Tesla’s Legal Challenges

Tesla seems to be in the national spotlight daily, from the always controversial Elon Musk to the production of their unique line of cars and the negatives that come along with them. Tesla’s innovative ideas represent to a lot of people what the future of cars will be. Shortly after it was founded in 2003, Tesla has seen its wide range of lawsuits and controversies that continue to impact the company’s direction today. Although Tesla has a very unique and innovate product there are many controversial and ethical issues that seems to the company and its icon figure.

To understand why Tesla is so controversial and so massive today, we must understand the roots of the company. Tesla Motors was founded in 2003 by Martin Eberhard and Marc Tarpenning, they were soon joined by 3 investors, Elon Musk, J. B. Straubel and Ian Wright. Elon Musk was a Cofounder of the popular online payment service, PayPal. The company was formed to develop an electric sports car. They are all considered founders as a result of a September 2009 lawsuit. One of the original founders Martin Eberhard was the original CEO until August 2007 when he resigned. Tesla was struggling immensely and between 2007 and 2008 laid off about 35% of their workforce, Elon Musk was named CEO in October 2008 and was able to help the company avoid bankruptcy. In 2008, the company released its first car, the electric Roadster. The car was revolutionary amongst electric cars, being able to go 245 miles on a single charge. Tesla was able to stay afloat over the next couple years by selling equity including some to Toyota and by receiving a loan from the US Department of energy. In June 2010 Tesla announced its IPO for $17 per share, and shortly after launched their new car models: The Model X and the Model S. The Model S won many awards and outsold BMW, Mercedes and other luxury brands. These two new models raised a lot of money for Tesla and they took this money and invested into future production. In August 2016 Tesla purchased SolarCity, the largest installer of rooftop solar systems. In 2017 the company changed its name from Tesla Motors to simply Tesla. In the Summer of 2017 it was revealed that Tesla had lost $12 billion of the previous value of $65 billion. The combination of a poor earnings announcement along with competition from other car manufactures that are looking into electric cars, caused great concern for Tesla inventors. In the Summer of 2018 Elon Must tweeted that he was going to take the company private and he had already secured funding. Later that month Musk along with Tesla’s board of directors announced the company would remain publicly traded on the stock market. As a result of this Elon Musk stepped down as Chairman of Tesla.

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As previously mentioned there was a lawsuit regarding who the official founders of Tesla were. “Martin Eberhard is suing current CEO Elon Musk, accusing Musk of taking control of the company, orchestrating his ouster in 2007 and attempting to “rewrite history” to take credit for developing the pioneering electric Roadster the two men worked together to create. The suit accuses Musk of a litany of complaints including libel, slander and breach of contract in alleging that Eberhard was pushed out of the company, wrongfully denied his severance and forced to watch as Musk publicly disparaged him and “compromised Tesla Motors’ financial health.” The plan was to have the CEO at the time Martin Eberhard devote more time to the Roadster while the Board of Directors and a search committee searched for a new CEO. However, things changed, Elon Musk called Eberhard in 2007 that stated Michael Marks would be taking over as CEO despite the fact he had not been approved by the board nor the search committee. Later that week, Eberhard was told by the board he would have a new position with the same salary, he agreed to the change. In October of that year, the new CEO informed Eberhard that his position was not sustainable due to Musk wanting him terminated. Marks offered Eberhard the opportunity to resign with attached incentives. Eberhard refused and a month passed. On November 27th, Mark was ousted as CEO and replaced by Ze’ev Drori. That same day Musk told Eberhard he must leave the company. Musk had so much preferred stock options that he could convert it to common stock to give him control of three more seats on the board, this meant he would have the ability to fire Eberhard. Musk offered Eberhard the same deal that he had previously been offered. Eberhard had basically no option and accepted the deal and left the company. “The entrepreneur started a blog some time after that, and on Jan. 10, 2008, wrote a post commenting on “the large number of employees” who had been terminated from Tesla and saying he believed they had been treated unfairly. Four days later, Drori allegedly met with Eberhard and told him he’d violated the non-disparagement clause of his severance agreements by writing the post. Eberhard disagreed but deleted the post. Tesla apparently wasn’t satisfied. According to the suit, the company’s general counsel e-mailed Eberhard on Jan. 28 to say the company was terminating his severance package and dismissing him from the advisory board. The suit accuses Musk of breach of contract.” Eberhard would also add that Musk made defamatory, disparaging, negative and harmful statements about him to both outside and inside of the company. Musk had told people Eberhard was fired due to poor job performance, when in fact Eberhard had resigned. “Eberhard and Musk have reached a rather unexpected resolution–instead of agreeing to share the title of “founder”, the pair has designated five people as company founders, including Musk, Eberhard, JB Straubel, Mark Tarpenning, and Ian Wright”

