Management – Organizational Change and Development
hoomanpb
TeslaFacesDeepeningCriminalProbeOverWhetherItMisstatedProductionFigures-WSJ.pdf
DOW JONES, A NEWS CORP COMPANY
DJIA 24388.95 -2.24% ▼ S&P 500 2633.08 -2.33% ▼ Nasdaq 6969.25 -3.05% ▼ U.S. 10 Yr 9/32 Yield 2.851% ▲ Crude Oil 52.13 1.24% ▲
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com.
https://www.wsj.com/articles/tesla-faces-deepening-criminal-probe-over-whether-it-misstated-production-figures-1540576636
Tesla Inc., with a fresh civil fraud settlement now behind it, faces a new legal
problem: a deepening criminal investigation.
Federal Bureau of Investigation agents are examining whether Tesla misstated information
about production of its Model 3 sedans and misled investors about the company’s business
going back to early 2017, people familiar with the matter say.
Action in the criminal investigation, headed by the U.S. attorney’s office in San Francisco, has intensified in recent weeks after the Securities and Exchange Commission settled separate civil
charges with Tesla and Chief Executive Officer Elon Musk, the people said.
Tesla had disclosed on Sept.
18 that it had received a
request for documents from
the Justice Department, 10
days before the company
and Mr. Musk struck a
settlement with the SEC
over civil charges in a
separate case involving
controversial tweets from
Mr. Musk.
But it hasn’t been
previously reported that the
Justice Department is focusing on Tesla’s Model 3 production issues dating to early last year
BUSINESS AUTOS & TRANSPORTATION AUTOS INDUSTRY
Tesla Faces Deepening Criminal Probe Over Whether It Misstated Production Figures FBI investigation follows company’s settlement of separate civil charges with SEC
| |
A worker on the Model 3 assembly line at the Tesla factory in Fremont, Calif., in June. PHOTO: BRIAN MOLYNEAUX FOR THE WALL STREET JOURNAL
Updated Oct. 26, 2018 2:52 p.m. ET
By Dana Cimilluca, Susan Pulliam and Aruna Viswanatha
TSLA -1.40% ▲
Tesla CEO Elon Musk speaking in June. PHOTO: CHRIS CARLSON/ASSOCIATED PRESS
and that the criminal securities-fraud probe is intensifying.
In a statement, Tesla said it had “received a voluntary request for documents from the
Department of Justice about its public guidance for the Model 3 ramp” earlier this year and was
“cooperative in responding to it.” The company said it hasn’t received any subpoenas or further
requests from the agency.
Tesla added that it has been “transparent about how difficult” Model 3 production would be, and that “it took us six months longer than we expected to meet our 5,000 unit per week
guidance.”
The Justice Department and SEC declined to comment.
On Wednesday, Tesla reported record quarterly profit as increased output of its Model 3s ended
seven quarters of losses for the electric-car maker. The third-quarter results, which buoyed
Tesla’s stock, followed a series of production delays. Mr. Musk is betting that the Model 3 can
transform the company from a niche luxury brand into a legitimate rival against the world’s
largest auto makers.
In recent weeks, FBI agents have contacted former Tesla employees asking them for testimony
in the criminal case. The former employees received subpoenas earlier in the probe, and FBI
agents recently have sought to interview a number of them, the people said.
In February 2017, after reporting fourth-quarter 2016 results, Tesla laid out an aggressive
production plan to bring out the Model 3, with plans to ramp up to 5,000 vehicles a week in the
fourth quarter of that year.
On a conference call that month with analysts, Mr. Musk said he was pushing suppliers to
be ready for a weekly run rate of 1,000 vehicles in July to 2,000 in August and 4,000 in
September.
A few months later, in July, Mr. Musk sounded confident that Tesla would be producing 20,000
Model 3s a month in December 2017, in line with his previous pledge of having 5,000 vehicles a
week by year’s end.
“Looks like we can reach 20,000 Model 3 cars per month in Dec,” he tweeted on July 2, 2017,
days before the first Model 3 rolled off the production line.
In the early weeks of production, the company’s body shop, where the skeleton of the cars
would take shape, wasn’t fully functional, according to an October 2017 article in The Wall
Street Journal. Tesla was still hand-building parts of the Model 3s, and the body shop wasn’t
fully installed until September, according to people quoted in the article that were familiar with
the situation.
Tesla ended up producing 2,700 Model 3s for all of 2017, and 793 in the last week of that year.
Now the FBI is comparing the company’s statements with its production capability during 2017.
Authorities are homing in on whether the company made projections about its Model 3
production knowing it would be impossible to meet the goals, people close to the situation say.
Model 3s began assembly in July 2017 and Tesla finally reached the long-promised goal of
making 5,000 of the vehicles in a single week during the last seven days of June 2018.
The company aimed to build on that pace but ultimately averaged 4,300 Model 3s a week,
excluding planned downtime, during this year’s third quarter. It said it built more than 5,300 of
the cars during the final week of the period.
Though Tesla shares have surged this week on its profit picture, they still are down roughly 17%
since a high in June 2017.
The SEC isn’t involved in the investigation into production issues at Tesla, people familiar with
the matter said.
The SEC settlement related to a statement by Mr. Musk through his Twitter account on Aug. 7
that he had “funding secured” to take Tesla private. The SEC alleged that the tweet by Mr. Musk
was “false and misleading.”
Copyright © 2018 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com.
Under the settlement, Mr. Musk and the company agreed to pay a total of $40 million in fines
and to remove Mr. Musk from his role as chairman of the board, without admitting or denying
wrongdoing.
The Justice Department and SEC often coordinate investigative efforts, but the SEC’s recent civil action over Mr. Musk’s tweet on taking the company private didn’t address questions
about Model 3 production disclosures.
Write to Dana Cimilluca at [email protected], Susan Pulliam at [email protected]
and Aruna Viswanatha at [email protected]
Appeared in the October 27, 2018, print edition as 'FBI Probes Tesla Over Production Figures.'
