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E-FILED

11/2/2018 11:48 AM
Clerk of Court
1 ROBBINS ARROYO LLP Superior Court of CA,
BRIAN J. ROBBINS (190264)
2 STEPHEN J. ODDO (174828) County of Santa Clara
600 B Street, Suite 1900 18CV337109
3 San Diego, CA 92101 Reviewed By: R. Walker
Telephone: (619) 525-3990
4 Facsimile: (619) 525-3991
E-mail: brobbins@robbinsarroyo.com
5 soddo@robbinsarroyo.com
6 Attorneys for Plaintiff

8 SUPERIOR COURT OF THE STATE OF CALIFORNIA


9 COUNTY OF SANTA CLARA
10 INTER-LOCAL PENSION FUND GCC/IBT,
Individually and on Behalf of All Others
)
)
Case No. 18CV337109
11 Similarly Situated, )
) CLASS ACTION
12 Plaintiff, )
)
13 v. ) COMPLAINT FOR VIOLATIONS OF
) CALIFORNIA LAW AND THE
14 TESLA, INC., ) SECURITIES ACT OF 1933
ELON MUSK, )
15 GOLDMAN SACHS & COMPANY, LLC, )
MORGAN STANLEY & COMPANY, LLC, )
16 BARCLAYS CAPITAL, INC., )
MERRILL LYNCH, PIERCE, FENNER & )
17 SMITH INC., )
CITIGROUP GLOBAL MARKETS, INC., )
18 DEUTSCHE BANK SECURITIES, INC., )
RBC CAPITAL MARKETS, LLC, and )
19 DOES 1-25, Inclusive, )
)
20 Defendants. )
) DEMAND FOR JURY TRIAL
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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 INTRODUCTION
2 1. Plaintiff Inter-Local Pension Fund GCC/IBT ("Plaintiff"), individually and on behalf

3 of all others similarly situated, by plaintiff's undersigned attorneys, alleges the following based upon

4 personal knowledge as to plaintiff and plaintiff's own acts and upon information and belief as to all

5 other matters based on the investigation conducted by and through plaintiff's attorneys, which

6 included, among other things, a review of U.S. Securities and Exchange Commission ("SEC") filings

7 by Tesla, Inc. ("Tesla" or the "Company") as well as media and analyst reports about the Company

8 and Company press releases. Plaintiff believes that substantial additional evidentiary support will

9 exist for the allegations set forth herein.

10 SUMMARY OF THE ACTION


11 2. Plaintiff brings this class action on behalf of purchasers of Tesla's 5.3% Senior Notes

12 due 2025 (the "Notes"). Pursuant to a materially misleading offering circular dated August 11, 2017

13 (the "Offering Circular"), Tesla issued and sold $1.8 billion worth of the Notes (the "Offering"). The

14 Offering closed on or about August 18, 2017.

15 3. This action asserts strict liability claims under sections 12 and 15 of the

16 Securities Act of 1933 ("1933 Act") and negligent violations of California Corporations Code §

17 25401 against Tesla, its Chief Executive Officer ("CEO"), Elon Musk ("Musk"), Goldman Sachs &

18 Co. LLC ("Goldman Sachs"), Morgan Stanley & Co. LLC ("Morgan Stanley"), Barclays Capital Inc.

19 ("Barclays"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Citigroup
20 Global Markets Inc. ("Citigroup"), Deutsche Bank Securities Inc. ("Deutsche Bank"), and RBC

21 Capital Markets, LLC ("RBC Capital") 1 (collectively, the "Defendants").

22 4. The Offering Circular contained misleading statements regarding the production of

23 Tesla's Model 3 line of vehicles. In particular, the Offering Circular claimed that Tesla would be

24 able to quickly scale its production of the Model 3 to 5,000 vehicles per week by the end of 2017 and

25 10,000 vehicles per week by the end of 2018 with the help of its Gigafactory 1. Ability to mass

26
1
27 Goldman Sachs, Morgan Stanley, Barclays, Merrill Lynch, Citigroup, Deutsche Bank, and RBC
Capital, are collectively referred to herein as the "Underwriter Defendants".
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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 produce the Model 3 line of cars was and is vital to the success of the Company. Tesla has poured

2 billions of dollars into mass producing the Model 3, as it is the only way that the Company can

3 achieve profitability.

4 5. Just two months after the issuance of the Notes, the Company admitted that it would

5 be unable to make 5,000 vehicles per week by 2017. Further, as first reported by The Wall Street

6 Journal, rather than using the high tech assembly line described in the Offering Circular, Tesla was

7 still making a significant portion of the Model 3s by hand. Since that time, Tesla has continually

8 moved back when it will be able to consistently produce 5,000 Model 3s per week. In addition, the

9 Company has since admitted that its battery factory, the "Gigafactory 1," did not have the ability to

10 make the batteries in the needed amounts for the Model 3 throughout 2017, and still did not as of

11 February 2018.

12 6. Defendants are responsible for the false and misleading statements and omitted

13 material facts made in connection with the Offering. Defendants authorized the Offering Circular or

14 participated in making the false and misleading statements. The Underwriter Defendants

15 orchestrated and conducted the Offering. Section 12(a)(2) of the 1933 Act and Cal. Corp. Code §

16 25501 provides buyers of securities an express remedy for material misstatements or omissions made

17 by any seller or solicitor in connection with the offer or sale of the issuer's securities involving a

18 prospectus or oral communications. Such remedies include, but are not limited to, rescission of the

19 sale of the Notes. Section 25504 renders Defendants joint and severally liable for controlling those
20 Defendants that made the direct sale of the Notes.

