Tesla CEO Elon Musk Sets The Record Straight About Pending Lawsuit

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We reported a few weeks ago that Tesla co-founder Martin Eberhard filed a lawsuit against Tesla and Tesla CEO Elon Musk, citing allegations of slander, libel and breach of contract. Tesla issued a short statement when the lawsuit was filed, calling the lawsuit a “fictionalized account of Tesla’s early years.” Now Musk has taken to Tesla’s blog to give his own version of the messy situation. Unrelated to the lawsuit, Musk says that Tesla will be profitable by next month, thanks to lower material costs, and increased Roadster Sport sales.

Musk responds to several of Eberhard’s allegations that he lied about his background and fictionalized pieces of his resume to embellish the truth:

The facts are that when I requested through AC Propulsion to meet Eberhard, he had no technology of his own, he did not have a prototype car and he owned no intellectual property relating to electric cars. All he had was a business plan to commercialize the AC Propulsion Tzero electric sports car concept. Three years later, when Eberhard was asked to leave Tesla, most of the work that he had been paid to do had to be redone.

Particularly, Musk addresses Eberhard’s complaints that the PayPal founder misrepresented his education. Musk maintains that he did his undergraduate studies in physics and business at UPenn/Wharton (we confirmed this with Wharton—Musk was an undergraduate alum and holds degrees from both Wharton and the College of Arts & Sciences) and despite dropping out of grad school at Stanford, maintained affiliations with the university by working with the Stanford Engineering Advisory Council.

Musk also addresses Eberhard’s claims that he had no hand in the making of the Roadster and that Musk’s management was detrimental to the business. Musk writes that while Eberhard was leading the operational teams, Musk himself focused on the body design, technical specifications and building the Tesla brand. Musk also says he spent significant time “on the details of the product and particularly the body styling — you will see elements of two of my favorite cars (Porsche and McLaren F1) in the Roadster body — but left most day to day management of the company up to Eberhard.”

The tale from Musk is quite different than Eberhard’s allegations that Musk and Tesla pushed him out of the company for no reason. According to Musk’s post, Eberhard grossly miscalculated costs of production of the Roadsters and purposely withheld this information from Musk and investors:

The real reason that Roadster development cost so much more than can be accounted for by typical entrepreneurial hubris is that we essentially had to spend the development money twice. After Eberhard was asked to step down from the CEO role two years ago, almost every major system on the car, including the body, HVAC, motor, power electronics, transmission and battery pack, had to be redesigned, retooled or switched to a new supplier.

The post is a fascinating read in its own right, diving deep into some of the early missteps at Tesla and how they were overcome. For instance, the company’s decision to move production of the battery packs from Asia to the United States was counter-intuitive, but crucial to its survival. Writes Musk:

Avoiding the cost of shipping a half ton pack from Asia also meant significant savings on shipping costs. This is a much bigger deal for a heavy and bulky product than a small consumer electronics device, where outsourcing to Asia makes a lot more sense. Very importantly, our supply chain went from a tectonically slow six months and having to pay for tens of millions of dollars of inventory in transit to a matter of a few weeks.

Musk also includes some emails to back up his counter-claims against Eberhard but says that while the post is meant to clear up several misconceptions, there is more to come in a formal response to the lawsuit which will be filed soon. I’ve included a couple of the juicier snippets from the emails below but you can see more of the emails in Musk’s blog post.

As we wrote in our earlier report, a lot of Eberhard’s claims seem like sour grapes. It’s unclear how much he’s seeking in damages.

FYI-Michael Marks was the interim CEO of Tesla who was brought in to the company in 2007. Darryl Siry, was the head of Sales, Marketing & Service at Tesla during this time period

From: Michael Marks
Sent: Thursday, November 15, 2007 10:38 PM
To: Elon Musk
Subject: boardI’ve thought about it, and completely agree with the idea that Martin
shouldn’t stay on the board, just fyiEmail presaging the host of issues that had to be fixed:
—–Original Message—–
From: Elon Musk
Sent: Thursday, August 09, 2007 08:56 AM Pacific Standard Time
To: Jim Marver; Ira Ehrenpreis; Antonio J. Gracias; kimbal
Subject: Fw: meeting

This is not good. Sounds like there are more issues that the board was not informed about. I will send out a note as soon as I talk with Marks and will ask him to email an assessment to the board as soon as he can.

Martin seems to be focused on his public image and position within Tesla, rather than solving these critical problems. If you should speak with Martin, please urge him to spend all his energy on making sure that the Roadster works and arrives on time. He doesn’t seem to understand that the best way to maximize his reputation and position within the company is to help get this right.

From: Darryl Siry
Sent: Thursday, May 08, 2008 6:28 PM
To: Elon Musk; Ze’ev Drori
Subject: Martin EberhardElon & Ze’ev

Some recent developments in the past few days have given me cause for serious concern regarding the amplification of Martin’s public statements about the company. I have come to the conclusion that Martin and his wife are hell bent on damaging the company by doing everything that they can to cast the company in a negative light and accuse the company of deceptive and unethical practices.

My counsel to you in the past has always leaned to the side of appeasement, thinking that by doing what we can to defuse the situation would minimize the negative publicity potential. Recent events have led me to a conclusion that Martin and his wife will continue to take every opportunity to damage the company through their statements in the press and on public internet forums. The fact that we are on the verge of delivering his car and he is increasing his attacks causes me to wonder whether we will ever be free from these unceasing attacks on the company.

In conclusion – I believe the board should take under serious consideration the severing of all ties with Martin Eberhard including the refunding of his reservation payment and cancelling of his order. If this course of action were to be pursued by the board, I would recommend that the company issue a public statement announcing our intention and outlining the rationale that led us to this conclusion. While this action may be considered severe and would no doubt create a stir, I feel this route may be better than subjecting the company to an unceasing negative publicity campaign that is fueled by his continued ties to the company as an early customer. Carolyn Eberhard’s comments in an email to me implying that they would seek to derail our attempts at going public is especially concerning.

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