A more recent issue with Tesla relates to how they treat their employees. In September 2017, the US labor board filed a complaint against Tesla. “According to the National Labor Relations Board complaint, Tesla violated workers’ rights by requiring them to sign a confidentiality agreement that could bar them from talking about their working conditions and safety issues at the company’s facility in Fremont, California. The agency also investigated charges by the workers that Tesla intimidated and harassed them and violated workers’ rights under federal labor law.” Workers who have spoken out regarding the factory work report grave working conditions. In an article from The Guardian factory workers explain, “There have been plenty of times that I had to pick between eating or using the bathroom.” The injury rate at Tesla’s factoires is abnormally high. “Incident reports revealed that ambulances have been called more than 100 times since 2014 for workers experiencing fainting spells, seizures, dizziness, abnormal breathing and chest pains. A recent report from a worker safety organization found that Tesla workers were injured at a rate 31% higher than the industry average in 2015.” Employees not only have to deal with poor physical working conditions but mental ones as well. Female Tesla engineer AJ Vandermeyden accused the company of sexual harassment. “AJ Vandermeyden paints picture of a hostile work environment that promoted less-qualified men and retaliated against her for raising concerns.” Vandermeyden went on to describe the poor gender ratio, in some meetings she would be the only women in a with forty or fifty men, that she made less than engineers who’s work she took over. The company’s leadership team was no different. Tesla had a team of 30 Vice Presidents, only two of which were females. As result of this she was taunted and catcalled by male employees. Because there were so many males, the company never addressed the issues she brought up. Tesla fired Vandermeyden after she spoke publicly about the issue, her lawyer claims it was an act of retaliation. Tesla rejected these claims and said they did a thorough investigation and fired Vandermeyden because they found her claims meritless. Vandermeyden’s lawyer “said she intended to file a formal retaliation complaint on behalf of Vandermeyden. “It is illegal in the state of California for an employer to retaliate against an employee who asserts her rights, including her rights to receive equal pay as her male colleagues.”

Within the past year Tesla’s cars have been facing many malfunctions that have lead to accidents and deaths. In March a California man was killed in an accident, his family blamed Tesla for the death and planned to file a wrongful death suit against the company. Four days after the crash the National Transportation Safety Board announced an investigation. Tesla was helpful at first, then it clashed with the agency regarding the release of information. Another accident occurred in May when a drive and his passenger were killed while driving a Model S. Later in May there were two more crashes involving. Tesla’s that were a result of the car’s autopilot feature. This brought a lot of negative publicity to the company and the auto pilot concept. Consumer Watchdog and the Center for Auto Safety sent a letter to the Federal Trade Commission, “Two Americans are dead and one is injured as a result of Tesla deceiving and misleading consumers into believing that the Autopilot feature of its vehicles is safer and more capable than it actually is, the letter reads.”

Tesla and Musk have both encountered issues with the SEC this year. Two former Tesla employees had given tips to the SEC that really got the SEC to look into Tesla.. “Martin Tripp, told Business Insider that Tesla used batteries with puncture holes in vehicles meant for consumers, among other claims, and, in his tip with the SEC claims the company overreported production of its Model 3 sedan by up to 44%, according to The Washington Post. Another former employee, Karl Hansen, alleged that Tesla did not disclose to shareholders the theft of raw materials and engaged in unauthorized surveillance and hacking of employee devices.” In August, Musk tweeted that he wanted to take Tesla private and had the funding to do so. The SEC sent subpoenas to Tesla regarding any plans they had to do this. The company announced it would stay public however Musk would face harsh repercussions from the SEC. “Under the terms of the deal, Musk has to pay a $20 million fine and step down as Tesla chairman within 45 days for a period of at least three years. Tesla must also put in place a system for monitoring Musk’s statements to the public about the company, whether on Twitter, blog posts or any other medium. Tesla will have to pay a separate $20 million fine, and appoint two independent directors to the board. One of those can be the chairman that replaces Musk, provided that person comes from outside Tesla and its affiliates.” Tesla confirmed the settlement but declined to comment, Musk did not have to admit to any wrong doing. Although the stock holders were in for quite a ride, Tesla had a relatively favorable outcome in relation to the charges brought against them.

No one will argue that what Tesla and Elon Musk have accomplished is amazing, but a lot of people will not agree with ways they did it. From their inception there was disagreement brewing and the rock trend has continued through the company’s history and is more frequent today than ever. From the way they treat their employees with unsafe working conditions, to harassment of women to some of the stunts Elon Musk has pulled Tesla is always in the national headlines. All signs point that Tesla has the ability to continue producing amazing products but will the way the company does things behind the scenes prevent Tesla from reaching its true potential, only time will tell.

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