21 JURISDICTION AND VENUE


22 7. The claims alleged herein arise under sections 12(a)(2) and 15 of the 1933 Act, 15

23 U.S.C. §§77k, 77l (a)(2) and 77o. Jurisdiction is conferred by section 22 of the 1933 Act and venue

24 is proper pursuant to section 22 of the 1933 Act. This action is not removable under section 22 of

25 the 1933 Act, which explicitly states that "[e]xcept as provided in section 16(c), no case arising

26 under this title and brought in any State court of competent jurisdiction shall be removed to any court

27 in the United States." See Cyan Inc. v. Beaver Cty. Emps. Ret. Fund, 138 S. Ct. 1061, 1065 (2018).

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 This Court has original subject matter jurisdiction under the California Constitution, Article VI,

2 section 10 and section 22 of the 1933 Act, 15 U.S.C. §77v.

3 8. This Court has personal jurisdiction under California Code of Civil Procedure section

4 410.10 because certain Defendants are located in this District, including Tesla, and Defendants and

5 their agents affirmatively solicited the subject Notes and Offering Circular to investors in California

6 and those contacts with California have a substantial connection to the claims alleged herein.

7 9. Both Tesla and defendant Musk are citizens of California.

8 10. This Court is the proper venue under California Code of Civil Procedure section

9 395(a).

10 THE PARTIES
11 11. Plaintiff purchased the Notes pursuant to the Offering Circular directly from

12 underwriting defendant Goldman Sachs.

13 12. Defendant Tesla is a Delaware corporation with principal executive offices located at

14 3500 Deer Creek Road, Palo Alto, California. Tesla designs, develops, manufactures and sells fully

15 electric vehicles and energy storage products and has established its own global network of vehicle

16 sales and service centers and supercharger stations 2. The Company currently produces and sells

17 three fully electric vehicles: the Model S, Model X, and the Model 3.

18 13. Defendant Musk is Tesla's CEO and was since October 2008, and Chairman of the

19 Board and was since April 2004. Musk is also Tesla's largest stockholder, owning approximately
20 22% of its stock. Tesla claims on its website that Musk is a co-founder of the Company. It also

21 states that Musk oversees "all product design, engineering and manufacturing of the company's

22 electric vehicles, battery products, and Solar Roofs."

23 14. Defendant Goldman Sachs is a New York limited liability company with principal
24 executive offices located at 200 West Street, New York, New York. Goldman Sachs served as

25

26
2
27 A supercharger station provides Tesla owners with extremely-fast battery pack swaps as well as
fast-recharge for Tesla Model S and Model X vehicles.
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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 underwriter to Tesla in connection with the Offering. Goldman Sachs sold Notes directly to

2 plaintiff.

3 15. Defendant Morgan Stanley is a Delaware limited liability company with principal

4 executive offices located at 1585 Broadway, New York, New York. Morgan Stanley served as an

5 underwriter to Tesla in connection with the Offering.

6 16. Defendant Barclays is a Connecticut corporation with principal executive offices

7 located at 745 7th Avenue, New York, New York. Barclays served as an underwriter to Tesla in

8 connection with the Offering.

9 17. Defendant Merrill Lynch is a Delaware corporation with principal executive offices

10 located at One Bryant Park, New York, New York. Merrill Lynch served as an underwriter to Tesla

11 in connection with the Offering.

12 18. Defendant Citigroup is a New York corporation with principal executive offices

13 located at 388 Greenwich Street, New York, New York. Citigroup served as an underwriter to Tesla

14 in connection with the Offering.

15 19. Defendant Deutsche Bank is a Delaware corporation with principal executive offices

16 located at 60 Wall Street, New York, New York. Deutsche Bank served as an underwriter to Tesla

17 in connection with the Offering.

18 20. Defendant RBC Capital is a Minnesota limited liability company with principal

19 executive offices located at 200 Vesey Street, 5th Floor, New York, New York. RBC Capital served
20 as an underwriter to Tesla in connection with the Offering.

21 21. Except as described herein, plaintiff is ignorant of the true names of defendants sued
22 as Does 1–25, inclusive, under California Code of Civil Procedure section 474 and, therefore,

23 plaintiff sues these defendants by such fictitious names. Following further investigation and

24 discovery, plaintiff will seek leave of this Court to amend this Complaint to allege their true names

25 and capacities when ascertained. These fictitiously named defendants are Tesla's officers, other

26 members of management, employees, and/or consultants or third parties who were involved in the

27 wrongdoing detailed herein. These defendants aided and abetted, and participated with and/or

28 conspired with the named defendants in the wrongful acts and course of conduct or otherwise caused

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 the damages and injuries claimed herein and are responsible in some manner for the acts,

2 occurrences, and events alleged in this Complaint.

