This case was last updated from Santa Clara County Superior Courts on 03/10/2020 at 10:13:44 (UTC).

Inter-Local Pension Fund GCC/IBT v. Tesla, Inc., et al.

Case Summary

On 11/02/2018 Inter-Local Pension Fund GCC/IBT filed a Contract - Security lawsuit against Tesla, Inc . This case was filed in Santa Clara County Superior Courts, Downtown Superior Court located in Santa Clara, California. The Judge overseeing this case is Walsh, Brian C. The case status is Other - Transferred.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ******7109

  • Filing Date:

    11/02/2018

  • Case Status:

    Other - Transferred

  • Case Type:

    Contract - Security

  • Court:

    Santa Clara County Superior Courts

  • Courthouse:

    Downtown Superior Court

  • County, State:

    Santa Clara, California

Judge Details

Judge

Walsh, Brian C

 

Party Details

Plaintiff

INTER-LOCAL PENSION FUND GCC/IBT

Defendants

MORGAN STANLEY & COMPANY, LLC

TESLA, INC.

MERRILL LYNCH, PIERCE, FENNER & SMITH INC.

DEUTSCHE BANK SECURITIES, INC.

BARCLAYS CAPITAL, INC.

CITIGROUP GLOBAL MARKETS, INC.

GOLDMAN SACHS & COMPANY, LLC

RBC CAPITAL MARKETS, LLC

Musk, Elon

Not Classified By Court

Superior Court of California

Attorney/Law Firm Details

Plaintiff Attorneys

Oddo, Stephen John

Robbins, Brian James

Not Classified By Court Attorney

Superior Court of CA, County of Santa Clara

 

Court Documents

Proof of Service

Proof of Service: Comment: Proof of Service

Exhibit List (Party)

Exhibit 1 to Notice of Removal: Comment: Exhibit 1

Removal to Federal Court

Notice of Filing Notice of Removal.pdf:

Order: Deeming Case Complex

Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline: Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/BCW

Summons: Issued/Filed

Summons Issued Filed:

Complaint (Unlimited) (Fee Applies)

Complaint (Unlimited) (Fee Applies):

Civil Case Cover Sheet

Civil Case Cover Sheet: Comment: COMPLEX

 

Docket Entries

  • 02/15/2019
  • DocketConference: Case Management - Judicial Officer: Walsh, Brian C; Hearing Time: 10:00 AM; Cancel Reason: Vacated; Comment: (1st CMC) Securities Litigation. Discovery and responsive pleading deadline stayed, as of 11/7/18, when the case was deemed complex.

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  • 12/04/2018
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  • DocketProof of Service - Proof of Service: Comment: Proof of Service

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  • 12/04/2018
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  • DocketExhibit List (Party) - Exhibit 1 to Notice of Removal: Comment: Exhibit 1

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  • 12/04/2018
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  • DocketRemoval to Federal Court - Notice of Filing Notice of Removal.pdf:

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  • 11/07/2018
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  • DocketOrder: Deeming Case Complex - Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline: Comment: Order Deeming Case Complex and Staying Discovery and Responsive Pleading Deadline signed/BCW

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  • 11/02/2018
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  • DocketSummons: Issued/Filed - Summons Issued Filed:

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  • 11/02/2018
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  • DocketComplaint (Unlimited) (Fee Applies) - Complaint (Unlimited) (Fee Applies):

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  • 11/02/2018
  • View Court Documents
  • DocketCivil Case Cover Sheet - Civil Case Cover Sheet: Comment: COMPLEX

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Complaint Information

E-FILED

11/2/2018 11:48 AM Clerk of Court

ROBBINS ARROYO LLP .

BRIAN J. ROBBINS (190264) Superior Court of CA, STEPHEN J. ODDO (174828) County of Santa Clara 600 B Street, Suite 1900 18CV337109

San Diego, CA 92101 Reviewed By: R. Walker

Telephone: (619) 525-3990

Facsimile: (619) 525-3991

E-mail: brobbins@robhinsarroyo.com soddo@robbinsarroyo.com

Attomeys for Plaintiff

SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SANTA CLARA

INTER-LOCAL PENSION FUND GCC/IBT, Case No. Individually and on Behalf of All Others 18c V337 109 Similarly Situated,

CLASS ACTION

Plaintiff,

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

V.

