A shareholder of Tesla Motors Inc (NASDAQ:TSLA) has filed a lawsuit against the company and CEO Elon Musk, as well as the automaker’s board members. Court documents reviewed by ValueWalk show that Ross Weintraub is suing Tesla for allegedly lying about how safe the Model S sedan is.
Tesla sued over fiery crashes
Although over the weekend there was a report of a violent crash in which a Model S split in half, this case actually deals with the three fires reported late last year and some fires the plaintiff alleges happened prior to those fires. Weintraub’s suit is a derivative suit, which means he believes Tesla’s board of directors is harming it and he wants them to take some sort of action.
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PandoDaily’s Paul Carr (who shared the documents online) makes a good point about these types of lawsuits, saying they’re “like patent trolls: An unfortunate cost of doing big business and not something that inherently bodes badly.” In addition to Tesla Motors Inc (NASDAQ:TSLA) and CEO Elon Musk, the case also names Brad W. Buss, IRA Ehrenpreis, Antonio J. Gracias, Steve Jurvetson, Harald Kroeger, and Kimbal Musk.
Shareholder claims Model S not as safe as management said
The lawsuit is dated June 18. According to the court documents, the lawsuit accuses Tesla Motors’ board of breaching “fiduciary duties by failing to ensure that the Company had adequate internal controls and oversight mechanisms and willfully and / or recklessly causing or allowing the Company to issue misleading statements or failing to disclose material adverse facts about Tesla’s business, operations and future prospects.”
The complainant states that Tesla Motors Inc (NASDAQ:TSLA) management touted the performance of the Model S sedan in August 2013 even though it had a “very limited track record.” He refers to the National Highway Traffic Safety Administration’s five-star crash test rating in the same month and also the automaker’s spat with the agency regarding Tesla’s headline about that crash test rating. It was “Tesla Model S Achieves Best Safety Rating Of Any Car Ever Tested,” and the Center of Auto Safety referred to the automaker’s public relations campaign around it as “misleading.”
The case points to three “very significant fires requiring first responder intervention.” It states that two of them “resulted from spontaneous ignitions of batteries” and that the third “was from a Tesla crash test that spiraled into an out-of-control blaze and was “attributed to ‘failure of equipment or heat source.'” The case does not give the dates of these alleged fires. The plaintiff goes on to state that Musk said they never had a fire in a Model S until the first publicly reported one involving an accident that punctured the battery compartment in October and alleges that this was incorrect, suggesting that at least one of the other fires happened before that crash.
As a result of those fires, shares of Tesla Motors plummeted, but the automaker’s management was busy doing damage control. Also the company rolled out a software update to increase the speed at which the Model S lowers itself for better aerodynamics.
The case goes on to try to poke holes in Tesla’s safety story and alleges a number of operational problems at the automaker.
Not the first safety lawsuit for Tesla
It should be noted that Weintraub isn’t the first to sue Tesla Motors Inc (NASDAQ:TSLA) over its safety record. Law firm Morgan & Morgan filed another suit on behalf of shareholders who bought the automaker’s stock between May 10 and Nov. 6, 2013.
On a different topic, an irate customer filed suit under Wisconsin’s lemon law in April, alleging that the automaker failed to buy back his Model S after numerous technical problems.
Tesla Motors also sued in China
In addition to that derivatives lawsuit, Tesla Motors has also been sued in China for alleged trademark infringement. Reuters reports that Zhan Baosheng filed the suit. He owned the Tesla trademark in China before the automaker entered the country. Now he wants Tesla to stop selling and marketing its vehicles there, close its showrooms and Superchargers and pay out $3.85 million to him.
A hearing in the case is set for Aug. 5 in the Beijing Third Intermediate Court.