3 CLASS ACTION ALLEGATIONS


4 22. Plaintiff brings this action as a class action pursuant to section 382 of the California

5 Code of Civil Procedure on behalf of a class consisting of all persons or entities who purchased the

6 Notes, pursuant to the Offering Circular issued in connection with the Offering (the "Class").

7 Excluded from the Class are defendants and their families, the officers, directors, and affiliates of the

8 defendants, at all relevant times, members of their immediate families and their legal representatives,

9 heirs, successors, or assigns and any entity in which defendants have or had a controlling interest.

10 23. The members of the Class are so numerous that joinder of all members is

11 impracticable. While the exact number of Class members is unknown to plaintiff at this time and

12 can only be ascertained through appropriate discovery, plaintiff believes that there are thousands of

13 members in the proposed Class. Record owners and other members of the Class may be identified

14 from records maintained by the Company or its transfer agent and may be notified of the pendency

15 of this action by mail, using the form of notice similar to that customarily used in securities class

16 actions.

17 24. Plaintiff's claims are typical of the claims of the members of the Class, as all

18 members of the Class are similarly affected by defendants' wrongful conduct in violation of federal

19 securities law that is complained of herein.


20 25. Plaintiff will fairly and adequately protect the interests of the members of the Class
21 and has retained counsel competent and experienced in class and securities litigation.

22 26. Common questions of law and fact exist as to all members of the Class and
23 predominate over any questions solely affecting individual members of the Class. Among the

24 questions of law and fact common to the Class are:

25 (a) whether Defendants violated federal securities laws;

26 (b) whether Defendants violated California securities laws;

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 (c) whether statements made by the defendants in the Offering Circular contained

2 materially false and misleading statements, or misrepresented or omitted material facts about the

3 Company's business operations; and

4 (d) the proper measure of damages.

5 27. A class action is superior to all other available methods for the fair and efficient

6 adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the

7 damages suffered by individual Class members may be relatively small, the expense and burden of

8 individual litigation make it impossible for members of the Class to individually redress the wrongs

9 done to them. There will be no difficulty in the management of this action as a class action.

10 THE FALSE AND MISLEADING OFFERING CIRCULAR


11 28. Tesla is attempting to be the first successful new U.S. based car company in over a

12 century. It is doing this by selling only completely electric cars. Tesla's first 3 vehicles (the Tesla

13 Roadster, the Model S, and the Model X) were all geared to the high-end vehicle market. The

14 Company, however, could not profitably produce these vehicles. Rather, the Company's success

15 depends on its ability to produce its mass market vehicle, the Model 3. Underscoring its importance,

16 in 2017, the Company spent $4 billion on attempting to mass produce the Model 3.

17 29. The Company is taking an aggressive approach by mass producing the Model 3 and

18 the electric batteries used to power it all in-house. Tesla is making the Model 3 vehicles at its

19 Freemont, California factory. Its batteries are being made at the Company's Gigafactory 1 located
20 outside of Reno, Nevada. While this gives Tesla more control, it also means that any problems or

21 delays in either factory can slow or stall the entire Model 3 production.

22 30. On or about August 7, 2017, the Defendants issued the preliminary offering circular
23 detailing that Tesla planned on issuing $1.5 billion worth of notes. On or about August 11, 2017, the

24 Defendants issued the Offering Circular, increasing the amount of Notes to $1.8 billion. The

25 Defendants completed the Offering on or about August 18, 2017. The planned use of the proceeds

26 of the Offering was to "strengthen [Tesla's] balance sheet during this period of rapid scaling with the

27 launch of the Model 3 and for general corporate purposes."

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 31. The Offering Circular talked at length about the Model 3 and the Gigafactory 1. In

2 particular, in its description of the Company, the Offering Circular stated, "We are ramping to

3 volume production and deliveries of Model 3, and are planning to produce 5,000 Model 3 vehicles

4 per week by the end of 2017, and 10,000 Model 3 vehicles per week at some point in 2018."

5 32. Regarding Gigafactory 1, the Offering Circular stated, "Gigafactory 1 is designed to

6 supply enough batteries to support the annual production of over 500,000 vehicles at our Fremont

7 Factory as well as our energy storage product line."

8 33. Discussing the interplay between the Model 3 and Gigafactory 1, the Offering

9 Circular stated, "[the] Model 3 was designed for volume manufacturing, with a streamlined design

10 and reduced complexity. Gigafactory 1, where we are producing lithium-ion battery cells and drive

11 units for Model 3, has been designed to support our projected volume ramp of Model 3 production."

12 34. As stated above, mass producing the Model 3 was fundamental to the Company's

13 ability to turn a profit. Concerning ramping up production of the Model 3, the Offering Circular

14 Stated:

15 Clear path to scale. Building upon the experience, infrastructure and brand
recognition we have already established with Model S and Model X, we started
16 production and completed our first customer deliveries of Model 3 in July 2017.
Model 3's streamlined design and manufacturing process enables increased
17
automation and a significant reduction in materials costs compared to the Model S
18 and Model X. Model 3 currently has fewer than 100 initial configurations and a
modular body with no variations, compared to more than 1,500 configurations and 80
19 body variations in Model S. Our new body shop enables us to reduce Model 3 total
labor content significantly through the use of over 1,000 robots in a highly dense
20 layout. We believe these process and design improvements will allow us to ramp
Model 3 production significantly faster than our prior vehicles to fulfill the larger
21
addressable market for this vehicle. As capacity utilization improves, Model 3 gross
22 margin is expected to improve rapidly in 2018 to our target of 25%.

