2018
Mandy Yang
Accounting and APAC & EMEA Regional Control-
lership
152
September 2018
Marc Kolb
Director, Policy & Business Development
Director, Outbound Logistics & Global Delivery
153
September 2018
Mark Mastandrea
Operations
Senior Director, World Wide Field Service Opera-
154
September 2018
Matthew Parker
tions
155
September 2018
Michael Rossiter
Director, Global Planning & Business Operations
156
September 2018
Minesh Shah
Senior Director, North America Operations
VP, Executive Communica-
157
September 2018
Sarah O’Brien
VP, Communications
tions, Facebook, Inc.
158
September 2018
Seema Gupta
Global Planning Development Head
159
September 2018
Shen Jackson
Director, Manufacturing Engineering
160
September 2018
Stephan Graminger
Director, Body Manufacturing
Team Lead - Global Supply Management & Sup-
161
September 2018
Tom Baroch
plier Industrialization
162
October 2018
Alex Buhr
Senior Manager, Finance & Operations EMEA
163
October 2018
JJ Kim
Country Director, South Korea
Senior Manager, New Product Introduction, Vehicle
164
October 2018
Josh Tech
Manufacturing
165
October 2018
Justin McAnear
VP, Worldwide Finance and Operations
CFO,10X Genomics
166
October 2018
Laerte Zatta
Director, Global Body Repair Program
167
October 2018
Mariel Kelley
Senior Director, HR, Energy
168
October 2018
Tobias Duschl
Senior Director, Global Business Operations
169
November 2018
Andrew Kim
Senior Manager, Design
Senior Director, Global Sales, Marketing, and
170
November 2018
Dan Kim
Director, Airbnb Plus, Airbnb
Delivery
171
November 2018
Jeff Jones
Head of Global Security
Senior Director, Engineering, Body, Exteriors, Light-
172
November 2018
Matt Casebolt
ing, & Closures
173
November 2018
Phil Rothenberg
VP, Legal
General Counsel, Sonder
VP, Investor Relations,
174
December 2018
Aaron Chew
Director, Investor Relations
Proterra
175
December 2018
Alexandra Valasek
Consumer & Retail Communications
49
Tesla, Inc.
Departure Month
Name
Title
Next Position (If Known)
176
December 2018
Chris Guenther
Senior Manager, Production Engineering
177
December 2018
Eric Weingarten
Associate General Counsel
SVP / Senior Director, Customer Support & Busi-
178
December 2018
Fiona Taylor
ness Operations
Françoise Lavertu
Country Director & GM, Latin America and
179
December 2018
Stevens
Southeast U.S.
180
December 2018
Heidi Brandow
Head, Global Learning & Talent Development
Senior Manager, Global Sales & Delivery Opera-
181
December 2018
Marco Batra
tions
182
December 2018
Parag Vaish
Head, Digital Product, Design, & Content
183
January 2019
Charles Mwangi
Senior Director, Engineering
[Unnamed Startup]
184
January 2019
Luis Solana
Senior Transaction Lead, Global Capital Markets
185
January 2019
Todd Maron
General Counsel
186
February 2019
Cindy Nicola
VP, Global Recruiting
187
February 2019
Dane Butswinkas
General Counsel
Williams & Connolly
188
March 2019
Deepak Ahuja
CFO
[Retired]
Citizen in April to lead
189
March 2019
Praveen Arichandran
Director, Growth
growth
Senior Director of Engineer-
190
March 2019
Michael Schwekutsch
VP, Engineering
ing, SPG, Apple, Inc.
PTSD & Suicide-Prevention
191
April 2019
Karl Wagner
Senior Director, Global Security
Advocacy
192
June 2019
Dave Arnold
Senior Director, Global Communications
193
June 2019
Felicia Mayo
VP, Human Resources and Head of Diversity
Vice President of Manufactur-
194
June 2019
Peter Hochholdinger
VP, Production
ing, Lucid Motors
195
June 2019
Steve MacManus
VP, Interior & Exterior Engineering
Senior Director, Apple, Inc.
196
July 2019
Jan Oehmicke
VP, Tesla Europe
Co-Founder, Redwood
197
July 2019
JB Straubel
Co-Founder / CTO
Materials, Inc.
Director, Global Quality, Gib-
198
August 2019
J. Eric Purcell
Director of Manufacturing, Quality
son Guitar Corporation
Executive-in-Residence,
199
August 2019
Stuart Bowers
VP, Engineering
Greylock Partners
200
September 2019
Sanjay Shah
Senior VP, Energy Operations
COO, Beyond Meat
201
December 2019
Jonathan Chang
General Counsel
SambaNova
202
December 2019
Bert Bruggeman
VP, Production
Sources: tslaq.org, Paul Huettner, Business Insider
Retaliation Against Critics and Whistleblowers
While the SEC is a civil enforcement agency and does not have the authority to
prosecute criminal violations, some of the issues that Tesla whistleblowers have raised
do involve potentially criminal acts, and others would have had a material impact
on Tesla shares had their disclosures been properly made by the company. The fact
that Tesla has a documented history both of fierce secrecy and of retaliating against
whistleblowers is therefore significant.
1. Lawrence Fossi
(“Montana Skeptic”): Writing on the popular stock market
website Seeking Alpha in his personal capacity under the pseudonym “Mon-
Reality Check
50
tana Skeptic,”151 Lawrence Fossi was formerly a fund manager for the Stewart
J. Rahr Foundation, where he managed over $1 billion in assets. He evoked
Elon Musk’s ire by writing over 100 detailed articles justifiably skeptical of Tesla’s
and Musk’s claims starting in June 2017. Over time, he gained a following, but
his notoriety exploded when Musk determined his identity, publicly broadcast
it, called his boss (Rahr) and demanded that Fossi stop writing. Not wanting
to provoke a battle with his own employer, Fossi agreed—at least for a time.
Months later, Musk attempted to smear Fossi a second time as someone who had
been an Enron lawyer in the early 2000s. In fact, Fossi is aYale Law School graduate
whose prior law firm,Vinson & Elkins, has employed hundreds of attorneys. According
to Fossi, he personally had “zero involvement in any Enron matter” atVinson & Elkins.
Afterward, Fossi founded his own firm, Fossi & Crain, where he filed a mechanic’s
lien for a contractor that Enron had refused to pay. Enron’s bankruptcy trustee
ultimately tapped Fossi as an experienced litigator who was qualified to represent
the Enron bankruptcy estate, and after being advised about his client’s existing
lien, paid the claim and engaged Fossi’s firm. From that point forward, Fossi’s con-
nection to Enron was recovering letter of credit proceeds wrongfully drawn in
connection with gas plant projects. On behalf of the bankruptcy estate, he helped
recover several hundred million dollars, cleaning up the mess Enron had left.
2.
Martin Tripp: Martin Tripp was formerly an engineer working in Tesla’s Nevada
factory who was disturbed by company practices that he directly witnessed and
viewed as unethical and wasteful. He noticed that
large amounts of scrap material, potentially worth
what he believed were “hundreds of millions” of
dollars, were being generated by inefficient and
problematic manufacturing processes—informa-
tion not disclosed to Tesla shareholders. He also
noticed that certain battery cells had been inadver-
tently punctured at the factory, but were nonethe-
less shipped out in new vehicles for sale despite the
risk of “thermal runaway,” the rapid precursor to a
In late June 2018, the Storey County, Nevada Sheriff’s Office was
fire. To substantiate his claims, he accessed Tesla’s
informed that Tesla engineer and whistleblower Martin Tripp was
internal database using his employee credentials
armed and dangerous. They found him completely unarmed and
and provided raw data as well as photographs to
sobbing. Fortunately, no one was hurt. Photograph: Storey County,
Nevada Sheriff’s Office Bodycam Footage
veteran journalist Linette Lopez at Business Insider.
Tesla’s internal security team in Nevada, partially
comprised of recently fired members of Uber’s infamous security team,152 detected
Tripp’s access to Tesla’s systems and confronted him about his activity. Though they
noted his concerns, their first priority was containing any possible reputational harm
to the company, andTripp was fired after a lengthy exit interview. After he was fired,
151
Seeking Alpha. https://seekingalpha.com/author/montana-skeptic#regular_articles
152
Engadget, December, 15 2017, “‘Jacobs letter’ unsealed, accuses Uber of spying, hacking.”
https://www.engadget.com/2017/12/15/jacobs-letter-unsealed-accuses-uber-of-spying-hacking/
51
Tesla, Inc.
a call placed from an unknown individual claiming to be Tripp’s “friend” to a Tesla
call center suggested that he had plans to return to the Tesla factory with firearms
and kill as many people as possible in a violent act of retribution. Tesla Security sent
out a “be on the lookout” (BOLO) notice accordingly and asked law enforcement
for assistance locating Tripp, who was considered to be armed and dangerous.
When the Storey County, Nevada Sheriff ’s Office went looking for Tripp, they
found him at a nearby casino, unarmed and in tears due to the stress of the
situation.153 Police body camera video released from that encounter shows
that Tripp suspected that he had been set up, possibly by Elon Musk himself,
who had e-mailed him earlier that day suggesting that he was an evil per-
son for having blown the whistle. When Tripp responded, Musk interpreted
Tripp’s idle comment that Musk “would get what’s coming to him” as a threat.
In a detailed March 13, 2019 Bloomberg Businessweek article entitled, “When Elon
Musk Tried to Destroy a Tesla Whistleblower,” the article’s authors describe how
Tesla falsified the threat of gun violence by Tripp in order to discredit him.154
Tesla also sued Tripp for $150 million, on the supposed basis of the damage
his disclosures caused to Tesla’s market capitalization. The case—in which the
magistrate judge did not disclose that she is a Tesla owner155—is ongoing.156
As securities fraud can be a federal crime pursuant to 18 U.S.C. § 1348, falsifying
a threat of gun violence related to whistleblowing activity would likely also be a
crime in violation of 18 U.S.C. § 1513, among other possible statutes.157
3.
Linette Lopez: Linette Lopez is Senior Finance Columnist for Business Insider with
a degree from the Columbia School of Journalism, where she is now an adjunct
professor. After reporting on the situation involving Martin Tripp, Musk used his
platform on Twitter to falsely insinuate that Lopez had received financial compen-
sation from short sellers in exchange for writing negative stories about Tesla.158
Lopez has continued reporting on Tesla since despite a constant stream of racist,
harassing and abusive messages directed at her because of Musk’s actions.
4.
Vernon Unsworth: Vernon Unsworth, MBE, is a former financial broker from St.
Albans, England who now lives in Thailand with his girlfriend.159 Unsworth is also
an experienced cave diver who became a vital hub for the impromptu rescue
153
YouTube, December 18, 2019, “Storey County, Nevada Sheriff ’s Office Bodycam Footage: Tesla Inc. v. Martin Tripp.”
https://www.youtube.com/watch?v=lnRASz5oVKM
154
Bloomberg Businessweek, March 13, 2019, “When Elon Musk Tried to Destroy a Tesla Whistleblower.”
https://www.bloomberg.com/news/features/2019-03-13/when-elon-musk-tried-to-destroy-tesla-whistleblower-martin-tripp
155
Reno Gazette Journal, July 15, 2019, “Ex-judge: Washoe deputy, married to two women, investigated for breaking into
office, falsifying divorce papers.” https://www.rgj.com/story/news/politics/2019/07/15/investigating-washoe-deputy-break-
ing-into-ex-judges-office-reno-police-dennis-carry-humke-sheriff/1736526001/
156
Tesla, Inc. v. Tripp, Nevada District Court, Case No. 3:18-cv-00296-LRH-CBC.
https://www.plainsite.org/dockets/3br5tkwuj/nevada-district-court/tesla-inc-v-tripp/
157
18 U.S.C. § 1513. https://www.law.cornell.edu/uscode/text/18/1513
158
Slate, July 6, 2018, “Elon Musk Needs to Stop Tweeting Things He Can’t Prove.”
https://slate.com/business/2018/07/elon-musks-attacks-on-reporter-linette-lopez-need-to-stop.html
159
The Sun, December 7, 2019, “Who is Vernon Unsworth? Thailand cave diver dubbed ‘paedo guy’ by Elon Musk”
https://www.thesun.co.uk/news/6792661/who-vernon-unsworth-thai-cave-paedo-guy-elon-musk/
Reality Check
52
mission set up in the Tham Luang Nang Non cave complex in Chang Rai, Thai-
land.160 When Elon Musk branded him “pedo guy” on Twitter, Unsworth sued, and
ultimately lost at trial when jurors, confused about the way Twitter works, incor-
rectly determined that Musk’s tweets had not referred to him. In a bizarre twist,
post-trial, Unsworth’s lawyer L. Lin Wood made the stunning claim that Musk had
been right all along and that “justice worked,” suggesting some sort of settlement
to perhaps avoid an appeal, which Wood denied.161
5.
Ryan Mac: Ryan Mac is a journalist for BuzzFeed who covers technology com-
panies in Silicon Valley. When Mac refused to allow Musk to unilaterally dictate
which of his comments about Unsworth would or would not be “off the record,”
Musk responded by calling him an “asshole.” Later, Musk attempted to subpoena
Mac in the Unsworth litigation, which resulted in a federal judge calling Musk’s
tactics “harassing.”162
6.
Anna Watson: Reveal source Anna Watson was previously employed by Provider
Healthcare, LLC as a contractor for Access Omnicare, which in turn was and is a
contractor for Tesla. Ms. Watson worked briefly as a Physician’s Assistant at the
Tesla Fremont factory, until she was terminated in retaliation for disagreeing with
the treatment plan for a patient who reported to the Tesla Medical Center, which
she felt was inappropriate. Not long after she was fired, Child Protective Services
responded to an anonymous complaint falsely alleging that she was a drug addict
who was endangering her children. She has pursued a claim against Tesla with the
California Department of Industrial Relations, which is on appeal.
7.
Unknown Employee: On April 5, 2019, Bloomberg reported that Elon Musk had
allegedly pushed an employee in the Tesla parking lot, telling him, “I will nuke
you” as he followed him from the inside of the factory to the parking lot.163 This
outburst caused the Tesla Board of Directors to open an “investigation.”164 The
Board found no evidence of wrongdoing, though it also did not release its writ-
ten findings publicly. The allegations against Musk were nonetheless supported by
several eye witnesses.
8.
Randeep Hothi (“Skabooshka”): On April 19, 2019, Tesla obtained a temporary
restraining order against Randeep Hothi, one of its vocal critics, who used Twitter
to share his concerns about the company’s false and misleading statements.165 Mr.