)

)

)

)

)

)

% TESLA, INC., ) ELON MUSK, ) GOLDMAN SACHS & COMPANY, LIC, ) MORGAN STANLEY & COMPANY, LIC, ) BARCLAYS CAPITAL, INC., ) MERRILL LYNCH, PIERCE, FENNER & ) SMITH INC.,, ) CITIGROUP GLOBAL MARKETS, INC,, ) DEUTSCHE BANK SECURITIES, INC., ) RBC CAPITAL MARKETS, LLC, and ) DOES 1-25, Inclusive, ; )

INTRODUCTION

1. Plaintiff Inter-Local Pension Fund GCC/IBT ("Plaintiff"), individually and on behalf of all others similarly situated, by plaintiff's undersigned attomeys, alleges the following based upon personal knowledge as to plaintiff and plaintiff's own acts and upon information and belief as to all other matters based on the investigation conducted by and through plaintiff's attomeys, which included, among otherthings, areview of U.S. Securities and Exchange Commission ("SEC") filings by Tesla, Inc. ("Tedla" orthe "Company") as well as media and analyst reports about the Company and Conmpany press releases. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein.

SUMMARY OFTHE ACTION

2. Plaintiff brings this class action on behalf of purchasers of Tesla's 5.3% Senior Notes due 2025 (the "Notes"). Pursuant to amaterially misleading offering circulardated August 11, 2017 (the "Offering Circular"), Teslaissued and sold $1.8 billion worth of the Notes (the "Offering"). The Offering closed on or about August 18, 2017.

3. This action asserts strict liahility claims under sectionsSecurities Act of 1933 ("1933 Act") and negligent violations of California Corporations Code § 25401 against Tesla, its Chief Executive Officer ("CEO"), Elon Musk ("Musk"), Goldman Sachs & Co. LLC ("Goldman Sachs"), Morgan Stanley & Co. LLC ("Morgan Stanley"), Barclays Capital Inc. ("Barclays"), Menill Lynch, Pierce, Fenner & Smith Incorporated ("Memill Lynch"), Citigroup Global Markets Inc. ("Citigroup"), Deutsche Bank Securities Inc. ("Deutsche Bank"), and RBC Capital Markets, LLC ("RBC Capital") ' (collectively, the "Defendants").

4, The Oftering Circular contained misleading staterments regarding the production of Tesla's Model 3 line of vehicles. In particular, the Offering Circular claimed that Tesla would be able to quickly scaleits production of the Model 3 to 5,000 vehicles perweek by the end of 2017 and 10,000 vehicles per week by the end of 2018 with the help of its Gigafactory 1. Ahility to mass produce the Model 3 line of cars was and is vital to the success of the Company. Tesla has poured billions of dollars into mass producing the Model 3, as it is the only way that the Company can achieve profitability.

D. Just two months after the issuance of the Notes, the Company admitted that it would be unable to make 5,000 vehicles perweek by 2017. Further; as first reported by The Wall Street Journal, ratherthan using the high tech assembly line described in the Offering Circular, Tesla was still making a significant portion of the Model 3s by hand. Since that time, Tesla has continually moved back when it will be able to consistently produce 5,000 Model 3s perweek. In addition, the Company has since admitted that its battery factory, the "Gigafactory 1," did not have the ability to make the batteries in the needed amounts for the Model 3 throughout 2017, and still did not as of February 2018.

0. Defendants are responsible for the false and misleading statements and omitted matenal facts made in connection with the Offering. Defendants authorized the Offering Circularor participated in making the false and misleading statements. The Underwriter Defendants orchestrated and conducted the Offering. Section 12(a)(2) of the 1933 Act and Cal. Corp. Code § 25501 provides buyers of securities an express remedy formaterial misstatements or omissions made by any seller or solicitor in connection with the offer or sale of the issuer's securities involving a prospectus or oral communications. Such remedies include, but are not limited to, rescission of the sale of the Notes. Section 25504 renders Defendants joint and severally liable for controlling those Defendants that made the direct sale of the Notes.