23 35. The statements above were false and misleading because the Company lacked the

24 ability to scale Model 3 production, especially up to 5,000 vehicles a week in 2017 at the time the

25 Offering Circular was issued. The Company had significant supply chain and production problems

26 at both the Model 3 manufacturing plant and "Gigafactory 1." Both the Model 3s and the batteries

27 needed to run those vehicles were still being built by hand at their respective facilities, instead of the

28 automation needed to mass produce the car described in the Offering Circular. In fact, workers at

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 Tesla's Model 3 production facility could not even build enough of the vehicles to carry out

2 necessary testing. Meanwhile, the Gigafactory 1 needed to have the Company disassemble a

3 production line that was in Germany, ship it to the United States, and reassemble it in Nevada before

4 it could produce the necessary amount of batteries.

5 36. The Offering Circular described certain "risks" related to Tesla, including that there

6 could be delays in the Company's production timeline, as a result of, among other items, delays in

7 the Company's ability to add production lines and capacity. In particular, the Offering Circular

8 stated:

9 We have experienced in the past, and may experience in the future, significant delays
or other complications in the design, manufacture, launch and production ramp of
10 new vehicles and other products such as our energy storage products and the Solar
Roof, which could harm our brand, business, prospects, financial condition and
11
operating results.
12
* * *
13
We have experienced in the past launch, manufacturing and production ramp delays
14 or other complications in connection with new vehicle models such as Model S and
Model X, and new vehicle features such as the all-wheel drive dual motor drivetrain
15
on Model S and the second version of autopilot hardware. For example, at times
16 since the launch of Model X, we encountered unanticipated challenges, such as
certain supply chain constraints, that forced us to decrease the production of these
17 vehicles from our initial expectations. If unexpected issues arise or recur with respect
to any of our production vehicles, we may experience further delays. In addition,
18 because our vehicle models share certain production facilities with other models, the
19 volume or efficiency of production with respect to one model may impact the
production of other models.
20
* * *
21
We may also experience similar delays or other complications in bringing to market
22 and ramping production of new vehicles, such as ramping Model 3 on production
23 manufacturing lines, and other products such as our energy storage products and the
Solar Roof. Any significant additional delay or other complication in the production
24 of our current products or the development, manufacture, launch and production
ramp of our future products, including complications associated with expanding our
25 production capacity, supply chain or regulatory approvals, could materially damage
our brand, business, prospects, financial condition and operating results.
26

27 * * *

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 We may experience delays in realizing our projected timelines and cost and volume
targets for the production, launch and ramp of our Model 3 vehicle, which could
2 harm our business, prospects, financial condition and operating results.
3
* * *
4
Our future business depends in large part on our ability to execute on our plans to
5 manufacture, market and sell the Model 3 vehicle, which we intend to offer at a
lower price point and to produce at significantly higher volumes than our present
6 production capabilities for the Model S or Model X vehicles. We commenced
production and initial customer deliveries of Model 3 in July 2017 and have
7
announced our goal to increase Model 3 vehicle production to 5,000 vehicles per
8 week by the end of 2017 and 10,000 vehicles per week at some point in 2018.

9 * * *
10 We have no experience to date in manufacturing vehicles at the high volumes that we
11 anticipate for Model 3, and to be successful, we will need to complete the
implementation and ramp of efficient, automated and low-cost manufacturing
12 capabilities, processes and supply chains necessary to support such volumes.
Moreover, our Model 3 production plan has required and will require significant
13 investments of cash and management resources.
14

15 Our production plan for Model 3 is based on many key assumptions, including:

16 • that we will be able to complete implementing and ramping a new dedicated final
assembly line for high volume production of Model 3 at the Tesla Factory without
17 exceeding our projected costs and on our projected timeline;
18 • that we will be able to continue to expand Gigafactory 1 in a timely manner to
19 produce high volumes of quality lithium-ion cells to be integrated into finished
battery packs and drive unit components for Model 3, all at costs that allow us to sell
20 Model 3 at our target gross margins;

21 • that the equipment and processes which we have selected for Model 3 production
will be able to accurately manufacture high volumes of Model 3 vehicles within
22
specified design tolerances and with high quality;
23
• that we will be able to maintain suppliers for the necessary components on terms
24 and conditions that are acceptable to us and that we will be able to obtain
components on a timely basis and in the necessary quantities to support high volume
25 production; and
26
• that we will be able to attract, recruit, hire, train and retain skilled employees,
27 including employees on the production line, to operate our planned high volume
production facilities to support Model 3, including at the Tesla Factory and
28 Gigafactory 1.