Hothi had used his observations of Tesla’s factory conditions and vehicles to make
relatively accurate predictions about the company’s future plans on a number of
160
Wikipedia, “Tham Luang cave rescue.” https://en.wikipedia.org/wiki/Tham_Luang_cave_rescue
161
L. Lin Wood, P.C., December 10, 2019, “Letter to the Editor: Lawyer for Man Who Sued Musk Claims ‘Justice Worked’
Despite Defense Verdict.” http://www.linwoodlaw.com/news/letter-to-the-editor-lawyer-for-man-who-sued-musk-claims-
justice-worked-despite-defense-verdict/
162
Unsworth v. Musk, California Northern District Court, Case No. 3:19-mc-80224-JSC.
https://www.plainsite.org/dockets/41tjjy9cw/california-northern-district-court/unsworth-v-musk/
163
Gizmodo, April 5, 2019, “‘I Will Nuke You’, Elon Musk Allegedly Tells Former Employee.”
https://gizmodo.com/i-will-nuke-you-elon-musk-allegedly-tells-former-emplo-1833848795
164
Bloomberg News, April 5, 2019, “Tesla Board Probed Allegation That Elon Musk Pushed Employee.”
https://www.bloomberg.com/news/articles/2019-04-05/tesla-board-probed-allegation-that-elon-musk-pushed-employee
165
Tesla, Inc. v. Hothi, Superior Court of California, County of Alameda, Case No. RG19015770.
https://www.plainsite.org/dockets/3xt7dv6u8/superior-court-of-california-county-of-alameda/tesla-inc-v-hothi/
53
Tesla, Inc.
occasions. Tesla painted Hothi, a mild-mannered Ph.D. student, as someone who
had attempted to physically harm its employees, without providing any direct
evidence at all. Hothi denied Tesla’s allegations, which were also refuted by the
Fremont Police report in the case. Ultimately, Tesla dropped its case entirely.
9.
Cristina Balan: Cristina Balan is a former Tesla employee who worked on the
battery design for the Model S. When she believed she had been wrongfully
terminated by Tesla, the company attempted to shunt her case to confidential
arbitration. Balan sued in federal court after the company publicly smeared her
in an article in the Huffington Post. Judge Marsha J. Pechman ruled that Tesla was
required to tell Balan who had been responsible for the remarks.166 That person
turned out to be Tesla Vice President of Communications David Arnold, who im-
mediately resigned. Balan was also successful in convincing the judge that Tesla’s
lawyers had acted in bad faith. Her case is on appeal before the Ninth Circuit.167
10. Karl Hansen: Karl Hansen is a military veteran and former Tesla Security employee
who filed a whistleblower complaint with the SEC in 2019 after being fired from
his position. Hansen’s complaint alleges that he was told to “investigate criminal
activity occurring at the Gigafactory,” including “(1) thefts occurring at TESLA’s
Gigafactory, costing TESLA and their investors somewhere between $37 to $150
million dollars; and (2) the association of Mexican Drug Cartel members and
their alleged narcotic trafficking at TESLA’s Gigafactory.” He is suing Tesla in fed-
eral court in the District of Nevada.168
11. A.J. Vandermeyden: A.J. Vandermeyden sued Tesla in 2017 after she was fired for
speaking out about the company’s culture of sexual harassment.169 Her case ap-
pears to have settled as of early 2019, but dozens of other similar cases involving
worker rights are ongoing, including many containing similar allegations.170
12. Russ Mitchell: Russ Mitchell is a journalist for The Los Angeles Times, having previ-
ously worked as an editor at BusinessWeek.171 On October 12, 2019, Elon Musk
tweeted, “.@DrPatSoonShiong, are you aware that one of your senior journalists
(Russ Mitchell) is openly funding a fake charity run by an online bully?”
(Patrick
Soon-Shiong is the billionaire owner of The Los Angeles Times.) Mitchell had, in
fact, donated $50 to a GoFundMe campaign run by Think Computer Founda-
tion seeking funds to challenge the California Courts’ public access fee schedules,
which had nothing directly to do with Tesla (although like many companies in
Silicon Valley, Tesla has been sued frequently in California state courts). Musk’s
166
Balan v. Tesla Motors Inc, Washington Western District Court, Case No. 2:19-cv-00067-MJP, Document 35.
https://www.plainsite.org/dockets/download.html?id=282640974&z=715cc5d3
167
Cristina Balan v. Tesla, Inc., Court of Appeals for the Ninth Circuit, Case No. 19-35637.
https://www.plainsite.org/dockets/405kwymjm/court-of-appeals-for-the-ninth-circuit/cristina-balan-v-tesla-inc/
168
Hansen v. Musk et al, Nevada District Court, Case No. 3:19-cv-00413-LRH-WGC.
https://www.plainsite.org/dockets/3zq7utsfl/nevada-district-court/hansen-v-musk-et-al/
169
The Guardian, July 5, 2017, “She took on Tesla for discrimination. Now others are speaking up. ‘It’s too big to deny.’”
https://www.theguardian.com/technology/2017/jul/05/tesla-sexual-harassment-discrimination-engineer-fired
170
Vandermeyden v. Tesla Motors, Superior Court of California, County of Alameda, Case No. RG16831835.
https://www.plainsite.org/dockets/38nmg9mcm/superior-court-of-california-county-of-alameda/vandermeyden-v-tesla-motors/
171
The Los Angeles Times. https://www.latimes.com/people/russ-mitchell
Reality Check
54
false and totally unfounded criticism ultimately backfired, with additional dona-
tions finding their way to Think Computer Foundation as a result.
13. Think Computer Foundation: Think Computer Foundation is a small 501(c)(3)
non-profit organization incorporated in 2000 by the author of this report. (Some
of the documents that are sources for this report were paid for by Think Com-
puter Foundation.) When Musk attacked Russ Mitchell for donating to a “fake
charity run by an online bully,” he was referring to Think Computer Foundation.
In December, as promised—and without even raising its full $5,000 goal—Think
Computer Foundation filed suit against the Superior Court of Santa Clara Coun-
ty, challenging the public access policy, which could set a statewide precedent.172
14. Aaron Greenspan: As the creator of PlainSite, President of Think Computer Foun-
dation, and author of this report, Aaron Greenspan first became interested in Tesla
around August 2018. Eventually, after several e-mail exchanges with Elon Musk, in-
quiries to theTesla Board of Directors about issues in this report, and a threat to sue,
Musk responded by e-mailing Greenspan,“Does the psych ward know you have a cell
phone? Just curious.” Musk then followed up in a separate e-mail with, “
.” Since
Musk chose to use the Reply All feature, the libelous messages were CCed to Tesla
social media influencer Omar Qazi, who promptly posted them publicly on Twitter.
Greenspan was also one of several Tesla critics targeted by “Maisy Kinsley,” a fake
account posing as a Bloomberg “Senior Journalist” with a personal website, Linke-
dIn profile, Twitter account, and artificial intelligence-generated composite photo-
graph.173 Once it was clear that Kinsley was fake, her accounts quickly disappeared.
The Greek Chorus
IfTesla were a stage drama, it would undoubtedly require a Greek chorus: “a homoge-
neous, non-individualized group of performers, who comment with a collective voice
on the dramatic action,” per Wikipedia’s current definition.174 Historically, chorus
members have often worn masks. In real life, that chorus already exists, and it’s made
up of Elon Musk’s loudest, most zealous supporters, all of whom sound roughly alike
thanks to their captivated adulation for Musk and Tesla, what the company “stands for,”
and to a certain, very selective extent, what it actually does.
Tesla, Inc. has knowingly benefitted from the corporate propaganda spewed by fake
social media accounts for years.175 Just as state actors such as Russia and China seek
to convince average Americans that they are engaging on-line with authentic and pas-
sionate citizens nearby, so too has Tesla sought to portray the false narrative that the
172
Think Computer Foundation v. Rebecca Fleming et al, Superior Court of California, County of Santa Clara, Case No. 19CV359896.
https://www.plainsite.org/dockets/4576g2lem/superior-court-of-california-county-of-santa-clara/think-computer-founda-
tion-v-rebecca-fleming-et-al/
173
Global Investigative Journalism Network, June 7, 2019, “With the Proliferation of Fake Profiles, Old School Vetting Signals
Don’t Work.” https://gijn.org/2019/06/07/with-proliferation-of-fake-profiles-old-school-vetting-signals-dont-work/
174
Wikipedia, “Greek chorus.” https://en.wikipedia.org/wiki/Greek_chorus
175
For a fuller discussion of fake accounts on social media, see PlainSite’s Reality Check report on Facebook, Inc.
https://www.plainsite.org/realitycheck/facebook.html
55
Tesla, Inc.
company has the support of a upswell of average people who are beyond excited
about saving the environment and all that their amazing electric cars can do to im-
prove their lives and the world around them.
Undoubtedly, there are many such enthusiasts, and it is also true that thousands
of them already work for Tesla because they believe in the company’s mission so
strongly and want to devote their career to the most productive aim they can think
of: effectively, saving the world. But, sadly, not every tweet, Facebook post, Instagram
photograph, or YouTube video is the result of a person’s authentic, unbiased desire
to make the world a better place. Tesla’s influence operations are both sophisticated
and subtle—but there are still telltale signs when something is amiss.
There are dozens of members of the Greek chorus, but a few key actors stand out.
Some of Tesla’s most vociferous supporters, or those Tesla relies on to bolster its
viewpoint, have been criminally charged or convicted, sometimes in relation to driving:
1.
Omar Qazi: A resident of Torrance, California in the Los Angeles area, Omar
Qazi was for a time the most aggressive and well-known Tesla enthusiast on Twit-
ter. Posting mostly, but not exclusively, as “Steve Jobs” (and later, “Steve Jobs [sic]
Ghost”) with the Twitter handle @tesla_truth, Qazi went to great lengths to high-
light every conceivable feature, attribute, plan, idea, and possibility involving Tesla at
virtually every hour of the day. Some of his Tesla advertisements ran afoul of the
law and Tesla’s own recommendations, such as when he videotaped himself dem-
onstrating Autopilot by running a red light with no hands on the steering wheel.176
Qazi did not limit himself to adulation of Tesla and its co-founder. He also de-
voted considerable energy to harassing Tesla’s critics, including the author of this
report. A series of events constituting escalating harassment via telephone, SMS,
fax, e-mail, and Twitter led this report’s author to request in November 2019 that
criminal charges be filed against Qazi for violations of California Penal Code Sec-
tions 166(a)(4), 166(a)(7), 422.4, 653m(b), and 528.5. Qazi either sent or caused
to be sent a fax and text messages falsely alleging that PlainSite founder Aaron
Greenspan possessed child pornography—an odd coincidence given Elon Musk’s
use of “pedo guy” to smear Vernon Unsworth. The electronic fax service and
phone number used was identical to the service and phone number used to send
another Tesla critic, Paul Huettner, a death threat. Qazi also repeatedly targeted
a disabled individual for harassment while knowing full well about his disability.177
Qazi was banned from Twitter for life in late October 2019. At the time of the
ban, he controlled numerous accounts linked to his company, Smick Enterprises,
Inc., which is not and never has been registered with the California Secretary of
176
YouTube, August 7, 2019, “Tesla Influencer Omar Qazi Runs a Red Light While Ignoring No Hands Autopilot Warning.”
https://www.youtube.com/watch?v=BkXd97kOuPs
177
PlainSite, November 10, 2019, “Letter to California State Senator Scott Wiener Regarding Oversight of CAEATFA.”
https://www.plainsite.org/documents/1azagc/letter-to-california-state-senator-scott-wiener-regarding-oversight-of-caeatfa/
Reality Check
56
Top: A still frame from the “Third Row Tesla” podcast, with special guest “Now You Know,” a Tesla promotional YouTube channel. Clockwise
from left, Raj Balwani, Galileo Russell, Sofiaan Fraval, Omar Qazi, Vivien Hantusch, Zac Cataldo, Jesse Cataldo, and Kristen Netten. These
individuals, along with financial advisor Eric Steiman, attorney David Tayar, and Vincent Yu, form the core of Tesla’s “organic” marketing efforts
on social media. Omar Qazi was banned from Twitter for life for his harassing behavior, which was explicitly endorsed by Elon Musk. The
Cataldos formed their channel, which has regularly promoted Tesla stock, with the assistance of a Tesla employee whose involvement has not
been formally disclosed to viewers. Neither podcast has disclaimers of any sort concerning investment advice; most are Tesla shareholders.
Bottom: Elon Musk’s personal proxies on financial media networks have long been Cathie Wood of ARK Investment Management and Ross
Gerber of Gerber Kawasaki. Both are little-known investment management firms that have shilled for Tesla and Musk through good times and
bad. Wood, who has famously touted her $4,000-per-share price target for Tesla’s stock, recently sold off a significant portion of ARK’s Tesla
holdings at around $320 per share, less than 10% of her target price. Gerber claims to have a degree from Musk’s alma mater, the Wharton
School of Business at the University of Pennsylvania, in “Business Law,” but according to the University of Pennsylvania, Gerber never received
such a degree. Photographs: CNBC, ARK Investment Management, Bloomberg Television
57
Tesla, Inc.
State or Franchise Tax Board despite operating in California since its inception.178
Qazi was also arrested in 2018 for felony possession of a controlled substance
(LSD) without a prescription, and marijuana possession, in Port Canaveral, Florida
as he planned to board a party boat.179 Although those charges were ultimately
dropped, he was also arrested in 2012 for possession of marijuana while driving
and possession of two fake identification cards; charges which were also eventu-
ally dismissed.180 Since having been de-platformed from Twitter and Amazon Web
Services, Qazi has taken his advocacy to Tesla’s “Third Row Tesla” podcast.
2.
Kathryn Edwards: Another prolific voice on Twitter and frequent collaborator
with Omar Qazi, Kathryn Edwards has managed a number of harassing pro-Musk
and pro-Tesla accounts: @Pravduh15 and @TeslaV6. In 2002, she was arrested
for 2nd degree felony of intoxication manslaughter as she traveled from Austin to
San Marcos, Texas, where she attended Texas State University.181 She has since
worked as a paralegal, as office staff for a Subaru dealership, at a window and
door company, and as a self-published children’s author.
3.
Shawn Anthony Joyce: Also known as Shawn Wylde, or @AFMusk on Twitter,
Joyce is a veteran and felon convicted of defrauding the Department of Veterans
Affairs who was imprisoned for four months in 2014, after which he was released
on parole for three years. Joyce was featured in The New York Times for his sub-
sequent work fighting on-line harassment, after which he began harassing critics
of Tesla.
4.
James Howard-Higgins: Operating exclusively behind the scenes and not on social
media, Howard-Higgins is a British convicted felon presently serving time in prison
who contacted Elon Musk in 2018 with the hope of selling him false information
about Thailand-based cave diver Vernon Unsworth. Unsworth sued Musk for libel
in the United States and the United Kingdom. Howard-Higgins was successful
at convincing Musk to pay $50,000 for the false information via Excession LLC,
managed by Jared Birchall, who had attempted to pose as “James Brickhouse.”182
5.