JURISDICTION AND VENUE

7. The claims alleged herein arise under sections 12(a)(2) and 15 of the 1933 Act, 15 U.S.C. §877k, 771 (a)(2) and 770. Junrisdiction is conferred by section 22 of the 1933 Act and venue is proper pursuant to section 22 of the 1933 Act. This action is not removable under section 22 of the 1933 Act, which explicitly states that "[e]xcept as provided in section 16(c), no case arising underthis title and brought in any State court of competent jurisdiction shall be removed to any court inthe United States." See Cyan Inc. v. Beaver Cty. Enps. Ret. Fund, 138 S. Ct. 1061, 1065 (2018). This Court has original subject matter jurisdiction under the California Constitution, Article VI, section 10 and section 22 of the 1933 Act, 15 U.S.C. §7'/v.

8. This Court has personal jurisdiction under Califormia Code of Civil Procedure section 410.10 because certain Defendants arelocated in this District, including Tesla, and Defendants and theiragents affinmatively solicited the subject Notes and Offering Circularto investors in Califormia and those contacts with California have a substantial connection to the claims alleged herein.

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

10. This Court is the proper venue under California Code of Civil Procedure section 395(a).

THE PARTIES

11. Plaintiff purchased the Notes pursuant to the Offering Circular directly from underwnting defendant Goldman Sachs.

12. Defendant Teslais a Delaware corporation with principal executive offices]located at 3500 Deer Creek Road, Palo Alto, California. Tesla designs, devel ops, manufactures and sells fully electric vehicles and energy storage products and has established its own global network of vehicle sales and service centers and supercharger stations®. The Company currently produces and sells three fully electric vehicles: the Model S, Model X, and the Model 3.

13. Defendant Musk is Tesla's CEO and was since October 2008, and Chainman of the Board and was since April 2004. Musk is also Tesla's largest stockholder, owning approximately 22% of its stock. Tesla claims on its website that Musk is a co-founder of the Company. It also states that Musk oversees "all product design, engineering and manufacturing of the company's electric vehicles, battery products, and Solar Roofs."

14. Defendant Goldman Sachslimited liability company with principal executive offices located at 200 West Street, New Y ork, New York. Goldman Sachs served as

* 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. underwnter to Tesla in connection with the Offering. Goldman Sachs sold Notes directly to plaintiff.

15. Defendant Morgan Stanley is a Delaware limited liability company with principal executive offices located at 1585 Broadway, New Y ork, New Y ork. Morgan Stanley served as an underwriter to Tesla in connection with the Offering.

16. Defendant Barclays is a Connecticut corporation with principal executive offices located at 745 7th Avenue, New Y ork, New Y ork. Barclays served as an underwriter to Tesla in connection with the Offering.

17. Detendant Memill Lynch is a Delaware corporation with principal executive offices located at One Bryant Park, New Y ork, New Y ork. Mermill Lynch served as an underwriterto Tesla in connection with the Offening.

18. Defendant Citigroupcorporation with principal executive offices located at 388 Greenwich Street, New Y ork, New Y ork. Citigroup served as an underwriterto Tesla in connection with the Offening.

19. Defendant Deutsche Bankis a Delaware corporation with principal executive offices located at 60 Wall Street, New Y ork, New Y ork. Deutsche Bank served as an underwriterto Tesla in connection with the Offening.

20. Detendant RBC Capital is a Minnesota limited liability company with principal executive offices located at 200 Vesey Street, 5 Floor, NewY ork, NewY ork. RBC Capital served as an underwriter to Tesla in connection with the Offering. the damages and injuries claimed herein and are responsible in some manner for the acts, occurrences, and events alleged in this Complaint.