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1
If one or more of the foregoing assumptions turns out to be incorrect, our ability to
2 meet our Model 3 projections on time and at volumes and prices that are profitable,
the number of current and future Model 3 reservations, as well as our business,
3
prospects, operating results and financial condition, may be materially and adversely
4 impacted.
* * *
5
We may be unable to meet our growing vehicle production and delivery plans, both
6 of which could harm our business and prospects.
7
Our plans call for significant increases in vehicle production and deliveries to high
8 volumes in a short amount of time. Our ability to achieve these plans will depend
upon a number of factors, including our ability to add production lines and capacity
9 as planned while maintaining our desired quality levels and optimize design and
production changes, and our suppliers' ability to support our needs. In addition, we
10 have used and may use in the future a number of new manufacturing technologies,
11 techniques and processes for our vehicles, which we must successfully introduce and
scale for high volume production. For example, we have introduced aluminum spot
12 welding systems and high-speed blow forming of certain difficult to stamp vehicle
parts. We have also introduced unique design features in our vehicles with different
13 manufacturing challenges, such as large display screens, dual motor drivetrain,
autopilot hardware and falcon-wing doors. We have limited experience developing,
14 manufacturing, selling and servicing, and allocating our available resources among,
15 multiple products simultaneously. If we are unable to realize our plans, our brand,
business, prospects, financial condition and operating results could be materially
16 damaged.

17 Concurrent with the significant planned increase in our vehicle production levels, we
will also need to continue to significantly increase deliveries of our vehicles.
18 Although we have a plan for delivering a significantly increased volumes of vehicles,
19 we have limited experience in delivering a high volume of vehicles, and no
experience in delivering vehicles at the significantly higher volumes we anticipate
20 for Model 3, and we may face difficulties meeting our delivery and growth plans into
both existing markets as well as new markets into which we expand. If we are unable
21 to ramp up to meet our delivery goals globally, this could have a material adverse
effect on our business, prospects, financial condition and operating results.
22

23 * * *

24 Future problems or delays in expanding Gigafactory 1 or ramping operations there


could negatively affect the production and profitability of our products, such as
25 Model 3.
26
To lower the cost of cell production and produce cells in high volume, we are
27 integrating the production of lithium-ion cells and finished battery packs for the
Model 3 and energy storage products at Gigafactory 1. While Gigafactory 1 began
28 producing lithium-ion cells for energy storage products in January 2017 and has

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 since begun producing lithium-ion cells for Model 3, we have no other direct
experience in the production of lithium-ion cells. Given the size and complexity of
2 this undertaking, it is possible that future events could result in the cost of expanding
and operating Gigafactory 1 exceeding our current expectations and Gigafactory 1
3
taking longer to ramp production and expand than we currently anticipate. In order to
4 reach our planned volume and gross margin for Model 3, we must have significant
cell production from Gigafactory 1, which, among other things, requires Panasonic to
5 successfully ramp its all-new cell production lines to significant volumes over a short
period of time. Although Panasonic has a long track record of producing high-quality
6 cells at significant volume at its factories in Japan, it has never before started and
ramped cell production at a factory in the U.S. like at Gigafactory 1. We are now in
7
the early stages of production and have experienced the types of challenges that
8 typically come with a production ramp. We expect that we will continue to
experience challenges as we move through the ramp, and we will continue to fine-
9 tune our manufacturing lines to address them. While we currently believe that we
will reach our production targets, if we are unable to resolve ramping challenges and
10 expand Gigafactory 1 production in a timely manner and at reasonable prices, and if
11 we or Panasonic are unable to attract, hire and retain a substantial number of highly
skilled personnel, our ability to supply battery packs to our vehicles, especially
12 Model 3, and other products could be negatively impacted. Any such problems or
delays with Gigafactory 1 could negatively affect our brand and harm our business,
13 prospects, financial condition and operating results.
14 * * *
15
If we fail to scale our business operations and otherwise manage future growth
16 effectively as we rapidly grow our company, especially internationally, we may not
be able to produce, market, sell and service our products successfully.
17
Any failure to manage our growth effectively could materially and adversely affect
18 our business, prospects, operating results and financial condition. We continue to
19 expand our operations significantly, especially internationally, including by a
planned transition to high volume vehicle production and the worldwide sales and
20 servicing of a significantly higher number of vehicles than our current vehicle fleet in
the coming years, with the ramp of Model 3. Furthermore, we are developing and
21 growing our energy storage product and solar business worldwide, including in
countries where we have limited or no previous operating experience in connection
22
with our vehicle business. Our future operating results depend to a large extent on
23 our ability to manage our expansion and growth successfully. We may not be
successful in undertaking this global expansion if we are unable to control expenses
24 and avoid cost overruns and other unexpected operating costs; establish sufficient
worldwide sales, service and Supercharger facilities in a timely manner; adapt our
25 products and conduct our operations to meet local requirements; implement the
required infrastructure, systems and processes; and find and hire a significant number
26
of additional manufacturing, engineering, service, electrical installation, construction
27 and administrative personnel.

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 37. The truth was, however, that these risks had already come to fruition, as the

2 Company's production goal of 5,000 vehicles per week by the end of 2017 was impossible to meet,

3 and the Gigafactory 1 had no ability to meet the growing need for its batteries. The Defendants were

4 required to disclose this material information. First, SEC Regulation S-K, 17 C.F.R. §229.303

5 ("Item 303"), requires disclosure of any known events or uncertainties that, at the time of the

6 Offering, had caused, or were reasonably likely to cause, a materially negative impact on Tesla. The

7 severe yet undisclosed production problems of the Model 3, as well as the consequential negative

8 impact on the Company's revenues, net profits, and customer retention, were likely to (and in fact

9 did) materially and adversely affect Tesla.