[Name Redacted]: When the author of this report asked Elon Musk to justify
some of his statements via e-mail, Musk initially seemed cooperative. In the end,
he declined to respond to more specific questions, instead e-mailing a screen-
shot of a Latvian extortion website, where a convicted felon who is the subject
of a restraining order had posted thousands of false and libelous tirades about
PlainSite, some of which concerned Tesla. Above the screenshot was Musk’s final
answer, referencing these rants: “Your true colors.” The exchange demonstrated
178
California Secretary of State.
https://businesssearch.sos.ca.gov/CBS/SearchResults?filing=&SearchType=CORP&SearchCriteria=smick&SearchSubType=Keyword
179
State of Florida v. Omar Qazi, County Court in and for Brevard County, Florida, Case No. 05-2018-CF-010519-AXXX-XX.
https://www.plainsite.org/dockets/40ngkb7bg/county-court-in-and-for-brevard-county-florida/state-of-florida-v-omar-qazi/
180
State of California v. Omar Qazi, Superior Court of California, County of Los Angeles, Case No. SBA2SY05356-01.
https://www.plainsite.org/dockets/40ngs5326/superior-court-of-california-county-of-los-angeles/state-of-california-v-omar-qazi/
181
State v. Edwards, Katheryn, District Court of Travis County, Texas, Case No. D-1-DC-02-300885.
https://www.plainsite.org/dockets/45vaefrtu/district-court-of-travis-county-texas/state-v-edwards-katheryn/
182
BuzzFeed News, October 3, 2019, “Elon Musk Hired A Convicted Felon To Investigate The Cave Rescuer Who Is Now
Suing Him.” https://www.buzzfeednews.com/article/ryanmac/elon-musk-hired-felon-james-howard-higgins-dirt-pedo-guy
Reality Check
58
that Musk was willing to rely on even the most obviously unstable and untrust-
worthy information sources so long as they fit his pre-conceived narrative.
Various career professionals have profited from supporting Tesla and its co-founder:
6.
Bonnie Norman: A medical device specialist and former Intel Director of Quality
& Regulatory Affairs for Digital Health, Bonnie Norman prides herself on being
an early Tesla investor and adopter. Her history with the company has given her
access to top-level executives, including Elon Musk. According to references to
court documents in the Tripp litigation that remain sealed, Norman conspired
with Musk to identify Lawrence Fossi as the individual behind the Montana Skep-
tic Seeking Alpha account.183,184
7.
Eric Steiman: Eric Steiman runs Clearbrook Capital Advisors, an investment advi-
sory firm registered to a multi-family home in Brighton, Massachusetts. Steiman,
who placed a bet on Tesla in its early days and found it to be one of his best
trades ever, has run at least one Twitter count known to routinely harass and
threaten journalists and Tesla’s critics, likely in violation of federal law.
8.
David Tayar: An attorney in New York, Tayar has long been an enthusiastic sup-
porter of Elon Musk. His Twitter account appears as an early follower for several
other pro-Tesla accounts.
9.
Paul J. Hornak: A former Senior Controller for Delta Airlines who attended The
College of New Jersey (TCNJ) to study for an economics degree as an adult,
Hornak has been known to harass anyone who dares slight Tesla or Elon Musk.
As a student, he authored a paper at TCNJ entitled, “Examining the Relation-
ship Between Dividend Yield and Volatility Through the Use of ARCH and GARH
Modeling,” focused on stock market volatility. Hornak’s pro-Tesla posts through
his @PJHORNAK account have been mirrored by what appear to be several
other fake accounts.
Some chorus members have turned their enthusiasm into a business, raising ques-
tions about payment from Tesla or other Musk entities:
10. Zac and Jesse Cataldo: The Cataldos are a Massachusetts-based father-son pair
who set up a YouTube channel called “Now You Know” initially intended to post
educational videos. Their channel soon became exclusively Tesla focused, with
Now You Know not-so-subtlely encouraging viewers to buy Tesla stock in several
episodes. The Cataldos did not bother to inform their viewers that Tesla Regional
Manager Steven Mark Salowsky, one of their first guests, had signed on as Now
You Know’s Creative Director. In July 2019, Zac Cataldo incorporated Now You
Know Productions LLC in Massachusetts.
11. Vincent Yu: With a background working in the auto parts industry in Southern
183
Tesla, Inc. v. Tripp, Nevada District Court, Case No. 3:18-cv-00296-LRH-CLB, Documents 120.
https://www.plainsite.org/dockets/download.html?id=286822304&z=e63d1c6c
184
Tesla, Inc. v. Tripp, Nevada District Court, Case No. 3:18-cv-00296-LRH-CLB, Documents 125.
https://www.plainsite.org/dockets/download.html?id=287033906&z=40da68c0
59
Tesla, Inc.
California, Vincent Yu has been an enthusiastic supporter of Tesla, and the propri-
etor of the “Tesmanian” brand of Model 3 accessories, such as coolers and floor
mats.185
12. Major Earl Banning: Major Earl Banning, PsyD, ABPP is an active duty neuro-
psychologist at Wright Patterson Air Force Medical Center in Dayton, Ohio,
home to the 88th Medical Group. Banning is also the co-founder of Frunk-
puppy LLC along with Julissa Bonilla, a Morgan Stanley Digital Marketing Assis-
tant Vice President (and talented artist). Frunkpuppy operates an eponymous
YouTube channel that combines cuteness, puppies, and Tesla vehicles in what
appears to be a highly coordinated “grassroots” marketing campaign. Banning
has both personally harassed and supported the harassment of Tesla critics and
professional journalists on Twitter for some time via his @28delayslater account.
When pressed about his social media activity, he claimed, “I don’t bother you.”
But journalists have stated that Banning does bother them. Despite serving as a
mental health professional in the United States Military, he was one of the first
followers of a harassing account specifically intended to ridicule Linette Lopez—
who was previously attacked by Elon Musk—on the basis of her appearance. And
other harassing Tesla-related accounts have always been quick to follow Banning.
13. Galileo “Gali” Russell: A 2015 graduate of the NYU Stern School of Business and
Founder of HyperChange LLC, Russell also operates a YouTube channel, Twitter
account @Gfilche, and appears on Tesla promotional videos. On December 17,
2019, Russell posted an episode of his HyperChange series on YouTube in which
it took no more than thirty seconds before he made a material, false statement in
likely violation of federal securities law. “Tesla does zero marketing. Literally zero
marketing, but they’re one of the best selling cars in the world,” he claimed.186 In
fact, Tesla spent $184.5 million on marketing from 2016-2018 according to page
88 of its 2018 SEC Form 10-K.
There are other members who are from the younger generation:
14. Johnna Crider: A contributing writer at CleanTechnica, Crider is an independent
artist who makes wire art involving gems and minerals and refers to herself as
“The Gem Diva.”187 She credits Elon Musk with saving her life.188 On December
11, 2019, she started an on-line fundraiser to encourage members of the public
to donate $50,000 so that she can purchase a Tesla pickup truck.189
15. Shamindra “Shami” De Zylva: A graduate student in the United Kingdom who has
done work on predicting the price of gold using computer algorithms and is fas-
185
Tesmanian. https://www.tesmanian.com
186
YouTube, December 17, 2019, “Creating Tesla Enthusiasts One Ride At a Time w/ Sofiaan Fraval.”
https://www.youtube.com/watch?v=F_X-Fr6ULi4&t=0m29s
187
“Johnna Crider: The Gem Diva.” https://johnnacrider.com
188
Crider, Johnna, August 9, 2018, “I Was 1 Of Millions Of American Women Used For A Green Card.”
https://medium.com/@JohnnaCrider/i-was-1-of-millions-of-american-women-used-for-a-green-card-elon-musk-literally-
saved-my-life-8846060da5f2
189
GoFundMe, December 11, 2019, “Johnna’s Tesla Fund.” https://www.gofundme.com/f/1u7n63c6io
Reality Check
60
cinated by cryptocurrency, “Shami” De Zylva appears to have posted on Twitter
as @TeslaOpinion and as @DisruptResearch, as well as from his personal account,
@shamziboy. “Disruption Research” is an unincorporated, seemingly anonymous
investment research “firm” with no contact information that claims to be “[c]ur-
rently focused on Tesla, SoftBank, Shopify, Zillow, and Slack.” Its website has been
under construction for nearly a year. De Zylva’s accounts have pumped out a
stream of positive spin for Tesla and Musk.
16. Vivien Hantusch: A design student and public relations intern190 in Germany, Vivi-
en Hantusch is an incredibly enthusiastic supporter of SpaceX, Tesla, and Elon
Musk. She prototyped a user interface for “Pravduh,” Musk’s idea for a mobile app
(named after the infamous Soviet newspaper, Pravda, meaning “truth” in Russian)
that would rate the journalists with whom Musk so often seems to disagree.191
Hantusch has also made a number of professional-quality spec advertisements for
Tesla products. Hantusch’s on-line identity is literally intertwined with Elon Musk’s
work—her Twitter handle, @flcnhvy, refers to the SpaceX Falcon Heavy rocket.
Finally, there is the mystery account:
17. @ThemeTeamWP: An anonymous account named for a WordPress blogging
template designer whose generic icon avatar reveals very little, @ThemeTeamWP
is the most ardent supporter of Elon Musk on the internet. Its associated e-mail
address resembles, but does not match, Musk’s primary Tesla e-mail address. It
defends not only every single one of Musk’s business decisions, but his dating
choices as well. It attacks critics, and especially short sellers. It even blames vic-
tims, such as a girl whose finger was caught in a poorly-designed Model X door.
In addition, the account deletes its tweets, which are only in response to others.
While its word choice sometimes matches language Musk is known to have used,
this is not always the case. The account’s owner has denied being Musk or anyone
Musk knows, but the ferocity of its positions makes that difficult to believe.
Many of these accounts would not be notable at all were it not for several important
factors. First, many (but not all) of them have been involved in aggressive harassment
of Tesla, Musk critics, and journalists. Lora Kolodny (CNBC), Dana Hull192 (Bloomberg
News), Linette Lopez (Business Insider), Charley Grant (The Wall Street Journal), Neal
Boudette (The New York Times), and Russ Mitchell193 (The Los Angeles Times) have all
publicly commented on the harassment they have received from Tesla supporters at
one point or another. The degree of vitriol is atypical relative to most beats.
Second, many of the individuals have been given special treatment by Tesla. The indi-
viduals running these specific accounts have been far more likely to receive a direct,
almost instantaneous response from Elon Musk on Twitter than any of Musk’s 30 mil-
190
Hantusch has denied having ever worked in public relations, but “PR” and “Marketing” appear on multiple versions of her
résumé, as well as a specialty in “Social Media Content Creation.”
191
https://www.vivien.space/portfolio
192
Twitter, December 7, 2019. https://twitter.com/NeilBoltonRSPL/status/1203276465594200067
193
Twitter, December 26, 2019. https://twitter.com/russ1mitchell/status/1210277211883753472
61
Tesla, Inc.
lion other followers. Musk explicitly endorsed Qa-
zi’s conduct on Twitter prior to his being banned.194
In addition, Omar Qazi revealed that he had been
invited to the Tesla Model Y launch, an exclusive
event.195 Similarly, Vivien Hantusch flew from Ger-
many to Los Angeles for the invite-only “Cyber-
truck” launch. Notably, Tesla has not enforced its
trademark rights against these holders of social
media accounts making use of the trademarked
Tesla brand, suggesting that they may be parties
to brand licensing agreements. In fact, it has wel-
comed them as family. On January 4, 2020, Elon
Musk’s mother posted a photograph of her son
and several members of the Third Row Tesla pod-
cast crew at a round table equipped for recording.
Having been de-platformed twice due to his criminal harassment
on Tesla’s behalf, Omar Qazi was rewarded for his loyalty with a
seat at the same table as Elon and Kimbal Musk, as well as other
Third, most of these individuals are not merely en-
members of the propaganda machine. Photograph: Maye Musk
thusiastic car owners. They are also Tesla share-
holders, directly in touch with employees at the
company itself,196 who want to see the value of their in-
vestment increase.
The Talking Heads
The remarks of two individuals with close connections to
Musk have been notable for their content, which has often
suggested that they speak on behalf of Tesla, Inc. and Musk
himself. Ross Gerber of Gerber Kawasaki Investments and
Cathie Wood of ARK Investment Management have each
presented themselves to the public as objective observ-
ers, yet with an unflaggingly hyper-optimistic outlook.
Members of Tesla’s Greek chorus at the Tesla annual
shareholder meeting on June 11, 2019. Photograph:
Twitter User @teslaownersSV
Mr. Gerber, who often appears not to know the basics of
the financial industry he purports to work in,197 has been
a Tesla cheerleader for years, despite admitting on video that he owns relatively few
shares in the company. On April 18, 2019, he repeated one of Elon Musk’s false talk-
ing points, writing, “Actually zero depreciation in teslas. They are gaining value.”198
Gerber’s biography on his firm’s website states, “Ross received his BA in Communica-
194
Bloomberg News, October 9, 2019, “Tesla’s Autopilot Could Save the Lives of Millions, But It Will Kill Some People First.”
https://www.bloomberg.com/news/features/2019-10-09/tesla-s-autopilot-could-save-the-lives-of-millions-but-it-will-kill-some-people-first
195
Twitter, March 20, 2019. https://twitter.com/PlainSite/status/1108585701736513536
196
In a private conversation provided to PlainSite, Omar Qazi referred to a “Jim” in the context of someone who may have
had access to his @tesla_truth Twitter account. While it is unclear who he was referring to, SpaceX’s Communications
Director is named James Gleeson.
197
Twitter, March 22, 2019. https://twitter.com/GerberKawasaki/status/1109194217480310784
198
Twitter, April 18, 2019. https://twitter.com/GerberKawasaki/status/1118853779393171457
Reality Check
62
tions from the Annenberg School
at the University of Pennsylvania
concentrating in Business Law at
the Wharton School of Business,
graduating class of
1993.”199 Yet
Ron Ozio, Director of Media Re-
lations at the University of Penn-
sylvania, could only confirm that
A typical ARK Investment Management graph, complete with wild generalizations, unla-
Gerber had received a B.A. in
beled axes, the word “estimated” in the title, a “blockhain” reference, and a legal disclaim-
Communications. In addition to
er that it is a forecast “cannot be relied upon.” The Financial Times referred to this graph
there being no record of Gerber’s
as
“chartcrime.” Source: https://ftalphaville.ft.com/2019/02/22/1550850028000/
Why-chartcrime-has-destroyed-the-blockchain-/
“Business Law” concentration, the
claim is inconsistent with the Uni-
versity’s policies. The Wharton un-
dergraduate program awards a B.S. in Eco-
nomics, but since Gerber received a B.A.,
he did not graduate from Wharton, which
would make a “concentration” awarded
by Wharton (i.e. four courses) impossible.
While Wharton does have dual-degree
programs, Gerber reportedly only has one
Penn degree. It therefore seems almost
certain that Gerber has been lying on his
résumé for years. Gerber himself has re-
fused to explain the discrepancy.200
Twitter user @Keubiko responded to ARK Investment Management analyst
Tasha Keeney’s emoticon with news of a devastating error—one of many.