CLASSACTIONALLEGATIONS

22. Plaintiff brings this action as a class action pursuant to section 382 of the California Code of Civil Procedure on behalf of a class consisting of all persons or entities who purchased the Notes, pursuant to the Offering Circular issued in connection with the Offering (the "Class"). Excluded from the Class are defendants and theirfamilies, the officers, directors, and affiliates of the defendants, at all relevant times, members of theirimmediate families and theirlegal representatives, heirs, successors, or assigns and any entity in which defendants have or had a controlling interest.

23. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to plaintiff at this time and can only be ascertained through appropriate discovery, plaintiff believes that there are thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by the Company orits transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarnily used in securities class actions.

24. Plaintiff's claims are typical of the claims of the members of the Class, as all members of the Class are similarly affected by defendants' wrongful conduct in violation of federal securities law that is complained of herein.

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

20. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact comimon to the Class are: (c0 whetherstatements made by the defendants in the Offering Circular contained materially false and misleading statements, or misrepresented or omitted material facts about the Company's business operations; and

(d) the propermeasure of damages.

27. A dlass action is superior to all other available methods for the fair and efficient adjudication of this controversy, since joinderof all membersisimpracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible formembers of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.

THE FALSE AND MISLEADING OFFERING CIRCULAR

28. Teslais attempting to be the first successtul new U.S. based car company in overa century. Itis doing this by selling only completely electric cars. Tesla's first 3 vehicles (the Tesla Roadster, the Model S, and the Model X) were all geared to the high-end vehicle market. The Company, however, could not profitably produce these vehicles. Rather, the Company's success depends onits ability to produce its mass market vehicle, the Model 3. Underscoringits importance, in 2017, the Company spent $4 billion on attempting to mass produce the Model 3.

29. The Company is taking an aggressive approach by mass producing the Model 3 and the electric batteries used to power it all inthouse. Tesla is making the Model 3 vehicles at its Freemont, California factory. Its batteries are being made at the Company's Gigafactory 1 located outside of Reno, Nevada. While this gives Tesla more control, it also means that any problems or delays in either factory can slow or stall the entire Model 3 production. 31. The Offering Circular talked at length about the Model 3 and the Gigafactory 1. In particular, in its description of the Company, the Offering Circular stated, "We are ramping to volume production and delivenries of Model 3, and are planning to produce 5,000 Model 3 vehicles per week by the end of 2017, and 10,000 Model 3 vehicles per week at some point in 2018."

32. Regarding Gigafactory 1, the Offering Circularstated, "Gigafactory 1 is designed to supply enough batteries to support the annual production of over 500,000 vehicles at our Fremont Factory as well as our energy storage product line."

33. Discussing the interplay between the Model 3 and Gigatactory 1, the Offering Circular stated, "[the] Model 3 was designed for volume manufacturing, with a streamlined design and reduced complexity. Gigafactory 1, where we are producing lithiunm-ion battery cells and drive units forModel 3, has been designed to support our projected volume ramp of Model 3 production.”

3. As stated above, mass producing the Model 3 was fundamental to the Company's ability to tum a profit. Conceming ramping up production of the Model 3, the Offering Circular Stated:

Clear path to scale. Building upon the experience, infrastructure and brand recognition we have already established with Model S and Model X, we started produdion and conyleted our first cusiomer deliveries of Mode 3 in July 2017. Model 3's sireamlined design and mamufaduring process enables increased aulormution and a Significant redudion in nuaterials cosis comparedio the Model S 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 body variations in Model S. Our newbody shop enables us to reduce Model 3 total labor content significantly through the use of over 1,000 robols in a highly dense layout. We believe these process and design inyxrovermenis will allow us 1o ranmp Model 3 produdion significanily faster than our priorvehides to fulfill the larger addressable market forthis vehide. As capacity utilization improves, Model 3 gross maryin is expected to improve rapidly in 2018 to our target of 25%. Tesla's Model 3 production facility could not even build enough of the vehicles to carry out necessary testing. Meanwhile, the Gigafactory 1 needed to have the Company disassemble a production line that was in Germany, ship it to the United States, and reassembleitin Nevada before it could produce the necessary amount of batteries.