10 38. Second, SEC Regulation S-K, 17 C.F.R. §229.503 ("Item 503"), required in the "Risk

11 Factor" section of the Offering Circular, a discussion of the most significant factors that made the

12 offering risky or speculative and that each risk factor adequately described the risk. Defendants'

13 failure to disclose the already occurring production delays, as well as the likely material effects it

14 would have on the Company's share price and value of the Notes, rendered the Offering Circular's

15 many references to known risk that "if" occurring "might" or "could" adversely affect the Company

16 as false and misleading. (Emphasis added). These so-called "risks" were already materializing

17 before the Offering.

18 39. Third, omitting the delays that were already occurring, and the impossibility to

19 actually meet the claimed production expectations, made the Company's statements about these risks
20 potentially materializing misleading.

21 40. The Offering was successful as the Defendants placed $1.8 billion worth of the Notes.
22 41. On October 6, 2017 The Wall Street Journal published an article titled, "Behind
23 Tesla's Production Delays: Parts of Model 3 were Being made by Hand," detailing the reasons

24 behind the Model 3 production delays. 3 In particular, the article noted:

25

26
3
27 https://www.wsj.com/articles/behind-teslas-production-delays-parts-of-model-3-were-being-made-
by-hand-1507321057
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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 FREMONT, Calif.— Tesla Inc. blamed "production bottlenecks" for having made
only a fraction of the promised 1,500 Model 3s, the $35,000 sedan designed to propel
2 the luxury electric-car maker into the mainstream.
3
Unknown to analysts, investors and the hundreds of thousands of customers who
4 signed up to buy it, as recently as early September major portions of the Model 3
were still being banged out by hand, away from the automated production line,
5 according to people familiar with the matter.
6 While the car's production began in early July, the advanced assembly line Tesla
has boasted of building still wasn't fully ready as of a few weeks ago, the people
7
said. Tesla's factory workers had been piecing together parts of the cars in a
8 special area while the company feverishly worked to finish the machinery designed
to produce Model 3's at a rate of thousands a week, the people said.
9
Automotive experts say it is unusual to be building large parts of a car by hand
10 during production. "That's not how mass production vehicles are made," said Dennis
11 Virag, a manufacturing consultant who has worked in the automotive industry for 40
years. "That's horse-and-carriage type manufacturing. That's not today's automotive
12 world."

13
* * *
14
Behind the scenes, Tesla had fallen weeks behind in finishing the manufacturing
15 systems to build the vehicle, the people said.
16 The extent of the problem came to light on Monday when Tesla said it made only
17 260 Model 3s during the third quarter—averaging three cars a day. The company
cited production bottlenecks but didn't explain much further.
18
"Although the vast majority of manufacturing subsystems at...our California car
19 plant...are able to operate at high rate, a handful have taken longer to activate than
expected," the company said at the time.
20

21 In Mr. Musk's pursuit to rid the world of combustion engines, Tesla is trying to apply
Silicon Valley's ethos of rapid change to the type of complex manufacturing process
22 that traditional auto makers have spent decades perfecting. Unusual in the U.S. tech
industry, where even companies that do make hardware generally outsource their
23 manufacturing, Tesla's challenge requires integrating an army of factory workers and
some 10,000 parts from suppliers around the world.
24

25 Tesla's rollout of the Model X sport-utility vehicle in 2015 also was plagued by
quality and design issues that left suppliers scrambling and hourly workers having to
26 rush to meet lofty goals. But the plans for the Model 3 are far larger, meaning the
lack of a fully working assembling line so late in production could deal a bigger blow
27 to the company.
28

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COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 Mr. Musk has said Tesla learned from the Model X mistakes. And he has proven
doubters wrong before, creating a luxury brand that competes against BMW and
2 Mercedes-Benz for buyers and has demonstrated that fully electric cars can find an
3 enthusiastic following beyond a niche of environmentalists.

4 Calling his cars a "computer on wheels," Mr. Musk caught conservative Detroit off
guard with Tesla's ability to quickly change features, such as a semiautonomous
5 drive system, with software updates over the air. The company's stock has soared
about 69% in the past 12 months, at times pushing its market value past General
6 Motors Company, Inc.
7
But building 500,000 vehicles a year—as Mr. Musk had projected Tesla would start
8 doing next year—is a sizable leap for a company that only made 84,000 Model S
sedans and Model X SUVs last year. By comparison, General Motors Co., the largest
9 U.S. auto maker by sales, delivered about 10 million vehicles globally last year, or
more than 27,000 a day.
10

11 * * *

12 It isn't uncommon for much larger auto makers to hand build pre-production versions
of a car prior to the sales launch, but those are typically reserved for employees and
13 others willing to test the cars and return them to the company. By the time a car goes
on sale, the body shop is typically fully automated.
14