Ms. Wood is best known for her $4,000
price target for Tesla common shares on
the basis of amorphous graphs that tend to lack any labels on their axes, or any ra-
tional fundamentals whatsoever. Though she carries herself with a poised demeanor,
Wood has a tendency to wax poetic on the potential of technology, making com-
parisons between successful companies and whatever she happens to be promoting.
She is fond of comparing Tesla to Apple and Amazon, even though those companies
have completely different business models, as well as track records of earning profit.
To deflect frequent criticism that her uniquely stratospheric $4,000 price target was a
form of manipulation tantamount to securities fraud, on May 22, 2019, Wood “open-
sourced” her firm’s model for Tesla’s stock price on the popular coding site GitHub.201
The move immediately backfired. Within two days, pseudonymous Twitter user and
Seeking Alpha contributor @Keubiko202 identified crucial errors in the model, includ-
ing one instance where ARK analyst Tasha Keeney had used a Microsoft Excel value
199
Gerber Kawasaki. https://gerberkawasaki.com/team/ross-gerber
200
Twitter, March 14, 2019. https://twitter.com/PlainSite/status/1106209355504840704
201
GitHub, May 22, 2019. https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Model
202
Seeking Alpha. https://seekingalpha.com/author/keubiko#regular_articles
63
Tesla, Inc.
Table 2: Known Q4 2019 ARK Investment Management Tesla, Inc. Stock Trades
% of Price
% Away from
Approximate
Approximate
Date
Shares Purchased
Shares Sold
Closing Price
Target
Price Target
Purchases
Sales
October 11, 2019
1,180
$247.89
4.13%
95.87%
$292,510.20
October 14, 2019
563
256.96
4.28%
95.72%
144,668.48
14,894
256.96
4.28%
95.72%
3,827,162.24
14,773
256.96
4.28%
95.72%
3,796,070.08
October 15, 2019
3,314
257.89
4.30%
95.70%
854,647.46
16,142
257.89
4.30%
95.70%
4,162,860.38
October 17, 2019
9,229
261.97
4.37%
95.63%
2,417,721.13
October 18, 2019
13,872
256.95
4.28%
95.72%
3,564,410.40
1,760
256.95
4.28%
95.72%
452,232.00
77,486
256.95
4.28%
95.72%
19,910,027.70
October 22, 2019
14,850
255.58
4.26%
95.74%
3,795,363.00
3,481
255.58
4.26%
95.74%
889,673.98
October 24, 2019
26,661
299.68
4.99%
95.01%
7,989,768.48
4,177
299.68
4.99%
95.01%
1,251,763.36
4,927
299.68
4.99%
95.01%
1,476,523.36
October 25, 2019
43,337
328.13
5.47%
94.53%
14,220,169.81
November 7, 2019
39,560
335.54
5.59%
94.41%
13,273,962.40
November 11, 2019
3,245
345.09
5.75%
94.25%
1,119,817.05
November 14, 2019
14,809
349.35
5.82%
94.18%
5,173,524.15
1,374
349.35
5.82%
94.18%
480,006.90
November 22, 2019
13,109
333.04
5.55%
94.45%
4,365,821.36
December 4, 2019
5,840
333.03
5.55%
94.45%
1,944,895.20
December 11, 2019
2,680
352.70
5.88%
94.12%
945,236.00
17,947
352.70
5.88%
94.12%
6,329,906.90
December 12, 2019
1,830
359.68
5.99%
94.01%
658,214.40
7,438
359.68
5.99%
94.01%
2,675,299.84
December 23, 2019
17,766
419.22
6.99%
93.01%
7,447,862.52
5,567
419.22
6.99%
93.01%
2,333,797.74
20,585
419.22
6.99%
93.01%
8,629,643.70
December 30, 2019
18,241
414.70
6.91%
93.09%
7,564,542.70
TOTAL
13,109
407,528
$4,365,821.36
$127,622,281.56
off by a factor of one million, which she had either covered up or ignored due to
spreadsheet formatting choices.
@Keubiko also revealed that the model clearly had
not been tested to account for anything remotely close to real-world circumstances.
According to Cathie Wood’s analysts at ARK, “if Tesla sold zero cars and generated
zero dollars in revenues, the company would be worth $46 [billion dollars].”203 Such
logic is impossible to justify.
Cathie Wood upped ARK’s price target for Tesla to $6,000 per share at the start of
August 2019. Beginning in mid-October, without again changing its price target or
its laughably broken “model,” ARK began selling large quantities of Tesla shares. This
203
The Market Plunger, May 26, 2019, “When Models Fail: How Financial Models Subsidize Poor Valuation Work (TSLA &
Ark Invest).” https://themarketplunger.com/2019/05/26/when-models-fail/
Reality Check
64
selling activity was not touted on Cathie Wood’s media appearances where she con-
tinued to exude optimism about Tesla and technology generally. In Q4 2019, ARK
offloaded about $127.6 million worth of Tesla stock and purchased just over $4 mil-
lion worth, according to trading reports posted on Twitter by a pseudonymous ac-
count. In other words, while Cathie Wood insisted that Tesla was a screaming “buy”
destined to soar, her funds disposed of around $123 million worth of shares, net.
According to ARK Investment Management’s SEC Form 13F-HR filed November 12,
2019 for the period ending September 30, 2019, Tesla was ARK’s second largest hold-
ing across all of its funds in dollar terms, valued at approximately $282.4 million at the
end of Q3 2019, or 6.16% of ARK’s $4.5815 billion in assets under management.204,205
Tesla has also historically been the top holding in several of ARK’s individual funds.
The net sale of Tesla shares in Q4 2019 would have brought Tesla’s share of ARK’s
entire cross-fund portfolio closer to 3-4%.
But according to a video message posted by Cathie Wood on ARK’s Twitter account
on October 23, 2019 in response to queries about the firm’s Tesla trades,
“When a stock reaches 10% of our portfolio, we cannot buy it any longer. We can
let it run, up to 12, 13... Sometimes we let it go a little above that—but typically,
because by that time, the stock has run 30%—has done 30% better than all of the
other stocks in our portfolio, we will take profits. This is simply portfolio management.
Now in the case of Tesla, as you know, we bought it down into the 180 range. And as
it approached 240, -50, it had crossed over 12, 13% of the portfolio. We were taking
profits because we were getting opportunities elsewhere in the portfolio, particularly
in the genomics stocks. Uh, that, uh, we felt, uh, we should take profits and re-allocate
the funds. Uh, that’s simply what has happened here with Tesla.”206
A written explanation e-mailed to ARK mailing list subscribers similarly stated:
“As the stock dropped below $200, we increased our position in our flagship strategy
to 10%, a level beyond which we could not buy based on our investment guidelines.
Subsequently TSLA appreciated more than 30% relative to the rest of the names in
our flagship portfolio, pushing its position size beyond 13%, at which point—again
based on guidelines—we started taking profits.”
This explanation simply does not pass muster. According to ARK’s own SEC filings,
its overall holdings in Tesla did not come close to the firm’s supposed (but flexible)
10% overall portfolio threshold at the beginning of Q4 2019, and given that the en-
tire stock market—and especially other technology stocks held by ARK funds—went
straight up in November and December 2019, Tesla’s price advanced at roughly the
204
SEC Form 13F-HR Filed November 112 2019. https://fintel.io/i13f/ark-investment-management/2019-09-30-0
205
At a closing price of $240.87 on September 30, 2019, ARK therefore held about 1,172,417 TSLA shares total.
206
Twitter, October 23, 2019. https://twitter.com/ARKInvest/status/1187144704103718912
65
Tesla, Inc.
same pace as many other technology stocks that ARK holds. While Wood may have
been referring to Tesla’s weight in specific funds where its weight is closer to 10%,
there was still no need to sell shares to reduce Tesla’s weighting; a decision to sell is
not the same as a decision to “not buy.” Nor did ARK need to sell roughly 35% of
its holdings to offset a 30% price gain. If Tesla were as destined for greatness as ad-
vertised, ARK should have purchased other stocks to reduce its relative reliance on
Tesla, which would have enabled it to hold onto its valuable Tesla shares. And in fact,
ARK did purchase considerable holdings in non-Tesla stocks during Q4 2019, lower-
ing its overall percentage allocation in Tesla with each purchase. Also odd is that from
October 11, 2019 forward, Wood’s supposed re-allocation took place all quarter
long, even when the price of Tesla stock went down. Finally, it’s difficult to imagine a
more compelling investment than a stock projected to rise to $6,000 per share from
$300—even in the field of genomics. 20X gains in mature company stocks are rare,
especially when starting from the peak of the longest bull market in history.
With all of this in the background,
on December 9, 2019, Wood ap-
peared on CNBC to discuss Tesla.
Although she was more than will-
ing to talk on live television for
nearly seven full minutes about the
Cybertruck (analyzed from “many
different angles”), her perception
of Tesla’s competitive advantages,
her “bear price” of $700, market
share, and the supposed fact that
“Tesla is not an auto company,”
CNBC’s December 9, 2019 “Guest Disclosure” graphic for Cathie Wood contained two
what she didn’t mention were the
errors. ARK Investment Management has between 6-12% of its assets invested in Tesla,
and her close connection to Elon Musk should qualify as “Other Conflicts.”
100 million dollars that her firm
had just “re-allocated” away from
this opportunity of a lifetime.
(In
addition, CNBC displayed a screen about ARK’s Tesla holdings falsely claiming that
ARK did not have a stake “>1%.”)207
Excessive optimism is not illegal, but securities fraud is. Wood and Gerber repeatedly
met with Elon Musk privately. The distribution of material non-public information
to select individuals tasked with pumping up a stock price is unlawful. Gerber and
Wood enjoyed perks such as exclusive factory tours, access to Musk for interviews,
and special event invitations, all while they maintained a uniquely ecstatic outlook in
public. Yet behind the scenes, ARK was selling weekly. Throughout it all, producers
and so-called television journalists at CNBC and Bloomberg were entirely complicit.
207
CNBC, December 9, 2019, “Tesla bull Cathie Wood gives her take on the Cybertruck.”
https://www.cnbc.com/video/2019/12/09/bull-case-tesla-market-share-autos-squawk-box.html
Reality Check
66
Accounting Fraud
Given Tesla’s cloak-and-dagger modus operandi, one has to wonder what all the fuss
is really about. The answer is simple: for most of its history, Tesla has been a cash-
starved business utterly dependent upon the stock market, which has resorted to
various forms of accounting fraud to survive. And it doesn’t want anyone to know.
Dangling The Carrot (For a Price)
One of Tesla’s defining characteristics is the fact that there always seems to be some-
thing bigger and better on the horizon—even if it’s not entirely clear how that thing
could ever come to pass in the manner that Elon Musk has promised. In mid-2016,
as soon as Model 3 production was finally getting underway, Musk began to make
audacious promises about Tesla’s next model, the Model Y. Then, when it was finally
unveiled, many observers had trouble distinguishing the Model Y from the Model 3,
likely because the Model Y was actually just a barely-modified Model 3 prototype.
Similarly, the Tesla Semi Truck, punk pickup truck (officially named the Cybertruck),
second-generation Roadster, robotaxis, and Solar Roof (versions 1.0 and 3.0, version
2.0 having been lost somewhere along the line) have all given Tesla fans something
more to look forward to—and to put down deposits on, while other customers
demand refunds of their deposits208,209 in what effectively amounts to a Ponzi scheme
with stock attached. Yet no matter how many fantastic new products Elon Musk an-
nounces and “launches,” steady profits never materialize.
Zero Profitable Years
The reasons for Tesla’s lack of profitability are to some extent subject to debate. But
the fact that the company has been short on cash for the vast majority of its existence
is indisputable. This dynamic has had serious effects on every aspect of the company,
and on its CEO’s behavior.
The fact that Tesla has never turned a profit in any of the fiscal years for which it has
been in existence has had an material and outsized impact on the company’s strategy
and operations. The simple truth is that most companies with such a track record
would have gone out of business after only a few years of such dismal returns. It is a
testament to Elon Musk’s endurance and creativity—much of it brazenly illegal—that
the company is still around in any form at all.
Cash Balances
For years, Tesla has consistently and deliberately overstated its cash position in an
208
Wired, July 31, 2017, “Canceling Your Model 3 Deposit? Don’t Count on a Timely Refund.”
https://www.wired.com/story/canceling-your-model-3-deposit-dont-count-on-a-timely-refund/
209
https://www.plainsite.org/tags/tesla-deposit-theft/
67
Tesla, Inc.
effort to convince investors that the risk of im-
minent demise was always much lower than
the company’s critics claimed.210 In fact, Elon
Musk himself was forced to admit that those
critics were often right, and that Tesla had
come within weeks of bankruptcy on at least
one occasion in 2018.211
Tesla has managed to distort its cash figures,
as many companies do, by blurring time. The
company only reports on its cash position on
the very last day of the quarter—not a range
or average of how much cash was on hand
On March 5, 2019, the Financial Times finally pointed out what many
had suspected all along: Tesla’s reported cash numbers do not add up
throughout. This presents opportunities for
and are therefore fraudulent. Sure enough, two months later, Tesla was
those wishing to boost numbers to draw on
forced to raise capital from outside investors despite its supposedly
credit lines or take out loans, just to make bank
healthy cash reserve of over $3 billion. Tesla’s phony numbers have
kept its stock price elevated. Source: FT Alphaville
account balances spike for a day. Tesla’s CFO
Jason Wheeler admitted to such conduct on
Page 90
February 10, 2016.
“Where we closed Q4
1 it's just payroll variance. I don't understand the
2 payroll one.
at, $135 million, fully drawn on [the lending facility]... We
3
Q. Okay. But it looks like you did something
don’t want to live on this drug.”212 But Tesla has been
4 to move some amount of payroll from May to June,
5 2 5 million. You moved some accounts payable,
completely hooked ever since.
6 18 million and moved Silevo, 3 million, from May to
7 June --
8
A. Okay.
In March213 and April214 2019, Perseid Capital posted in-
9
Q.
-- in order to meet the covenants; right?
10
A. Sure. We did many things to meet the
depth analysis of Tesla’s cash burn and cashflow projec-
11 covenants.
tions. On May 2, 2019, just as cash levels were believed to
12
Q. Is that your example of things that are
be reaching a critical low point, the company announced
13 making the business more efficient?
14
A. It's some of the things.
that it would be raising $2 billion in a stock and debt
15
Q. Moving payroll from one month to another
sale, temporarily alleviating the cash crunch. But the new
16 makes a business more efficient?
17
A. No, but it actually forces a business how
round of funding did nothing to solve Tesla’s long-term
18 to figure out how to reduce cost.
profitability problems.