306. TheOffering Circulardescribed certain "risks" related to Tesla, including that there could be delays in the Company's production timeline, as a result of, among other items, delays in the Company's ability to add production lines and capacity. In particular, the Offering Circular stated:

We have experienced in the past, and may experiencein the future, significant delays or other complications in the design, manufacture, laumch and production ramp of new vehicles and other products such as our energy storage products and the Solar Roof, which could hamm our brand, business, prospects, financial condition and operating results.

k Xk Xk

We have experienced in the past laumch, manufacturing and production ramp delays 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 motordrivetrain on Model S and the second version of autopilot hardware. For example, at times 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 vehicles from ourinitial expectations. If unexpected issues arise orrecurwith respect to any of our production vehicles, we may experience further delays. In addition, because ourvehicle models share certain production facilities with othermodels, the volume or efficiency of production with respect to one model may impact the production of other models.

k Xk Xk

Wemay also experience similar delays or other complications in bringing to market and ramping production of new vehicles, such as ramping Model 3 on production manufacturing lines, and other products such as our energy storage products and the Solar Roof. Any significant additional delay orother complication in the production of our current products or the development, manufacture, launch and production ramp of our future products, including complications associated with expanding our production capacity, supply chain orregulatory approvals, could materially damage our brand, business, prospects, financial condition and operating results.

k Xk Xk 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 harmm our business, prospects, financial condition and operating results.

k ok k

Our future business depends in large part on our ahility to execute on our plans to 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 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 announced our goal to increase Model 3 vehicle production to 5,000 vehicles per week by the end of 2017 and 10,000 vehicles per week at some point in 2018.

k Xk Xk

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

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

» that we will be ahle to complete implementing and ramping a new dedicated final assembly line for high volume production of Model 3 at the Tesla Factory without exceeding our projected costs and on our projected timeline;

» that we will be able to continue to expand Gigafactory 1 in a timely manner to 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 Model 3 at our target gross margins;

» 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 specified design tolerances and with high quality;

» that we will be able to maintain suppliers for the necessary components on terms and conditions that are acceptable to us and that we will be able to obtain conponents on a timely basis and in the necessary quantities to support high volume production; and

» that we will be able to atiract, recruit, hire, train and retain skilled employeses, including employees on the production line, to operate our planned high volume production facilities to support Model 3, including at the Tesla Factory and Gigafactory 1. If one or more of the foregoing assumptions tums out to be incorrect, our ahility to meet our Model 3 projections on time and at volumes and prices that are profitable, the number of cunrent and future Model 3 reservations, as well as our business, prospects, operating results and financial condition, may be materially and adversely impacted.

Xk 3k Xk

We may be unable to meet our growing vehicle production and delivery plans, both of which could harm our business and prospects.

Our plans call for significant increases in vehicle production and deliveries to high 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 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 have usedfuture a number of new manufacturing technologies, techniques and processes for ourvehicles, which we must successtully introduce and scale for high volume production. For example, we have introduced aluminum spot welding systems and high-speed blow forming of certain difficult to stamp vehicle parts. We have also introduced unique design features in ourvehicles with different manufacturing challenges, such as large display screens, dual motor drivetrain, autopilot hardware and fal con-wing doors. We have limited experience devel oping, manufacturing, selling and servicing, and allocating our availabl e resources among, multiple products simultaneously. If we are unable to realize our plans, our brand, business, prospects, financial condition and operating results could be materially damaged.