15 Inside the Fremont factory, workers said equipment for the so-called body-in-white
line for the Model 3, where the car body's sheet metal is welded together, wasn't
16 installed until by around September. They guessed at least another month of work
remained to calibrate the tools.
17
One worker who spent time in the Model 3 shop—dubbed by some as Area 51
18
because of the limited access and secretive nature—described watching young
19 workers in September struggling to move large pieces of steel to weld together
instead of using robots as is traditionally the case.
20
"In place of the robots…you've got two associates lining up with a big, old spot
21 welder hanging from the ceiling by a chain, and you've got one associate kind of
like balancing it and trying to get the welder in position, and you've got another
22
welder with his arm guiding it," this worker recalled seeing. "Sparks go flying."
23 In August, Mr. Musk told analysts that the Model 3s coming out of the factory were
"not engineering validation units."
24
"They're fully certified, fully DOT-approved, EPA-approved production cars," Mr.
25 Musk said, referring to the Department of Transportation and the Environmental
Protection Agency. "These are not prototypes in any way. They're not validation
26
anything. They are full production cars."
27
But he also said early versions coming out of Fremont would have issues, which is
28 why the first cars were going to employees and investors who paid for them.
- 14 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1
42. On February 9, 2018, Tesla filed an 8-K "clarify[ing]" earlier comments by defendant
2
Musk concerning the Gigafactory 1. The Company's clarification revealed that even if Gigafactory 1
3
was fully running, it could still not produce the needed 5,000 batteries a week because needed
4
equipment was still in Germany and that this equipment needed to be disassembled, shipped to the
5
Gigafactory, and then reassembled. In particular, the 8-K stated:
6
Tesla, Inc. is clarifying the following statement made by Elon Musk, Tesla's Chief
7 Executive Officer, during Tesla's fourth quarter and full year 2017 financial results
conference call held on February 7, 2018:
8

9 "[We] expect the new automated lines to arrive next month in March. And then it's
already working in Germany so that's going to be disassembled, brought out to the
10 Gigafactory and reassembled and then go into operation at the Gigafactory. It's not a
question whether it works or not. It's just a question of disassembly, transport and
11 reassembly. So we expect to alleviate that constraint. With alleviating that constraint,
that's what gets us to the roughly 2,000 to 2,500 unit per week production rate."
12

13 The "2,000 to 2,500" units per week cited in this comment refers solely to the
capacity of the additional automated battery module manufacturing equipment that is
14 currently located in Germany, and not to Tesla's total Model 3 production run rate or
to the capacity of the automated battery module equipment that is already present at
15 Gigafactory 1. Tesla's ability to meet its target of 2,500 per week by end of Q1 2018
16 is not dependent on the additional equipment that is currently located in Germany, as
that equipment is expected to start ramping production during Q2 2018. With respect
17 to battery module production, Tesla's ability to meet its target of 2,500 per week by
end of Q1 2018 is dependent only on the equipment that is already present at
18 Gigafactory 1, as well as the incremental capacity that is currently being added
through the semi-automated lines that were also discussed during the conference
19 call.
20
As stated in Tesla's Fourth Quarter and Full Year 2017 Update Letter:
21
"We continue to target weekly Model 3 production rates of 2,500 by the end of Q1
22 and 5,000 by the end of Q2. It is important to note that while these are the levels we
are focused on hitting and we have plans in place to achieve them, our prior
23 experience on the Model 3 ramp has demonstrated the difficulty of accurately
24 forecasting specific production rates at specific points in time. What we can say with
confidence is that we are taking many actions to systematically address bottlenecks
25 and add capacity in places like the battery module line where we have experienced
constraints, and these actions should result in our production rate significantly
26 increasing during the rest of Q1 and through Q2."
27

28

- 15 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 43. In reality, Tesla knew that: (i) it could not produce 5,000 Model 3s per week; (ii) the

2 process for building the Model 3 was still not automated; and (iii) the Gigafactory 1 was not close to

3 being ready to mass produce enough batteries to meet the Company's needs.

4 44. On October 26, 2018, the Wall Street Journal reported that the Federal Bureau of

5 Investigation is examining whether Tesla misstated information about the production of its Model 3

6 and mislead investors about the Company's business going back to early 2017.

7 45. As the market learned about these issues the value of the Notes plummeted.

8 FIRST CAUSE OF ACTION


9 Against All Defendants for Violation of Section 12(a)(2) of the 1933 Act
10 46. Plaintiff incorporates by reference and realleges each and every allegation contained

11 above, as though fully set forth herein.

12 47. This Cause of Action is brought pursuant to section 12(a)(2) of the 1933 Act,

13 15 U.S.C. §77l(a)(2), on behalf of the Class, against all defendants.

14 48. This Cause of Action does not sound in fraud. Plaintiff does not allege that the

15 defendants had scienter or fraudulent intent, which are not elements of a section 12(a)(2) claim.

16 49. By means of the defective Offering Circular, defendants promoted and sold the Notes

17 to plaintiff and other members of the Class for the benefit of themselves and their associates.