19
Q. Now, in Plan A and Plan B, which you
20 alluded to, Plan A was going to get you to -- looks
21 like -- I have trouble reading this -- looks like
Cash balances have also been modified by managing ac-
22 123 million, the June average, and Plan B would get
23 you to 120; correct?
counts receivable (money coming in) and accounts pay-
24
A. Okay.
able (money going out) balances. In the Delaware litiga-
25
Q. So both of those plans would allow you not
tion involving SolarCity, Think Computer Foundation was
Lyndon Rive admitted under oath to moving payroll
and shifting accounts payable (payments to vendors)
able to force the disclosure of portions of a transcript in
in order to “meet the covenants.”
which Lyndon Rive admitted under oath that SolarCity had
210
FT Alphaville, March 5, 2019, “How much does Tesla have in the bank?”
https://ftalphaville.ft.com/2019/03/05/1551787633000/How-much-does-Tesla-have-in-the-bank-/
211
Axios, November 26, 2018, “Elon Musk says Tesla came “within single-digit weeks” of death.”
https://www.axios.com/elon-musk-tesla-death-bleeding-cash-a7928b06-3aae-43d7-bdde-5b9c41ef298f.html
212
Seeking Alpha, February 10, 2016, “Tesla Motors (TSLA) Elon Reeve Musk on Q4 2015 Results - Earnings Call Transcript.”
https://seekingalpha.com/article/3885766-tesla-motors-tsla-elon-reeve-musk-on-q4-2015-results-earnings-call-transcript
213
Perseid Capital, March 12, 2019. https://www.perseid-capital.com/blog/2019/03/12/tesla-cashflow-projection/
214
Perseid Capital, April 5, 2019. https://www.perseid-capital.com/blog/2019/04/05/tesla-q1-2019-cash-burn-analysis/
Reality Check
68
changed payroll dates and delayed
paying vendors. These desperate
acts made it appear as though the
company had more cash in order
to avoid breaching SolarCity’s loan
covenants. According to Rive, “We
did many things to meet the cov-
enants.”
One of Tesla’s “things” has been
avoiding tax. Tesla has been sued in
at least six state and local jurisdic-
tions for failing to pay a variety of
taxes. By delaying the registration
of vehicles with state Departments
of Motor Vehicles, Tesla managed
to push taxable events into future
months and quarters so that it
could hold onto its cash for lon-
ger. The delay in paperwork meant
that many Tesla customers did not
An excerpt from a New Jersey Motor Vehicle Commission investigative file from 2015
receive the titles and registration
that suggests a widespread pattern of tax evasion using temporary registrations, which
according to other reports continued through at least late 2018 nationwide.
papers for their cars for weeks or
months after they were supposed
to, and stories on social media of
Tesla customers driving with only temporary registrations were extremely common.
In many instances, Tesla was forced to offer to pay for customers’ tickets when those
temporary registrations expired. This unusual set of circumstances did not escape the
notice of the New Jersey Motor Vehicle Commission, which noted it in an investiga-
tive file215 that was attached to a lawsuit filed by Tesla’s outraged competitors.216
Untrustworthy Numbers
Another one of the “things” Tesla has been doing with its balance sheet, as noted by
David Einhorn of Greenlight Capital,217 is maintaining a billion-dollar line item for Ac-
counts Receivable, which Tesla has attempted to explain away several times using vari-
ous rationales. Most recently, Tesla claimed that month-long payment delays inherent
to European banking made it impossible to properly recognize revenue. As Deutsche
Bank put it, “Tesla went over why its accounts receivable has been elevated, attributing
215
NJ Coalition Of Auto Motive Re v. NJ Motor Vehic, Superior Court of New Jersey, County of Mercer, Case No. MER-L-001836-19,
Document 1, Attachment 2. https://www.plainsite.org/dockets/download.html?id=284259103&a=2&z=b08c597d
216
NJ Coalition Of Auto Motive Re v. NJ Motor Vehic, Superior Court of New Jersey, County of Mercer, Case No. MER-
L-001836-19. https://www.plainsite.org/dockets/41wtepvzy/superior-court-of-new-jersey-county-of-mercer/nj-coalition-
of-auto-motive-re-v-nj-motor-vehic/
217
MarketWatch, November 10, 2019, “Tesla’s Musk and Greenlight CEO lock horns in fiery Twitter feud.”
https://www.marketwatch.com/story/teslas-elon-musk-reignites-feud-with-greenlight-capitals-david-einhorn-2019-11-08
69
Tesla, Inc.
Per the Norwegian Public Roads Administration, on
December 31, 2019, Tesla registered numerous Model
3 vehicles to its Oslo-based subsidiary, Tesla Motors
Norway A/S.
(“Eier” means “owner” in Norwegian.)
In Norway, leasing companies register vehicles in their
own names, not the name of the manufacturer. It
therefore appears that Tesla has been
“delivering”
cars to itself, possibly to make it appear as though
“deliveries” are higher than they really are. This likely
fraudulent practice is one of many reasons why the
company’s numbers are completely unreliable. Source:
Statens Vegvesen SMS Service / Twitter User @MTass7
it to a large gap in timing between ve-
hicle delivery and cash received from
banks in Europe (vast majority of buyers use financing to make vehicle purchases).
The company stated that the gap in the US is 3 days, 7 days in China, and 28 days
in Europe.” This is false. Single Euro Payment Area (SEPA) payments and SWIFT
wires clear almost immediately.218 Despite Elon Musk’s promise to David Einhorn
of an “open invitation” to meet and tour Tesla’s facilities, Einhorn has not reported
that any such meeting or tour has actually taken place, or that there are even plans
for one. Prior to Tesla blaming the European banking system, since-departed CFO
Deepak Ahuja blamed the fact that “the quarter ended on a weekend.” “Unexplained
increases in accounts receivable” is a bright red flag for financial statement fraud.219
So is “A significant portion of a company’s sales are recognized at the end of a quar-
ter or year.” As previously demonstrated in the graph of New York new vehicle regis-
trations, this happens at Tesla every quarter. As Elon Musk stated himself, “We literally
delivered half of the entire quarter’s deliveries...in the final 10 days of Q1.”220 In the
very last moments of Q3 2019, Tesla introduced “Advanced Summon:” an Autopilot-
like technology that allowed car owners to press a button on their smartphone and
have their Tesla vehicle drive a short distance from a parking space to the owner,
autonomously. The rollout generated considerable media hype and at least a few
near-collisions. It also allowed Tesla to claim $30 million in previously unrecognizable
“self-driving” revenue—part of the magic of unaudited quarterly financial reports.221
Naturally, the timing led some to wonder whether Musk had decided to risk using his
customers as human guinea pigs, simply to recognize some additional revenue. In ad-
dition, Tesla registered numerous vehicles to itself in Norway on the last day of 2019.
What these tricks and others indicate are the simple fact that nothing Tesla says can
be trusted. Its debt figures are perhaps the only reliable metrics that Tesla releases,
218
FT Alphaville, December 18, 2019, “The question of Tesla’s cash to be collected.”
https://ftalphaville.ft.com/2019/12/16/1576494367000/The-question-of-Tesla-s-cash-to-be-collected/
219
Zack, Gerard M., Financial Statement Fraud: Strategies for Detection and Investigation, 2013, “Appendix: Financial Statement
Fraud Indicators.” https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781118527436.app1
220
The Motley Fool, April 24, 2019, “Tesla, Inc. (TSLA) Q1 2019 Earnings Call Transcript.”
https://www.fool.com/earnings/call-transcripts/2019/04/25/tesla-inc-tsla-q1-2019-earnings-call-transcript.aspx
221
Fortune, November 20, 2019, “Tesla Could Deliver ‘Full Self-Driving’ Within Weeks. Here’s What That Means for Driv-
ers—and Tesla’s Stock.” https://fortune.com/2019/11/20/tesla-full-self-driving-car-tsla-stock/
Reality Check
70
since those figures are contained in contracts with
third parties such as banks and governments. Ev-
ery other number, from revenue to profit to gross
margin to unit sales (or proxies thereof) to payroll
to number of employees is likely fictional due to
the pressures on Tesla’s successive Chief Account-
ing Officers and Chief Financial Officers to do
what no one wants to admit: cook the books.
Inventory Lots for Lots of Inventory
The main parking lot at Tesla headquarters in Palo Alto being used
for inventory storage, February 12, 2019. Photograph: Shorty Air
Throughout much of 2018 and into 2019, Tesla
Force / Twitter User @Paul91701736
stored cars in inventory in arbitrarily chosen park-
ing lots across the United States.222 Some of these
lots were dirt fields; others were attached to vacant shopping malls; still others were
hidden in forests. Tesla even used its own headquarters parking lot in Palo Alto to
store vehicles, packing cars so tight that they blocked other cars from ever leaving
their spaces.
When Tesla’s founders made the decision to sell direct to consumers without involv-
ing third-party dealerships, they presumably hoped to preserve profit margin for Tesla.
But that decision had additional far-reaching consequences. First, it meant that the dif-
ference between vehicle production and sales—inventory—would end up on Tesla’s
books, not the financial statements of its dealers. Second, it set up Tesla for a collision
course with numerous state laws that require vehicles to be sold through dealerships.
Tesla inventory lots in Chicago, IL; Burlingame, CA; Syosset, NY; and Norwood, MA. Photographs: tslaq.org and PlainSite
As Tesla encountered a lag in demand throughout much of 2019 even with some
tax incentives still in place, inventory levels skyrocketed, requiring the company to
scramble for storage lots. As pointed out by Twitter user @JCOviedo6, “It is worth
noting that while Tesla was originally a build to order company in 2018 in order to
solve ‘production hell’ Tesla switched to large scale batch manufacturing of various
configurations of each model (paint color, interiours, et cetera.) The consequence of
222
“Tesla Inventory Storage Sites.” https://tslaq.org/tesla-inventory-storage-sites/
71
Tesla, Inc.
this strategic decision is that Tesla ends up with excess production.”223
Some vehicles sat in the winter snow for months on end without moving. Even at
Tesla’s dealership in relatively warm Burlingame, California, inventory vehicles had to
be regularly re-charged using diesel generators as their batteries would slowly dis-
charge from lack of use. In Norwood, Massachusetts, idle cars had their tires stolen
off of them by scavenging thieves in the middle of the night.224
Though Tesla managed to clear much of its inventory from these lots by the end of
2019, serious questions remain about how that was achieved. According to Tesla’s un-
audited Q3 2019 SEC Form 10-Q, “Finished goods” inventory at the end of Q3 2019
was actually up slightly from Q4 2018 in dollar terms, when parking lots nationwide
were overflowing with vehicles.225 Per the filing, “Finished goods inventory included
vehicles in transit to fulfill customer orders, new vehicles available for immediate sale
at our retail and service center locations, used vehicles and energy storage products.”
At the end of Q4 2019, Tesla reported 112,000 vehicles delivered of 104,891
produced,226 suggesting that 7,109 deliveries came from inventory. The prior quarter’s
financials suggested stated that there were 17 “days of sales” worth of “global inven-
tory” available,227 implying 22,000 vehicles worldwide. So where did the remaining
16,000 vehicles go? No one seems to know.
Furthermore, as noted by Twitter user @PlugInFUD, in both Q3 2017 and Q1 2019,
Tesla reported a “Work in process” inventory line item of exactly $277,175 (numbers
in thousands). This exact number also happens to be the median for all “Work in
process” values from Q1 2016 through Q1 2019.228 Either this is a stunning coinci-
dence, Tesla’s reported numbers are somehow incorrect in a manner that might be
explained by a repeated spreadsheet error, or accounting fraud is taking place.
Non-GAAP, Undefined, Proprietary Terminology
Generally Accepted Accounting Principles (GAAP) exist to communicate informa-
tion to members of the public, government regulators, and corporate actors in as
clear and consistent a manner as possible. While the Financial Accounting Standards
Board (FASB) publications that comprise GAAP do offer some flexibility for unusual
situations where rigorous GAAP compliance would unintentionally mislead, the SEC
tends to require justification for departures. Nonetheless, Tesla has used a number
of terms whose definitions cannot be found in GAAP—or anywhere, for that matter.
223
JCOviedo’s Value Investor Club Tesla Write-Up.
https://www.dropbox.com/s/ycs1bzznlzapqly/TSLA%20writeup%20VIC%203%2017.pdf?dl=0
224
Twitter, June 27, 2019. https://twitter.com/cppinvest/status/1144242792127967232
225
Tesla, Inc. SEC Form 10-Q, September 30, 2019, Page 21. https://ir.tesla.com/node/20246/html
226
Tesla, Inc., January 3, 2020, “Tesla Q4 2019 Vehicle Production & Deliveries.”
https://ir.tesla.com/news-releases/news-release-details/tesla-q4-2019-vehicle-production-deliveries
227
Tesla, Inc., October 23, 2019, “Q3 2019 Update.” https://ir.tesla.com/static-files/47313d21-3cac-4f69-9497-d161bce15da4
228
Twitter, May 6, 2019. https://twitter.com/PlugInFUD/status/1125624963015282688
Reality Check
72
“Factory Gated”: In June 2018, Tesla proclaimed that it had met its self-declared target
of producing 5,000 Model 3 vehicles per week by producing vehicles of such inferior
quality that 86% of them had to be re-worked.229 These vehicles were reported to
have been “factory gated,” with no clear definition of what that unusual term actually
meant. The issues surrounding Tesla’s Model 3 production abilities are reportedly the
subject of an ongoing Department of Justice probe.
“Deliveries”: Tesla’s most important metric reportable to Wall Street is the number of
cars it sells per quarter—but Tesla does not disclose that number. Instead, the com-
pany discusses a black box it calls “deliveries,” but an examination of its SEC filings dat-
ing back years indicates that Tesla has never actually defined what a “delivery” is. It’s
possible that a delivery could involve literally “delivering” a car to a random stranger’s
driveway without payment, for partial payment, or conditional on payment delayed
for years. A “delivery” could also refer to shipping cars to Tesla’s undisclosed Chinese
subsidiaries. Telsa’s only clue, included in its Q3 and Q4 2019 delivery press releases,
has been, “we only count a car as delivered if it is transferred to the customer and
all paperwork is correct.” Of course, that paperwork could indicate a sale for $0.00.
On October 3-4, 2019, PlainSite sent an e-mail to Elon Musk and Tesla CFO Zach
Kirkhorn directly, as well as Tesla Investor Relations, inquiring as to what a “delivery”
actually was. Our e-mail read as follows:
“Yes or no, do ‘deliveries’ include vehicle purchases made by Tesla subsidiaries in China
or other non-U.S. countries? What about sales to used car vendors, e.g. CarMax? The
definition is presently unclear and investors deserve clarity on this, especially in light of
Tesla’s recently announced financing in China and the associated terms.”
No answer was forthcoming. CNBC reporter Lora Kolodny also received no answer
to a similar query asking about the new term “cash deliveries.”230
Deposit Refund Problems
Elon Musk has made several different claims on Twitter about Tesla’s refund policy. On
January 9, 2019, he wrote, “Btw, you can buy a Tesla online in less than 2 mins & give
it back for a full refund for any reason Tesla.com.”231 Yet PlainSite has tracked at least
16 lawsuits over Tesla refusing to honor customer deposit refund requests filed by
customers or potential customers.232 It has also uncovered dozens of complaints filed
with Attorneys General of multiple states, including Ohio, Florida and Texas, regarding
deposit refund failures.