Concurrent with the significant planned increase in ourvehicle productionlevels, we will also need to continue to significantly increase deliveries of our vehicles. Although we have a plan for delivering a significantly increased volumes of vehides, we have limited experience in delivering a high volume of vehicles, and no experience in delivering vehicles at the significantly higher volumes we anticipate forModel 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 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.

k Xk Xk

Future problems or delays in expanding Gigatactory 1 or ramping operations there could negatively affect the production and profitability of our products, such as Model 3. since begun producing lithiuntion cells for Model 3, we have no other direct experience in the production of lithiumrion cells. Given the size and complexity of this undertaking, itis possihl e that future events could result in the cost of expanding and operating Gigafactory 1 exceeding our current expectations and Gigafactory 1 taking longer to ramp production and expand than we currently anticipate. In orderto reach our planned volume and gross margin for Model 3, we must have significant cell production from Gigafactory 1, which, among otherthings, requires Panasonic to successfully rampits all-new cell production lines to significant volumes overashort period of time. Although Panasonic has along track record of producing high-quality cells at significant volume at its factories in Japan, it has never before started and ranped cell production at a factory in the U.S. like at Gigafactory 1.early stages of production and have experienced the types of challenges that 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- 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 expand Gigafactory 1 production in a timely manner and at reasonable prices, and if we or Panasonic are unable to attract, hire and retain a substantial number of highly skilled personnel, our ahility to supply battery packs to our vehicles, especially 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, prospects, financial condition and operating results.

k ok k

If we fall to scale our business operations and otherwise manage future growth effectively as we rapidly grow our company, especially intemationally, we may not be able to produce, market, sell and service our products successfully. 37. The truth was, however, that these rnisks had already come to fruition, as the Company's production goal of 5,000 vehicles perweek by the end of 2017 was impossible to mest, and the Gigafactory 1 had no ahility to meet the growing need forits batteries. The Defendants were required to disclose this material information. First, SEC Regulation S-K, 17 C.F.R. §229.303 ("Item 303"), requires disclosure of any known events or uncertainties that, at the time of the Offering, had caused, orwere reasonahly likely to cause, a materially negative impacton Tesla. The severe yet undisclosed production problems of the Model 3, as well as the consequential negative impact on the Company's revenues, net profits, and customer retention, were likely to (and in fact did) materially and adversely affect Tesla.

38. Second, SEC Regulation S-K, 17 C.E.R. §229.503 ("Item 503"), required in the "Risk Factor" section of the Offering Circular, a discussion of the most significant factors that made the offering risky or speculative and that each risk factor adequately described the risk. Defendants' failure to disclose the already occurnring production delays, as well as the likely material effects it would have on the Company's share price and value of the Notes, rendered the Offering Circular's many references to known risk that "if" occurring "might" or*'could" adversely affect the Conmpany as false and misleading. (Emphasis added). These so-called "risks" were already materializing before the Offering.

39. Third, omitting the delays that were already occurring, and the impossibility to actually meet the claimed production expectations, made the Company's statements about these risks potentially materializing misleading.

40. TheOffering was successful as the Defendants placed $1.8 billion worth of the Notes.

41. On October 6, 2017 The Wall Street Journal published an article titled, "Behind Tesla's Production Delays: Parts of Model 3 were Being made by Hand," detailing the reasons behind the Model 3 production delays.® In particular, the article noted: FREMONT, Calif.— Tesla Inc. blamed "production bottlenecks" for having made only afraction of the promised 1,500 Model 3s, the $35,000 sedan designed to propel the luxury electric-car maker into the mainstream.

Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early Seplermber major portions of the Model 3 were Slill being banged oul by hand, anay from the autormated produdion line, according to people familiar with the matter.

While the acar' s produdtion began in early) J uly), the advanced assermbly line Tedla has boasted of building slill wasi't fully ready as of a fewweeks ago, the people said. Teda's fadory workers had been piecing together parts of the aars in a spedal area whil e the company feverishly worked to finish the machinery designed to produce Model 3's at a rate of thousands a week, the people said.

Automotive experts say it is unusual to be building large parts of a car by hand during production. "That's not how mass production vehicles are made," said Dennis Virag, amanufacturing consultant who has worked in the automotive industry for40 years. "That's horse-and-camage type manufacturing. That's not today's automotive world."

k ok k

Behind the scenes, Tesla had fallen weeks behind in finishing the manufacturing systems to build the vehicle, the people said.