18 50. The Offering Circular contained untrue statements of material fact and concealed and

19 failed to disclose material facts, as detailed above. Defendants owed plaintiff and other members of
20 the Class who purchased or acquired the Notes pursuant to the Offering Circular, the duty to make a

21 reasonable and diligent investigation of the statements contained in the Offering Circular to ensure

22 that such statements were true and that there was no omission to state a material fact required to be

23 stated in order to make the statements contained therein not misleading. Defendants, in the exercise

24 of reasonable care, should have known of the misstatements and omissions contained in the Offering

25 Circular as set forth above.

26 51. Plaintiff and the other members of the Class did not know, nor in the exercise of

27 reasonable diligence could have known, of the untruths and omissions contained in the Offering

28 Circular at the time plaintiff and other Class members acquired the Notes.

- 16 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 52. By reason of the conduct alleged herein, defendants violated section 12(a)(2) of the

2 1933 Act. As a direct and proximate result of such violations, plaintiff and the other members of the

3 Class who purchased or acquired the Notes pursuant to the Offering Circular sustained substantial

4 damages. Accordingly, plaintiff and the other members of the Class who hold the Notes issued

5 pursuant to the Offering Circular have the right to rescind and recover the consideration paid for the

6 Notes.

7 SECOND CAUSE OF ACTION


8 Against All Defendants for Violation of Section 15 of the 1933 Act
9 53. Plaintiff incorporates by reference and realleges each and every allegation contained

10 above, as though fully set forth herein.

11 54. This Cause of Action is brought pursuant to section 15 of the 1933 Act against Tesla

12 and Musk.

13 55. Musk is a controlling person of Tesla by virtue of his positions as CEO, director,

14 then-Chairman, and senior officer of the Company. Musk is the Company's largest stockholder and

15 the indisputable face of Tesla. The Company's website claims that Musk is a co-founder of Tesla

16 and oversees all product design, engineering, and manufacturing of Tesla's electric vehicles and

17 batteries. Musk had a series of direct or indirect business or personal relationships with other

18 directors, officers, or major stockholders of Tesla. The Company controlled the Musk and all of

19 Tesla's employees.
20 56. Tesla and Musk were each a culpable participant in the violations of section 12(a)(2)

21 of the 1933 Act alleged in the First Causes of Action above, based on their having authorized the

22 issuance of the Offering Circular and having otherwise participated in the process which allowed the

23 Offering to be successfully completed.

24 57. By reason of such wrongful conduct, the defendants are liable pursuant to section 15

25 of the 1933 Act. As a direct and proximate result of said wrongful conduct, plaintiff and other

26 members of the Class suffered damages in connection with their purchase or acquisition of the

27 Notes.

28

- 17 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
1 THIRD CAUSE OF ACTION
2 Against All Defendants for Violation of Cal. Corp. Code §§25401. Et Seq.
3 58. Plaintiff incorporates by reference and realleges each and every allegation contained

4 above, as though fully set forth herein.

5 59. This Cause of Action does not sound in fraud. Plaintiff does not allege that the

6 defendants had scienter or fraudulent intent, which are not elements of a §25401 claim.

7 60. Under California Corporation Code §25501, anyone that violates §25401 shall be

8 liable to the purchaser.

9 61. Under California Corporations Code §25504, every person who: (i) directly or

10 indirectly controls a person liable under §2550; (ii) every principal executive officer or director of a

11 corporation so liable; and (iii) every person occupying a similar status or performing similar

12 functions, and every employee of a person so liable who materially aids in the act or transaction

13 constituting the violation are also liable to the purchaser.

14 62. Defendants offered and sold the Notes to plaintiff and the Class. In offering and

15 selling the Notes, defendants made written untrue statements of material fact and omitted to state

16 material facts to plaintiff that was necessary in order to make the statement made in light of the

17 circumstances under which they were made, not misleading, as set forth above.

18 63. These misstatements and omissions were "material facts" because there was a

19 substantial likelihood that, under all the circumstances, a reasonable investor would consider it
20 important in reaching an investment decision.

21 64. Plaintiff purchased the Notes from the Underwriting Defendants in connection with

22 the Offering Circular that contained the untrue material facts as alleged herein.

23 65. Some or all the defendants' untrue statements of material fact took place within the

24 state of California.

25 66. Tesla and Musk control the Underwriter Defendants.

26 67. Musk controls Tesla.

27 68. Defendants materially assisted each other in violating California Corporations Code

28 §25401.

- 18 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933
69. Accordingly, defendants are jointly and severally liable to plaintiff and the Class for

the damages they suffered.

PRAYER FOR RELIEF

WHEREFORE,plaintiff prays for relief and judgment, as follows:

A. Declaring this action to be a proper class action and certifying plaintiff as a Class

representative under section 382 ofthe California Code of Civil Procedure;

B. Awarding compensatory damages in favor of plaintiff and the other Class

members against all defendants,jointly and severally, for all damages sustained as a result of

defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiff and the Class reasonable costs and expenses incurred in this

action, including counsel fees and expert fees;

D. Awarding rescission or a rescissory measure of damages; and

E. Awarding such equitable/injunctive or other relief as the Court may deem just and

proper.

JURY DEMAND

Plaintiff demands a trial by jury.

Dated: November 2, 2018 ROBBINS ARROYO LLP


BRIAN J. ROBBINS
STEPHEN DO

B OBBINS

600 B Street, ife 1900


San Diego, CA 92101
Telephone:(619)525-3990
Facsimile :(619)525-3991
E-mail: brobbins@robbinsarroyo.com
soddo@robbinsarroyo.com

Attorneys for Plaintiff

1303638

- 19 -
COMPLAINT FOR VIOLATIONS OF THE CALIFORNIA LAW AND SECURITIES ACT OF 1933