229
Business Insider, August 21, 2018, “Internal documents reveal the grueling way Tesla hit its 5,000 Model 3 target.”
https://www.businessinsider.com/tesla-hit-model-3-target-by-reworking-thousands-of-cars-2018-8
230
Twitter, January 3, 2020. https://twitter.com/lorakolodny/status/1213159643045720064
231
Twitter, January 9, 2019. https://twitter.com/elonmusk/status/1083121972857487360
232
PlainSite. https://www.plainsite.org/tags/tesla-deposit-theft/
73
Tesla, Inc.
According to Ashlee Vance’s biography of Musk, Tesla’s use of prospective customer
deposits on future products to fund operations has unnerved at least one Direc-
tor: Elon’s brother. “I’m sure Elon would have found a way to make things right, but
he definitely took risks that seemed like they could have landed him in jail for using
someone else’s money,” Kimbal Musk was quoted as saying.233 Yet Tesla still does.
Deposited funds do not belong to Tesla and are merely held in trust, although Tesla’s
accountants have historically had trouble squaring that circle. From Q2 2010 through
Q1 2013, Tesla’s SEC filings contained language referring to “segregated accounts”
because of pesky states like Washington, which appeared to care. Tesla even “estab-
lished a segregated account for reservation payments in the state of Washington in
January 2010” and warned, “There can be no assurance that other state or foreign ju-
risdictions will not require similar segregation of reservation payments received from
customers. Our inability to access these funds for working capital purposes could
harm our liquidity.”234 Why this stopped mattering in 2013 is unclear.
Since the end of 2014, when the company stated, “Reservation payments and depos-
its are used by us to fund, in part, our working capital requirements and help us to
align production with demand,” Tesla has failed to disclose how it uses deposits and
how exactly it has at some points held about $800 million worth of deposits on its
books. And while on May 4, 2016, Musk stated, “I don’t think we want to rely too
much on customer reservation money as opposed to capital,” as well as, “I think it’s
important for de-risking the company,”235 he couldn’t help but boast on Twitter almost
hourly about Cybertruck deposits in 2019—a significant portion of which it appears
that customers didn’t even authorize.236
Vendor Non-Payment
Throughout its history, Tesla has repeatedly been sued by vendors large and small
for failing to pay its bills. The demands in these lawsuits have ranged from as little as
$2,500 to over $3 million.237 Several suits have also been filed by government tax
agencies, as Tesla was so delinquent in paying its taxes that it ultimately had to be
hauled to court in Washington, Ohio, Massachusetts, California, Nevada, and Missouri.
Most recently, Tesla was sued by the successor to Tyco (itself immersed in a major ac-
counting scandal) for failing to pay roughly $60,000 worth of invoices for SolarCity’s
on-site security systems dating back to 2015.238 Lawsuits like these raise serious ques-
233
Vance, Ashlee. Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future, Ecco, Page 207.
https://books.google.com/books?id=L8-HCgAAQBAJ
234
Tesla Motors, Inc. SEC Form 10-Q, March 31, 2013, Page 55. https://ir.tesla.com/node/13166/html
235
TheStreet, May 4, 2016, “Tesla Motors (TSLA) Earnings Report: Q1 2016 Conference Call Transcript.”
https://s.t.st/media/xtranscript/2016/Q2/13559022.pdf
236
The Los Angeles Times, November 25, 2019, “Elon Musk says Cybertruck orders have climbed to 200,000.”
https://www.latimes.com/business/story/2019-11-25/elon-musk-cybertruck-tesla
237
PlainSite. https://www.plainsite.org/tags/tesla-vendor-nonpayment/
238
Johnson Controls Security Solutions v. Tesla, Inc., Superior Court of California, County of Santa Clara, Case No. 19CV359800.
https://www.plainsite.org/dockets/454yvya8v/superior-court-of-california-county-of-santa-clara/johnson-controls-security-
Reality Check
74
Case 5:18-cr-00550-LHK Document 1 Filed 11/08/18 Page 1 of 9
tions about the accuracy of reported cash and ac-
counts payable balances, as years-old vendor claims
should rarely if ever pop up in court.
The Fugitive in Accounts Payable
On November 8, 2018, Tesla Group Manager, Global
Supply Management Salil Parulekar was indicted for
wire fraud in the Northern District of California due
to irregularities surrounding his work in Tesla’s ac-
counting department.239 Weak internal controls at
Tesla allowed Parulekar to use forged documents
to intentionally redirect $9.3 million of Tesla’s funds
to Schwabische Huttenwerke Automotive GmbH in
Germany, instead of Hota Industrial Manufacturing
Co., Ltd. in Taiwan. Parulekar’s motive for misdirecting
the funds is unknown.
The first page of the Parulekar indictment.
Only two months prior, Tesla’s Chief Accounting Of-
ficer, Dave Morton, resigned after only one month on
the job.240 Chief Financial Officer Deepak Ahuja resigned not long after with a sur-
prise announcement at the very end of the company’s January 30, 2019 Q4 2018
earnings call.
The Parulekar case stagnated with few hints for a full year before it became clear that
he was a fugitive from justice and had likely returned to his native India. To this day,
it’s unclear what acutally happened to Parulekar.
Warranty/Goodwill Misclassification
Lemon lawsuits involving every model of Tesla vehicle provide compelling evidence
that the company has deliberately under-reserved funds on its balance sheet to ac-
count for warranty repairs. Instead of charging service incidents to “Warranty,” in a
surprising number of cases, Tesla has instead charged a different account: “Goodwill,”
likely to the tune of hundreds of millions or billions of dollars. As former fund man-
ager Lawrence Fossi and pseudonymous Twitter user Luis Carruthers explained on
Seeking Alpha using court documents241 obtained by PlainSite,
“Tesla can perform all of the goodwill repair work it wants—that’s a business deci-
solutions-v-tesla-inc/
239
USA v. Parulekar, California Northern District Court, Case No. 5:18-cr-00550-LHK.
https://www.plainsite.org/dockets/3iryyo5te/california-northern-district-court/usa-v-parulekar/
240
CNBC, September 7, 2018, “Tesla Chief Accounting Officer Dave Morton resigns after just a month, stock closes down 6
percent.” https://www.cnbc.com/2018/09/07/teslas-chief-accounting-officer-dave-morton-resigns-after-just-a-month.html
241
PlainSite, https://www.plainsite.org/tags/tesla-goodwill-service/
75
Tesla, Inc.
sion. But if the repair should have been covered under
warranty, and is instead booked to an Operating Ex-
penses category, then it becomes an accounting issue
affecting gross margin.”242
Comments on the Fossi/Carruthers article by
defenders of the company suggested the remote
possibility that despite clear demarcations of
“Goodwill” as the payment account on Tesla ser-
vice invoices, Tesla’s financials might not necessarily
reflect those designations. This counter-argument
reeks of desperation for two reasons: first, Tesla
invoices are produced not by third-party service
centers, but by IT systems owned and operated by
Tesla itself. Many of the invoices feature internal-
use barcodes indicating that they were produced
by Tesla’s own enterprise software. Second, if Tes-
la’s accounting software ignored the designations
on these documents and instead used some other
Before Tesla can bury disputes in confidential arbitration proceed-
ings, many first appear in court, such as former employee Adam
field to determine warranty and goodwill charges,
Williams’s lawsuit that alleged unlawful sales practices. Williams
that would be tantamount to the company using
allegedly informed Jerome Guillen, who was promoted to Presi-
dent of Tesla’s Automotive division in September 2018.
two sets of books: one public and one hidden.
Selling Used as New
In a lawsuit initially filed in the Burlington County, New Jersey Superior Court, former
Tesla employee Adam Williams alleged that he had been fired after reporting illegal
sales practices to management, including “failing to disclose to consumers high-dollar,
pre-delivery damage repairs” and “receiving vehicles designated as ‘lemons’ and, with
this knowledge, reselling these vehicles without branding the titles of these vehicles or
offereing disclosure, rather than representing the cars as “used” or a “demo/loaner.”243
The case eventually moved to federal court.244 Tesla was successful at compelling
arbitration in December 2018; the status of the arbitration is not known.
Posts on social media and on Tesla’s own on-line forums have affirmed suspicions that
the company has often tried to pass off used cars as new, which is illegal.245 Some
customers have accepted “new” cars delivered with initial odometer readings of “140
miles,” though some “demo” cars can be sold as new with high readings so long as
242
Seeking Alpha, December 23, 2019, “Tesla Warranty Expense: A Case Of Goodwill By The Auditors.”
https://seekingalpha.com/article/4313851-tesla-warranty-expense-case-of-goodwill-auditors
243
Williams Adam v. Tesla Inc, Superior Court of New Jersey, County of Burlington, Case No. BUR-L-000194-18.
https://www.plainsite.org/dockets/3hd0mubl5/superior-court-of-new-jersey-county-of-burlington/williams-adam-v-tesla-inc/
244
WILLIAMS v. TESLA, INC., New Jersey District Court, Case No. 1:18-cv-04120-JHR-AMD.
https://www.plainsite.org/dockets/3a0b5l9v9/new-jersey-district-court/williams-v-tesla-inc/
245
Tesla, Inc., August 22, 2018, “Tesla trying to sell a demo car as ‘new.’”
https://forums.tesla.com/forum/forums/tesla-trying-sell-demo-car-new
Reality Check
76
they have not been previously titled.246 It also appears that Tesla has tried to sell the
same car twice with considerable frequency.247,248,249 In accordance with Williams’s
claims, one “brand new” Model 3 had an accident listed on its CARFAX report.250
Federal Investigations
According to FOIA responses obtained from the FBI and the FTC, both agencies are
investigating Tesla for various, still-undisclosed reasons. Tesla’s SEC Form 10-K has dis-
closed that it is also the subject of a United States Department of Justice investigation
concerning its production of the Model 3.
The Trouble with Elon Musk
As pointed out by Niedermeyer, Elon Musk crossed over to the dark side as Tesla’s
CEO as early as 2009 when he raised the price of the Roadster on paid reservation
holders who were not expecting it:
“[M]ost reservation holders were easily able to afford the increase and had been
aware of the risks going in, but there was real anger, which didn’t help public per-
ceptions of the company. After one meeting, Musk told the filmmaker Paine, ‘There
seemed to be a little bit of anger from some people in the room who felt that we’d
kind of done a bait and switch ... and that’s sort of a little bit true that there was a bit
of a bait and switch. That’s kind of what happened.”251
Admitting to a “bait and switch” scheme is admitting to fraud. Despite his intelligence
in certain areas and plenty of charm, a willingness to commit fraud is the summation
of the many problems with Musk, whose personal pathology has consumed the time
and attention of his employees, friends, and foes. It has even inspired a website devot-
ed to tracking Musk’s lies, predictions and pronouncements at http://elonmusk.today.
Drugs
Multiple sources have suggested that Musk is a frequent user of illegal drugs, which isn’t
especially hard to believe for a man who considered paying a $40 million combined
fine over a marijuana joke “worth it.”252 This suggestion was further supported when
246
Tesla, Inc., May 22, 2019, “Initial Odometer Reading?” https://forums.tesla.com/forum/forums/initial-odometer-reading
247
Tesla, Inc., October 4, 2018, “Tesla gave my Vin# to someone else.”
https://forums.tesla.com/forum/forums/tesla-gave-my-vin-someone-else
248
Reddit, December 23, 2019, “Tesla sold my car to someone else!”
https://www.reddit.com/r/teslamotors/comments/eereeo/tesla_sold_my_car_to_someone_else/
249
Tesla Motors Club, September 3, 2019, “Tesla sold my car to someone else before my delivery day.”
https://teslamotorsclub.com/tmc/threads/tesla-sold-my-car-to-someone-else-before-my-delivery-day.165040/
250
Twitter, May 15, 2019. https://twitter.com/QLDPyrrhonist/status/1128856150093570049
251
Niedermeyer, Edward. Ludicrous (p. 71). BenBella Books, Inc.. Kindle Edition.
252
The Guardian, October 28, 2018, “Elon Musk says $40m tweet was ‘worth it’ after being fined.”
https://www.theguardian.com/technology/2018/oct/28/elon-musk-says-40m-tweet-tesla-was-worth-it-fines
77
Tesla, Inc.
Musk appeared on a popular podcast hosted by Joe Rogan, and smoked marijuana
on video. Given Musk’s role as the CEO of SpaceX, a federal government contractor,
this stunt caused considerable consternation in the corridors of government. Oddly,
in one of the more unusual government subsidy awards to have ever taken place, the
federal government’s response to Musk’s antics was to pay his companies five mil-
lion dollars to ensure that SpaceX employees—presumably other than Musk—were
operating in a “drug-free” environment.253
Musk has also been embroiled in an odd dispute nominally about his sale of flame-
throwers to market The Boring Company, an endeavor in which Musk has attempted
to claim credit for re-inventing the concept of the subway, familiar to anyone who has
used public transportation. The brother of notorious drug lord Pablo Escobar has
made his displeasure with Musk known in a series of letters and media interviews.254
However, the flamethrower dispute may be a red herring. As Escobar knows, there is
real money to be made in the drug trade, and Musk apparently sent a Tesla engineer
to Mexico to speak with Escobar’s staff for some unknown reason. According to
Metro, Escobar claimed that drug smugglers were using Tesla vehicles with Autopilot
to autonomously move drugs.255
Messiah Complex
On July 8, 2018, in the midst of the Thai cave rescue mission (in which Elon Musk at-
tempted to assist rescuers by proposing a miniature submarine that would have to be
designed, tested and assembled on the fly
on the other side of the planet), Dr. John
Grohol used the hashtag “#narcissism”
when posing a question to Musk about
his constant need to “leverage every pub-
lic situation for [Musk’s] own aggrandize-
ment.” In response, Musk admitted that it
“might be true” that he is “a narcissist.”
Narcissistic Personality Disorder
(NPD)
is a DSM-5 listed disorder involving “im-
pairments in self functioning” and “impair-
ments in interpersonal functioning,” as
In 2018, Musk acknowledged via Twitter what many had long suspected:
well as “pathological personality traits” of
that he may suffer from clinical narcissism.
antagonism (specifically, grandiosity and at-
253
Politico, October 16, 2019, “NASA paid SpaceX for safety review after Musk smoked pot.”
https://www.politico.com/news/2019/10/16/nasa-musk-weed-048099
254
The Daily Mail, October 20, 2019, “Pablo Escobar’s brother Roberto vows to ‘take down’ Elon Musk as he sues him for
£77m over claims he ‘stole’ his idea for a ‘novelty’ flamethrower.” https://www.dailymail.co.uk/news/article-7594727/
Pablo-Escobars-brother-sues-Elon-Musk-77m-claims-stole-idea-flamethrower.html
255
Metro, July 15, 2019, “Drug smugglers are using Tesla’s Autopilot to dodge the police, Pablo Escobar’s brother claims.”
https://metro.co.uk/2019/07/15/drug-smugglers-using-teslas-autopilot-dodge-police-pablo-escobars-brother-
claims-10319181/
Reality Check
78
tention seeking behavior) that are stable across time, consistent across situations, not
part of the normal course of development, and not the result of substance abuse.256
Whether Musk has ever been formally diagnosed with NPD is not known. But it is
undeniable that his very public behavior fits well with this set of criteria, as well as a
less formal offshoot.
