Tesla vs. Its Shareholders: A Federal Judge Sides With Elon Musk—Again

Elon Musk doesn't joke.

Elon Musk was accused by Tesla shareholders of giving misleading promises about the Model 3 production. Bill Pugliano/Getty Images

Amid Tesla’s many legal troubles over CEO Elon Musk’s impulsive tweeting behavior in the past six months, it’s easy to overlook an older and still ongoing lawsuit brought by Tesla’s disgruntled shareholders who suffered serious losses between 2016 and 2017 and thus accused Musk of having manipulated stock prices in the first place.

While Musk has paid tens of millions of dollars and lost his chairman title all because of his impromptu tweets, now he is actually winning the court’s favor over this battle with his own shareholders.

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On Monday afternoon, U.S. District Judge Charles Breyer in San Francisco dismissed a lawsuit against Tesla filed in October 2017 by a group of the company’s shareholders which accused the electric car maker of securities fraud. It was the second time Judge Breyer sided with Tesla. He dismissed the original case filed in August 2017, but allowed plaintiffs to file an amended suit.

The case sought class action status for shareholders who bought Tesla stock between May 3, 2016 and November 1, 2017, during which time Tesla stock fell from $240 per share to $185.

Shareholders claimed that they had bought Tesla stock at an “artificially inflated” price because Musk had deceived them with misleading statements about the production prospect of its then new Model 3 cars.

The first Model 3 car rolled off the Tesla assembly line in July 2017. In the ensuing months, however, the new car hit a series of widely publicized production hiccups that not only forced Musk to revise his production goal multiple times but also caused severe delays in customer delivery.

Tesla eventually reached the 5,000-unit-per-week production target in July last year, six months behind the originally planned timeline. Musk has explained that the delay was mainly due to a small setback during the early stage of the Model 3’s “exponential growth curve.”

“We got a lot of criticism for the number of cars we delivered in 2017. The area under the [exponential] curve of production in 2017 was quite small, because it was the beginning of an exponential ramp. But then, once that got going, the area under the curve was enormous. That’s why people were so shocked,” Musk said during a podcast interview last month.

In the shareholder case, Tesla defended itself, stating that it had been forthright about the Model 3’s production challenges, including Musk’s public statements about the Model 3’s “production hell” throughout 2017.

Referring to the “production hell” comments, Breyer wrote in a note on Monday that the allegations raised by Tesla shareholders ignored the company’s “repeated warnings about Model 3 production risks.”

Tesla vs. Its Shareholders: A Federal Judge Sides With Elon Musk—Again