The exient of the problemaanre to light on Monday when Tedla said it nmde only 260 Moded 3s during the third quarter— averaging three acars a day. The company dted produdion bottlenedks but didn't explain nuch further.

"Although the vast mgjority of manufacturing subsystems at...our California car plant...are able to operate at high rate, a handful have taken longer to activate than expected," the company said at the time.

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

Tedla's rollout of the Model X sport-utility vehicle in 2015 also was plagued by quality and designissues that left suppliers scrambling and hourly workers having to rush to meet lofty goals. But the plans for the Model 3 are far larger, meaning the lack of afully working assembling line so late in production could deal abiggerblow Mr. Musk has said Tesla leamed from the Model X mistakes. And he has proven doubters wrong before, creating a luxury brand that competes against BMW and Mercedes-Benz for buyers and has demonstrated that fully electric cars can find an enthusiastic following beyond a niche of environmentalists.

Calling his cars a "computer on wheels," Mr. Musk caught conservative Detroit off guard with Tesla's ahility to quickly change features, such as a semiautonomous 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 Motors Company, Inc.

But building 500,000 vehicles a year—as Mr. Musk had projected Tesla would start 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 U.S. auto maker by sales, delivered about 10 million vehicles globally last year; or more than 27,000 a day.

k ok ok

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

Inside the Fremmont fadory, workers said equipment for the so-aalled body-in-white line for the Model 3, where the aar body/ s sheel metal is welded together, wasn't inslalled uniil by around Seplermber. They guessed at least another month of work renmined 1o aalibrate the tools.

One worker who spent time in the Model 3 shop—dubbed by some as Area 51 bexause of the limited access and secretive nalure—desaribed watching young workers in Seplember siruqgling to move large pieces of sted o weld together instead of using robols as is traditionally the case.

" In place of the robols. .. you've got imo assodates lining up with a big, old spot welder hanging fromthe ceiling by a chain, and you' ve got one assodate kind of like balancing it and tnying to get the welder in position, and you've gol another welderwith his aamguidingit," this worker reaalled seeing. "' Sparks go flying."

In August, Mr. Musk told analysts that the Model 3s coming out of the factory were "not engineering validation units."

"They're tully certified, fully DOT-approved, EPA-approved production cars," Mr. Musk said, referring to the Department of Transportation and the Environmental Protection Agency. "These are not prototypes in any way. They're not validation anything. They are full production cars." 42. OnFebruary 9, 2018, Teslafiledan 8-K "darify]ing]" earliercomments by defendant Musk conceming the Gigafactory 1. The Company's clarification revealed that even if Gigafactory 1 was fully running, it could still not produce the needed 5,000 batteries a week because needed equipment was still in Gemrmany and that this equipment needed to be disassembled, shipped to the Gigafactory, and then reassembled. In particular, the 8-K stated:

Teslg, Inc. is clarifying the following statement made by Elon Musk, Tesla's Chief Executive Officer, duning Tesla's fourth quarter and full year 2017 financial results conference call held on February 7, 2018:

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

The "2,000 to 2,500" units per week cited in this comment refers solely to the capacity of the additional automated battery module manufactuning equipment thatis currently located in Germary, 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 Gigafactory 1. Tesla's ability to meetits target of 2,500 perweek by end of Q1 2018 is not dependent on the additional equipment that is currently 1ocated in Genmany, as that equipment is expected to start ramping production during Q2 2018. With respect to battery module production, Tesla's ahility 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 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 call.

As stated in Tesla's Fourth Quarter and Full Y ear 2017 Update Letter: 43. Inreality, Tesla knewthat: (i) it could not produce 5,000 Model 3s perweek; (ii) the process for building the Model 3 was still not automated; and (iii) the Gigatactory 1 was not closeto being ready to mass produce enough batteries to meet the Company's needs.

44. On October 26, 2018, the Wall Street Journal reported that the Federal Bureau of Investigation is examining whether Teesla misstated information about the production of its Model 3 and mislead investors about the Company's business going back to eardy 2017.