One of Musk’s constant refrains—making him sound very much like a certain occu-
pant of the White House—is that despite his iconic, billionaire status, he is actually the
victim. Under criticism from the media, he has often emphasized the unexpected dif-
ficulty of whatever task he set out to do, and the unimaginable personal toll that doing
it has had on him.257 As 60 Minutes reminded viewers, “The 47-year-old billionaire
has said 2018 has been ‘excruciating,’ ‘the most… painful year of my career.’”258 The
objective of such plaintive, heart-tugging entreaties is to make the reader or viewer
feel pity—and many do, even though Musk is a billionaire.
Some of Musk’s public statements could lead one to believe that he might suffer from
a messiah complex, which, although not described in the DSM-5, does summarize the
kinds of beliefs that Musk appears to hold. He has frequently referred to those who
question or criticize him, including this report’s author, as “unethical,” “endangering the
public,” “misleading,” or in one case, almost a murderer. To be clear, these determina-
tions were made only because of questions initially asked in a non-public setting over
e-mail.259,260 The inescapable conclusion is that Musk views himself as a an infallible
protector of the public, relying on unique insights (“data”) that only he has access to.
Were Musk just another average Silicon Valley billionaire, this kind of pathology might
not be so alarming (or even uncommon for that crowd). Unfortunately, Tesla’s prod-
ucts are used on public roadways daily, where the public is potentially in harm’s way
should anything be awry. And because Musk refuses to acknowledge error or take
advice from hardly anyone, the public danger he so quickly and easily projects onto
others is magnified significantly.
Environmental Hypocrisy
For a man who hopes to single-handedly solve Earth’s global warming crisis by con-
256
American Psychiatric Association, 2012, “DSM-IV and DSM-5 Criteria for the Personality Disorders.”
https://www.nyu.edu/gsas/dept/philo/courses/materials/Narc.Pers.DSM.pdf
257
The New York Times, August 16, 2018, “Elon Musk Details ‘Excruciating’ Personal Toll of Tesla Turmoil.”
https://www.nytimes.com/2018/08/16/business/elon-musk-interview-tesla.html
258
CBS News 60 Minutes, December 9, 2018, “Tesla CEO Elon Musk: The 60 Minutes Interview.”
https://www.cbsnews.com/news/tesla-ceo-elon-musk-the-2018-60-minutes-interview/
259
PlainSite, August 8, 2019, “E-Mail Conversation Between PlainSite Founder Aaron Greenspan and Tesla CEO Elon Musk.”
https://www.plainsite.org/documents/hwau8/email-conversation-between-plainsite-founder-aaron-greenspan-and-tesla-ceo-elon-musk/
260
When pressed to justify his views, Musk further appears willing to turn to any source of information at all, without any
concern for fact-checking or accuracy, so long as that source supports his view. In an e-mail exchange with this report’s
author, Musk ultimately relied upon anonymous posts on a Latvian-based gripe site run by Latvians and Russians who ex-
tort victims wishing to have false information removed about them from the site. In Unsworth v. Musk, Jared Birchall, who
runs Excession LLC for Musk, posed as “James Brickhouse” and ultimately ended up paying a convicted felon $50,000 for
unverified, false information merely to support Musk’s speculation about Vernon Unsworth’s motives for criticizing him.
79
Tesla, Inc.
vincing as many people as possible to act and transport themselves in a responsible
manner, Elon Musk spends an enormous amount of time on his private jet.261 In fact,
in the past decade, Musk hasn’t just owned one jet. He’s owned three.
There’s also some debate as to whether electric cars are always as environmentally
sensible as they might seem. Although electric vehicles emit less CO2 than gas-
powered vehicles as they are driven over time, their manufacturing is expensive from
a carbon standpoint. For infrequent drivers, there are some cases where traditional
internal combustion engines actually make more sense from a carbon perspective.262
Most economic models also assume that electric vehicles have lifespans comparable
to traditional cars, but in a country like Norway where one in five Teslas was involved
in an accident in 2018, that may not be a reliable assumption.
Still, one could plausibly argue that saving the world requires exceptional measures,
and Tesla does have partners in Japan, a factory in China, and a promised new complex
coming in Germany. But when the factory itself is the source of repeat environmental
violations and the United States Environmental Protection Agency (EPA) needs to get
involved, the excuses start to wither. Tesla’s Fremont paint shop, for example, has had
constant problems with emissions violations. Tesla has faced repeated scrutiny from
the Bay Area Air Quality Management District for its paint shop emissions.263 It also
settled with the EPA for a wrist-slapping $31,000 on April 1, 2019 due to hazardous
waste violations—and had to purchase the City of Fremont “$55,000 in emergency
response equipment.” That amount happened to correspond to the value of an out-
dated Tesla Model S, which the City painted black and white and outfitted with police
lights. By September, the same vehicle was the subject of an embarrassing news story:
“Cop’s Tesla runs out of battery power during high-speed chase,”264 though it wasn’t
the car’s fault.
“Zero Emissions”: For years, Tesla vehicles have sported temporary license plates that
are actually advertisements stating, “ZERO EMISSIONS.” The notion that Tesla cars
can be manufactured and operated without contributing any carbon dioxide or other
emissions to the environment is patently false. Electric vehicles mostly move the
source of emissions from the tailpipe to the electricity producer.
Sometimes, the electricity producer is Tesla itself. On March 6, 2019, PlainSite pub-
lished a photograph of Tesla Model 3 vehicles being charged at Tesla’s Burlingame
dealership with two portable MQ Power WhisperWatt DCA300SSJU4F2 diesel gen-
261
The Washington Post, January 29, 2019, “Elon Musk’s highflying 2018: What 150,000 miles in a private jet reveal about his
‘excruciating’ year.” https://www.washingtonpost.com/business/economy/elon-musks-highflying-2018-what-150000-miles-
in-a-private-jet-reveal-about-his-excruciating-year/2019/01/29/83b5604e-20ee-11e9-8b59-0a28f2191131_story.html
262
Financial Times, November 7, 2017, “Electric cars’ green image blackens beneath the bonnet.”
https://www.ft.com/content/a22ff86e-ba37-11e7-9bfb-4a9c83ffa852
263
The Drive, June 3, 2019, “Tesla Air Quality Compliance Violations Center On Troubled Paint Shop.”
https://www.thedrive.com/tech/28339/tesla-air-quality-compliance-violations-center-on-troubled-paint-shop
264
New York Post, September 25, 2019, “Cop’s Tesla runs out of battery power during high-speed chase.”
https://nypost.com/2019/09/25/cops-tesla-runs-out-of-battery-power-during-high-speed-chase/
Reality Check
80
erators rented from Hertz Rentals, which is featured on the
cover of this report. In fact, Tesla dealerships and inventory
lots nationwide have routinely used diesel generators, which
generate toxic emissions, to re-charge Tesla vehicles in the
company’s ever-mysterious inventory.
In December 2019, along with several other technology com-
panies that produce hardware including Apple, Alphabet, and
Dell, Tesla was sued in the Northern District of California by
the families of children unlawfully conscripted into cobalt min-
ing in the Democratic Republic of Congo.265
Above: A photo released by NORAD and conse-
quently unedited by Musk’s staff depicted Tesla’s
Undisclosed Health Problems
CEO with a scar on the right side of his neck as
of December 16, 2019.
Below: Three days later, Musk wrote unprompted
In response to Think Computer Foundation’s second Rule
on Twitter about “element 43” on the periodic
5.1(f) request, lawyers for the Tesla Directors insisted that
table, which has limited practical uses. The main
some of the redacted materials had to remain so due to un-
one is imaging cancerous thyroid nodules.
identified “personal medical information.” That information
appears in only two blocks of redacted text at the outset of
Elon Musk’s second deposition session on August 24, 2019.
Failures to properly redact the index, and the fact that re-
dacted, indexed terms are still listed in alphabetical order, sug-
gest that Musk used the words “cancer,” “neck,” and “surgery”
in the redacted block of text, after which opposing counsel
asked Musk if he was taking any substances that would pre-
clude him for answering questions truthfully. Although it is not
yet clear precisely what was said, the deposition proceeded.
Then, on early December 17, 2019, Musk appeared in pho-
tograph posted by the North American Aerospace Defense
(NORAD) Command Twitter account, where he appeared
with a scar on the right side of his neck.266 The photograph
was taken at SpaceX headquarters in Hawthorne, California
the previous day. Internet commenters initially focused on
Musk’s slightly enlarged jaw, but missed the scar.
Plenty of minor medical procedures could theoretically result in a neck scar, such as
a lymph node biopsy, stitches after a bike accident, or thyroid surgery. The likely is-
sues were narrowed when spontaneously, three days after the photo was taken, on
December 19, 2019, Musk tweeted, “You don’t hear much about element 43,” which
is true—unless you happen to be visiting an endocrinologist regarding a thyroid nod-
265
DOE 1 et al v. APPLE INC. et al, District Of Columbia District Court, Case No. 1:19-cv-03737.
https://www.plainsite.org/dockets/45b57dojd/district-of-columbia-district-court/doe-1-et-al-v-apple-inc-et-al/
266
Twitter, December 17, 2019. https://twitter.com/USNorthernCmd/status/1207005105007943680
81
Tesla, Inc.
ule, in which case the recommended diagnostic tests often involve technetium-99m
pertechnetate, a radionucleotide that appears on medical scans. Technetium is ele-
ment 43 on the periodic table.
A Pliant Board
When the SEC required Elon Musk to step down as the Chairman of Tesla’s Board
and to appoint two new independent directors, he complied, but only on paper.
At least one of his new appointees was
anything but independent, and his replace-
Case 5:11-cv-04003-LHK Document 87 Filed 08/20/12 Page 14 of 94
ment possibly shouldn’t be able to serve
1
“hands-on” manager overseeing Juniper’s finances and accounting and participating in the
as the director of any company at all.
2
Company’s earnings conference calls, and was one of the people with “ultimate authority” and made
3
the material false and misleading statements described herein. Denholm was intimately
4
knowledgeable about all aspects of Juniper’s business operations, as she received daily reports and
New Board Chairwoman Robyn Denholm
5
had access to computerized information regarding sales, costs and expenses, product demand and
6
inventory management. Denholm was also intimately involved in the preparation of Juniper’s
was previously Executive Vice President
7
financial statements and earnings guidance, including Juniper’s sales growth, product demand,
and Chief Financial and Operations Offi-
8
expenses, inventory management, anticipated gross margin, what disclosures would be made, and
9
the functioning of Juniper’s internal financial, accounting and disclosure controls. Denholm made
cer of Juniper Networks, as well as Head
10
various public statements for the Company during the Class Period, and participated in all Class
of Strategy and CFO of Telstra, an Austra-
11
Period earnings conferences and the 2010 and 2011 Analyst Day Conferences. Denholm also
12
reviewed, approved and signed certain of Juniper’s SEC filings filed during the Class Period,
lian telecommunications company.267 Her
13
including the August 10, 2010 Registration Statement, the 2010 10-K and all quarterly financial
roles resulted in Denholm being named as
14
reports on Form 10-Q, and the Sarbanes-Oxley certificates filed therewith. During the Class Period,
a defendant in federal securities lawsuits
15
16
no fewer than nine times before she even
17
joined Tesla’s Board. The allegations in
18
19
29. Defendants Kriens, Johnson and Denholm are sometimes referred to herein collectively
these suits sound familiar to anyone who
20
as the “Individual Defendants.”
has followed Tesla’s trajectory.268 Denholm
21
V.
MATERIAL UNDISCLOSED FACTS CONCERNING JUNIPER’S BUSINESS
22
30. On February 23, 2010, after the close of trading, Juniper hosted its Analyst Day
is perhaps most famous for stating that
23
Conference with analysts and investors. Defendants set forth their long-term business plan for the
she believes that Elon Musk—whom she
24
Company, which called for 20% or higher revenue growth, and a 25% or higher operating margin
25
over the next three to five years. Explaining the Company’s purportedly then-present strong metrics
is supposed to supervise in her capacity as
26
that supported this guidance, Johnson emphatically stated, “Make no mistake about it. We're a
Chairwoman—uses Twitter “wisely.”269
27
28
SECOND AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
11
The other “independent” directors on the
Tesla Board appointed as a result of the
During her time at Juniper Networks, Denholm was accused of insider trad-
“funding secured” Twitter debacle were
ing to the tune of $3.2 million. She was also named as a defendant in at
Kathleen Wilson-Thompson and Larry El-
least eight other lawsuits prior to her work on Tesla’s Board of Directors.
lison, a friend of Musk’s. Aside from his
billions of dollars in Tesla stock ownership, Ellison’s company, Oracle, purchased a fleet
of Tesla vehicles, making the idea of his independence laughable.
The Board’s conflicts are seemingly too endless to enumerate. SolarCity lawsuit
documents obtained from the Delaware Court of Chancery at least attempt to high-
light all of the ways that the Directors have been unable to make clear decisions to
267
LinkedIn. https://au.linkedin.com/in/robyn-denholm-a807795
268
PlainSite. https://www.plainsite.org/profiles/denholm-robyn-m/
269
Bloomberg News, March 26, 2019, “Tesla’s New Chairman Says Elon Musk Uses Twitter ‘Wisely’.”
https://www.bloomberg.com/news/articles/2019-03-27/tesla-chair-defends-musk-tweets-even-as-habit-lands-him-in-court
Reality Check
82
Elon Musk’s insistence on making a joke has caused Tesla to spend millions of dollars designing and planning production for two car models
that are nearly impossible to distinguish from each other, and that will likely cannibalize sales in the marketplace as a result. Left: Tesla Model
3 (Doug DeMuro via YouTube; https://www.youtube.com/watch?v=YvsnIL0AIAk). Right: Tesla Model Y (Stephen M. Conroy via YouTube; https://
www.youtube.com/watch?v=NWuSkpk0xXU).
guide the company in a responsible manner consistent with their fiduciary duties.270
Knowing When To Stop
When arranged in a particular order, Tesla’s car models (minus the Roadster) spell
“sexy” in leetspeak, a manner of typing that replaces certain Latin characters with
look-alike numbers. Since the “3” character approximates a backwards “E,” S3XY gets
the job done—a fact that Elon Musk has made it clear he is very proud of.
Unfortunately for Tesla as a company, there was very little time or need to develop a
Model Y. Much like the “funding secured” debacle, the entire reason for the Model Y’s
existence appears to be nothing more than Musk’s insistence that he be able to make
this joke. As one might expect, the vehicle’s technical and design specifications have
suffered accordingly, making it nearly impossible to differentiate the Model Y from the
Model 3 that it ended up being based upon.
The bad jokes keep coming. On May 7, 2019, the Tesla Twitter account wrote, “The
world of autonomous driving is coming whether you want it or not. With a Tesla,
you’re ready for it.” A Twitter user responded with, “Ok please don’t kill my family,”
and in turn, the Tesla Twitter account replied, “mmm ok.”
Too Many CEO Roles
The fact that Steve Jobs famously worked as the CEO of Apple while also acting
as CEO of Pixar Animation Studios has led to a number of cases where Silicon Val-
ley notables have insisted that their manifold talents be spread across a number of
enterprises simultaneously. For example, much to the initial dismay of his investors
(who seem to have grown accustomed to it), Twitter CEO Jack Dorsey also decided
270
In Re Tesla Motors, Inc. Stockholder Litigation, Delaware Court of Chancery, Case No. 12711-VCS, Document 310, Attach-
ment 1. https://www.plainsite.org/dockets/download.html?id=284361585&a=1&z=ef03d9a7
83
Tesla, Inc.
to spend part of his time as CEO of the payments company Square.
Perhaps hoping to show that his abilities exceed even those of Jobs and Dorsey, Elon
Musk is CEO of the combined Tesla-SolarCity corporate structure (having previously
been CEO of Tesla and Chairman of the SolarCity Board), CEO of SpaceX, CEO
of the Boring Company, CEO of Neuralink, and de facto leader of the “hyperloop”
movement. While Musk’s ambition may be super-human, he is, at the end of the day,
still a mere mortal subject to the same constraints of space and time as everyone
else. It’s therefore difficult to understand how he can give all of these enterprises his
best.
Other Red Flags
Government Subsidy Dependence
Were it not for constant infusions of cash from state, federal, and international gov-
ernments, whether in the form of direct loans, tax subsidies, or investments, Tesla
would not exist. Over its nearly seventeen years in business, Tesla has received billons
of dollars in government incentives, earning Elon Musk the moniker “subsidy truffle
hound,” a term coined by Twitter user @ElonBachman.
United States Department of Energy: In 2009, Tesla was the beneficiary of a $465 mil-
lion loan from the Department of Energy. The loan (along with partnerships with and
investments from Daimler, Toyota and Ford) allowed Tesla to design and manufacture
the Model S. The loan was fully paid off by 2013.271
United States Department of the Treasury, Internal Revenue Service: In economic
terms, when it comes to cars, Tesla sells goods that are extremely elastic: as the price
of a vehicle decreases, there is a disproportionate increase in demand. For this rea-
son, tax incentives that actually take dollars off of a car’s sticker price are the most
powerful kind. When Congress passed the Energy Improvement and Extension Act
of 2008, it added Section 30D to the Internal Revenue Code.272 From this legislative
addition, IRS Form 8936 was born, permitting purchasers of electric vehicles up to
a certain threshold per manufacturer—200,000 for Tesla—to claim a tax credit of a
declining amount depending upon the time of purchase, starting at $7,500. The tax
credit was finally phased out on December 31, 2019, its renewal having been blocked
by Donald Trump.273 The availability of the tax credit, combined with the knowledge
of its looming phase-out, has led to end-of-quarter mad delivery scrambles for Tesla,
where employees and friends have been enlisted as “volunteers” for the $80 billion
271
Niedermeyer, Edward W., Ludicrous: The Unvarnished Story of Tesla Motors, BenBella Books, 2019, Chapter 10.
https://books.google.com/books?id=h_SADwAAQBAJ
272
Internal Revenue Service, September 17, 2019, “Plug-In Electric Drive Vehicle Credit (IRC 30D).”
https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc-30d
273
Bloomberg News, December 16, 2019, “Trump Helped Nix Electric Car Tax Measure Sought by Tesla, GM.”
https://www.bloomberg.com/news/articles/2019-12-16/trump-helped-nix-electric-car-tax-measure-sought-by-tesla-gm
Reality Check
84
company so that customers might receive their vehicles before the federal deadline.
ZEV Credits: Zero-Emission Vehicle (ZEV) credits are issued by the California Air Re-
sources Board, and amount to a basic carbon offset trading system.274 Manufacturers
of electric vehicles such as Tesla earn credits from the Board based on the number
of cars they manufacture. Those credits can then be sold to other vendors for cash.
(California buyers of electric vehicles also receive the benefit of being able to drive in
diamond lanes even when a carpool of at least two people is not present.)
Over Memorial Day weekend in 2015, author Edward W. Niedermeyer videotaped
a truck stop halfway between San Francisco and Los Angeles where Tesla had estab-
lished several charging stations to determine whether any customers were actually
taking advantage of its battery swap program, which allowed vehicles to instantly
charge to near full capacity.275 Having the battery swap program in place allowed
Tesla to qualify for bonus ZEV credits from the California Air Resources Board worth
potentially as much as $100 million. He determined that no customers were using
the program despite busy traffic, but several did take advantage of the temporary
diesel-powered chargers that Tesla brought in to handle the extra holiday load.
ZEV credits have been crucial to Tesla’s survival. The company has grown dependent
upon selling hundreds of millions of dollars worth of ZEV credits to other auto manu-
facturers, in some cases transforming quarterly losses to quarterly profits.276
California Alternative Energy and Advanced Transportation Financing Authority
(CAEATFA): Since 2011, Tesla has qualified for over $225 million277 in sales and use
tax exemptions from a state government program promising to create jobs in Cali-
fornia, theoretically overseen by the California State Treasurer’s Office. At first, Tesla’s
CAEATFA applications related to the manufacture of the Roadster, Model S and
Model X at its Fremont plant, as well as the creation of jobs in smaller, satellite offices
in Southern California. The company successfully applied again when Model 3 manu-
facturing began, making Tesla CAEATFA’s number-one recipient of tax exemptions.
According to public records released by CAEATFA, Tesla has never disclosed its plans
to build an increasing number of vehicles in China to California, although shareholder
materials and statements by Elon Musk have suggested that the company plans to use
its knowledge from manufacturing in Fremont at its new Shanghai plant. In effect, Cal-
ifornia taxpayers are subsidizing a billionaire’s efforts to move jobs overseas to China.
274
California Air Resources Board. https://ww2.arb.ca.gov/our-work/programs/zero-emission-vehicle-program
275
YouTube, June 1, 2015. https://www.youtube.com/watch?v=q9zpOjOZgbk
276
TechCrunch, June 3, 2019, “GM and Fiat Chrysler are buying Tesla’s regulatory credits.”
https://techcrunch.com/2019/06/03/why-gm-and-fiat-chrysler-are-buying-teslas-regulatory-credits/
277
Two SpaceX applications totaling $42.2 million in anticipated tax exemptions have also been approved by CAEATFA,
making one individual, Elon Musk—who was already a billionaire when his companies began applying—the primary
beneficiary of nearly $270 million in state tax benefits.
85
Tesla, Inc.
December 2017
Model 3
Year
1
2
3
4
5
2017
2018
2019
2020
2021
Total
Avg 5 years
Owner
Build Plan Model 3
Sunaina Seelam
Delivery Plan Model 3
3,400
220,469
250,000
250,000
250,000
973,869
194,773.80
Danielle Matsumoto
Average Model 3 ASP
$
45,000.00
$
43,000.00
$
43,000.00
$
42,355.00
$
41,719.68
$
215,074.68
$
43,014.94
Sunaina Seelam
Material Cost
$
26,384.58
$
23,257.29
$
20,130.00
$
19,727.40
$
19,530.13
$
109,029.39
$
21,805.88
Sendil Palani
% Vendors in CA
10.9%
10.7%
10.7%
10.5%
10.3%
53%
11% Sendil Palani
Labor Cost per Vehicle (excl OH)
$
1,994
$
1,974
$
1,955
$
1,935
$
1,916
$
9,774.42
1,954.88
Chris Jenny
CA % sales
20%
20%
20%
20%
20%
100.00%
20.00% Dhruv Batura
Operating Margin %
11%
11%
11%
11%
11%
55.00%
11.00% Sunaina Seelem
GAAP revenue -Model 3 Only
$
153,000,000.00
$
9,480,167,000.00
$
10,750,000,000.00
$
10,588,750,000.00
$
10,429,918,750.00
$
41,401,835,750.00
Danielle Matsumoto
January 2019
Model 3
Year
1
2
3
4
5
2017
2018
2019
2020
2021
Total
Avg 5 years
Build Plan Model 3
Delivery Plan Model 3
1,770
152,977
250,000
250,000
250,000
904,747
180,949.40
Average Model 3 ASP
$
56,031.00
$
57,690.00
$
50,345.00
$
42,355.00
$
41,719.68
$
248,140.68
49,628.14
Material Cost
$
26,384.58
$
23,257.29
$
20,130.00
$
19,727.40
$
19,530.13
$
109,029.39
20,394.00
% Vendors in CA
10.9%
10.7%
10.7%
10.5%
10.3%
53%
11%
Labor Cost per Vehicle (excl OH)
$
32,426
$
3,799
$
1,955
$
1,935
$
1,916
$
42,030.62
2,309.99
CA % sales
27%
30%
25%
20%
20%
122.00%
24.40%
GAAP revenue -Model 3 Only
$
99,174,870.00
$
8,825,243,130.00
$
12,586,250,000.00
$
10,588,750,000.00
$
10,429,918,750.00
$
42,529,336,750.00
Material cost
46,700,702
3,557,830,253
5,032,500,000
4,931,850,000
4,882,531,500
18,451,412,455
20,394.00
Labor Cost per Vehicle
57,394,020
581,159,623
488,672,500
483,785,000
478,947,500
2,089,958,643
2,309.99
After Think Computer Foundation made a Public Records Act request, Tesla specifically asked CAEATFA to keep these numbers confidential.
CAEATFA released them by mistake—twice—along with a list of Tesla’s vendors. The figures show that Tesla’s plan (submitted under penalty
of perjury) was wildly different from what Elon Musk told investors they could expect: worldwide demand of up to “700,000 or 800,000 units
in a year” for the Model 3 alone, and in a recession, “still something in the order of 500,000.” Tesla told CAEATFA to expect half that, at most.
CAEATFA’s relationship with Tesla could be described as extremely cozy. Tesla staff
lobbyist Dan Chiu has regularly provided CAEATFA Executive Director Deana Carrillo
with advance notice of negative news stories so that state government officials can be
prepared to field questions from the media in advance. Carrillo has also providedTesla
with advance copies of official government documents about Tesla. Tesla’s applications
for CAEATFA tax exemptions were also prepared by a consulting firm called Blue Sky
Consulting Group, which is a CAEATFA vendor, and whose assigned consultant used
to work in California state government. The relationship was so cozy, in fact, that Rob-
ert S. Hedrick, a government lawyer working for the Office of the Chief Counsel of the
Department of Water Resources, felt comfortable asking if CAEATFA staff could ar-
range a tour ofTesla’s factory for his son’s “manufacturing innovation class” as a field trip.
In early 2019, Elon Musk made a series of pronouncements about Tesla’s likely manu-
facturing output and “delivery” volume for the rest of the year. But materials provided
by Tesla to CAEATFA weeks earlier under penalty of perjury in some ways directly
contradict Musk’s exuberant predictions. Tesla specifically asked for these materials
Reality Check
86
to be kept confidential by CAEATFA staff, but due to repeated oversights, they were
released anyway.
(CAEATFA even asked for its digital files back; PlainSite declined.)
While Musk promised annual demand of up to 800,000 Model 3s, Tesla told CAEAT-
FA to expect 250,000 deliveries per year at most, suggesting further securities fraud.
The documents also identified specific employees responsible for the figures.
New York State “Buffalo Billion” Initiative: Under the leadership of Governor Andrew
Cuomo, New York State invested roughly $1 billion in new technology manufactur-
ing projects in the Buffalo area.278 A major component of this effort was supposed
to be solar panel manufacturing thanks to SolarCity. When Tesla acquired SolarCity
in
2016, it also acquired its third factory, which has produced very little.279 Elon
Musk visited the factory for the first, and so far last, time in April 2019.280 New
York State reportedly wrote off the entire project seven months later,281 but not
before several Buffalo Billion officials were indicted for fraud unrelated to Tesla.282,283
Several New York state legislators have called for a formal audit into Tesla’s role.284
Tesla will owe a $41.2 million penalty to New York State if it does not employ 1,460
employees at its factory by April 2020.285 It has reportedly attempted to include
Panasonic employees, who do not work for Tesla, in that tally to avoid having to pay
the penalty.
Chinese Communist Party (CCP): In China, figurative red flags meet literal ones. The
CCP has provided Tesla with $1.3 billion worth of financing through a syndicate of
state-controlled banks at an interest rate below what is typical (“the market quoted
interest rate published by the People’s Bank of China minus 0.7625%”).286 Meanwhile,
United States shareholders still have no idea which legal entity really owns the new
Shanghai factory, which Chinese entities with “Tesla” in their name are actually affili-
ated with Tesla at all, or why one entity previously mentioned in a Tesla SEC filing, Tesla
Automobile (Beijing) Co., Ltd., was once called Tuoluo Vehicle Sales (Beijing) Co., Ltd.
278
New York State. https://buffalobillion.ny.gov
279
New York Post, February 15, 2019, “Worse than Amazon: Cuomo’s Buffalo Billion just went bust.”
https://nypost.com/2019/02/15/worse-than-amazon-cuomos-buffalo-billion-just-went-bust/
280
WKBW, April 5, 2019, “Elon Musk visits Buffalo’s Tesla factory.”
https://www.wkbw.com/news/local-news/elon-musk-visits-buffalos-tesla-factory
281
The Wall Street Journal, November 7, 2019, “New York State Writes Down Value of Tesla Plant in Buffalo.”
https://www.wsj.com/articles/new-york-state-writes-down-value-of-tesla-plant-in-buffalo-11573159578
282
USA v. Percoco et al, New York Southern District Court, Case No. 1:16-cr-00776-VEC.
https://www.plainsite.org/dockets/334mkao87/new-york-southern-district-court/usa-v-percoco-et-al/
283
The New York Times, July 12, 2018, “Architect of Cuomo’s Buffalo Billion Project Is Convicted in Bid-Rigging Scheme.”
https://www.nytimes.com/2018/07/12/nyregion/kaloyeros-guilty-buffalo-billion-cuomo.html
284
Erie County, New York, August 29, 2019, “Dixon Asks State Comptroller to Complete Full Audit of Solarcity and Full
Accounting of All Public Money Spent on Project.” http://www2.erie.gov/dixon/index.php?q=press/dixon-asks-state-
comptroller-complete-full-audit-solarcity-and-full-accounting-all-public-mone
285
The Buffalo News, November 8, 2019, “Tesla’s Buffalo plant gets $884 million write-down.”
https://buffalonews.com/2019/11/08/pennies-on-the-dollar-the-tesla-plant-isnt-worth-nearly-what-the-state-paid-to-build-it/
286
SEC Form 8-K, December 26, 2019. https://ir.tesla.com/node/20326/html
87
Tesla, Inc.