45. Asthe market leamed about these issues the value of the Notes plummeted.

FIRST CAUSE OF ACTION

A gainst All Defendants for Violation of Section 12(a)(2) of the 1933 Act

46. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.

47. This Cause of Action is brought pursuant to section 12(a)(2) of the 1933 Act, 15 U.S.C. §771(a)(2), on behalf of the Class, against all defendants.

48. This Cause of Action does not sound in fraud. Plaintiff does not allege that the defendants had scienter or fraudulent intent, which are not elements of a section 12(a)(2) claim.

49. Bymeans of the defective Offering Circular, defendants promoted and sold the Notes to plaintiff and other members of the Class for the benefit of themselves and their associates.

50. The Offering Circular contained untrue statements of matenal fact and concealed and failed to disclose matenal facts, as detailed above. Defendants owed plaintiff and other members of the Class who purchased oracquired the Notes pursuant to the Offering Circular, the duty to make a reasonable and diligent investigation of the statements contained in the Offering Circularto ensure that such statements were true and that there was no omission to state a material fact required to be stated in orderto make the statements contained therein not misleading. Defendants, in the exercise of reasonabl e care, should have known of the misstatements and omissions contained in the Offering Circular as set forth above. 52. Byreason of the conduct alleged herein, defendants violated section 12(a)(2) of the 1933 Act. Asadirectand proximate result of suchviolations, plaintiff and the othermembers of the Class who purchased or acquired the Notes pursuant to the Offering Circular sustained substantial damages. Accordingly, plaintiff and the other members of the Class who hold the Notes issued pursuant to the Offering Circular have the ight to rescind and recover the consideration paid forthe Notes.

SECOND CAUSE OF ACTION

A gainst All Defendants for Violation of Section 15 of the 1933 Act

53. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.

54. ThisCause of Actionis brought pursuant to section 15 of the 1933 Act against Tesla and Musk.

55. Musk is a controlling person of Tesla by virtue of his positions as CEQO, director, then-Chairman, and senior officer of the Company. Musk is the Company's largest stockholder and the indisputable face of Tesla. The Company's website claims that Musk is a co-founder of Tesla and oversees all product design, engineering, and manufacturing of Tesla's electric vehicles and battenies. Musk had a series of direct or indirect business or personal relationships with other directors, officers, or major stockholders of Tesla. The Company controlled the Musk and all of Tesla's employees.

THIRD CAUSE OF ACTION

A gainst All Defendants for Violation of Cal. Corp. Code §§25401. Et Seq

58. Plaintiff incorporates by reference and realleges each and every allegation contained above, as though fully set forth herein.

59. This Cause of Action does not sound in fraud. Plaintiff does not allege that the defendants had scienter or fraudulent intent, which are not elements of a §25401 claim.

60. Under California Corporation Code §25501, anyone that violates §25401 shall be liable to the purchaser.

6l. Under California Corporations Code §25504, every person who: (i) directly or indirectly controls a person liable under§2550; (ii) every principal executive officer ordirectorof a corporation so liable; and (iil) every person occupying a similar status or perfonming similar functions, and every employee of a person so liable who materially aids in the act or transaction constituting the violation are also liahle to the purchaser.

62. Detendants offered and sold the Notes to plaintiff and the Class. In offening and selling the Notes, defendants made written untrue statements of material fact and omitted to state matenal facts to plaintiff that was necessary in order to make the statement made in light of the circumstances under which they were made, not misleading, as set forth above.

63. These misstatements and omissions were "material facts" because there was a substantial likelihood that, under all the circumstances, a reasonable investor would consider it important in reaching an investment decision.

64. Plaintiff purchased the Notes from the Underwriting Defendants in connection with the Offering Circular that contained the untrue matenial facts as alleged herein.

65. Some orall the defendants' untrue statements of material fact took place within the state of California.

060. Teslaand Musk control the Underwriter Defendants.

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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 of the 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. }-OPDO ‘

BRIAN J ROBBINS

600 B Street, Suite 1900

San Diego, CA 92101

Telephone: (619) 525-3990

Facsimile : (619) 525-3991