Wochos v. Tesla, Inc. et al

Filing 42

ORDER by Judge Charles R. Breyer granting 30 Motion to Dismiss with Leave to Amend. (crblc2, COURT STAFF) (Filed on 8/27/2018)

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Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 1 of 13 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 GREGORY WOCHOS, Plaintiff, 9 10 United States District Court Northern District of California 11 12 13 Case No. 17-cv-05828-CRB ORDER DISMISSING COMPLAINT WITH LEAVE TO AMEND v. TESLA, INC., et al., Defendants. In this non-Twitter-related securities action against Tesla, Inc., a purported class of 14 shareholders (“Plaintiffs”) alleges that the carmaker misled the public regarding the 15 progress of production on the “Model 3,” Tesla’s attempted first foray into producing a 16 mass-market vehicle. However, while Plaintiffs claim that Tesla and its officers 17 (collectively “Defendants”) fell short of their production goals, a firm’s failure to meet 18 projections is only actionable if the firm did not accompany those projections with 19 meaningful qualifications. Because Plaintiffs fail to allege that Defendants made any 20 projections that were not so qualified, their claims fail. Federal securities laws do not 21 punish companies for failing to achieve their targets. The Court accordingly grants 22 Defendants’ motion to dismiss the First Amended Complaint (“FAC”) with leave to 23 amend, and takes judicial notice of certain statements Tesla made to the market that are not 24 included in the FAC for the limited purpose of determining what Tesla’s public 25 representations in fact were. 26 27 28 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 2 of 13 1 I. BACKGROUND1 Tesla manufactures luxury electric vehicles. FAC (dkt. 24) ¶ 43. In 2016, the 2 company announced plans to produce an affordable, mass-market electric vehicle called 3 the “Model 3.” Id. ¶ 72. Given that previous models had suffered from stagnant demand 4 and production difficulties, Tesla planned to price the Model 3 at $35,000 and designed the 5 car for ease of manufacturing. Id. ¶¶ 6, 48, 73, 76. The Model 3 was well-received by 6 consumers, attracting deposits from over 500,000 potential customers after its launch in 7 2017. Id. ¶ 3. 8 To achieve mass production of the Model 3, Tesla planned to develop a fully 9 automated production line at its Fremont, California, facility to assemble the car body, as 10 well as a fully-automated line at its Reno, Nevada, factory to build the battery. Id. ¶ 12. 11 United States District Court Northern District of California Given that no other automobile company had ever attempted to mass-manufacture an all12 electric vehicle, Tesla’s plan to ramp up production put it in unchartered territory. Id. ¶ 88. 13 Nevertheless, Tesla consistently stated that it planned to ramp up production to a rate of 14 5,000 finished vehicles per week by the end of 2017. Id. ¶ 13. 15 However, production did not proceed as expected. On October 2, 2017, the 16 company issued a press release stating that Tesla had failed to meet its Model 3 production 17 goals for the third quarter of 2017 because of “production bottlenecks.” Id. ¶ 242. Four 18 days later, the Wall Street Journal published an article entitled, “Behind Tesla’s Production 19 Delays: Parts of Model 3 Were Being Made by Hand,” reporting that the few Model 3s 20 that were being built at the Fremont facility were being constructed by hand rather than on 21 an automated production line. Id. ¶ 25. On November 2, 2017, Tesla moved its 22 production goal of 5,000 Model 3s per week to the end of the first quarter of 2018, citing 23 bottlenecks at its Reno battery factory. Id. ¶ 245. Plaintiffs contend, however, that Tesla 24 knew it would be impossible to reach this goal long before it disclosed this fact to the 25 market, and that it defrauded investors by failing to revise its projections earlier. 26 27 28 1 This section recounts the facts as stated in the complaint. 2 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 3 of 13 1 I. LEGAL STANDARD 2 To withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a 3 complaint must contain “a short and plain statement of the claim showing that the pleader 4 is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Dismissal may be based on either “the lack of 5 a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal 6 theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). The facts 7 pleaded must make the claim “plausible on its face.” Bell Atl. Corp. v. Twombly, 550 8 U.S. 544, 570 (2007). “Threadbare recitals of the elements of a cause of action, supported 9 by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In addition, claims of securities fraud must be pled with particularity. Fed. R. Civ. 11 United States District Court Northern District of California 10 P. 9(b); 15 U.S.C. § 78u-4(b)(1). Following dismissal, a court “should liberally allow a party to amend its pleading.” 12 13 Sonoma Cty. Ass’n of Retired Emps. v. Sonoma Cty., 708 F.3d 1109, 1117 (9th Cir. 14 2013). However, it need not grant leave to amend if there is no set of facts under which 15 the plaintiff can state a valid and sufficient claim. DCD Programs, Ltd. v. Leighton, 833 16 F.2d 183, 188 (9th Cir. 1987). 17 18 II. DISCUSSION 19 A. 20 In reviewing a motion to dismiss, a district court is usually limited to the facts stated 21 in the complaint. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir. 22 2001). “A court may, however, consider certain materials—documents attached to the 23 complaint, documents incorporated by reference in the complaint, or matters 24 of judicial notice—without converting the motion to dismiss into a motion for summary 25 judgment.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Courts may take 26 judicial notice of facts that are “not subject to reasonable dispute” because they (1) are 27 “generally known within the trial court’s territorial jurisdiction,” or (2) “can be accurately 28 and readily determined from sources whose accuracy cannot reasonably be questioned.” Request for Judicial Notice 3 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 4 of 13 1 Fed. R. Evid. 201(b). 2 Defendants ask the Court to take notice of 33 documents that contain public 3 statements made by Tesla and its officers regarding Model 3 production. Plaintiffs, 4 however, object to the Court considering “any document . . . the Complaint did not 5 reference,” identifying these documents as Exhibits 1, 3–4, 6–10, 12, 25, and 32 of the 6 Bretan declaration (dkt. 34). See Pl’s’ Objection to Judicial Notice (dkt. 36) at 2, 5. 7 Exhibits 1, 3, 4, 6, 7, 9, 10, 12, 25, and 32 are documents that Tesla filed with the 8 SEC. Given that Tesla publicly filed these documents, their accuracy cannot reasonably be 9 questioned, and they are therefore appropriate subjects of judicial notice. See Fed. R. Evid. 201(b). Similarly, Exhibit 8 is an earnings call disclosed under the fair disclosure 11 United States District Court Northern District of California 10 wire, the accuracy of which is not reasonably subject to dispute. See id. Moreover, while 12 the complaint does not specifically incorporate these documents by reference, they 13 constitute the subject matter of the claim: Tesla’s public statements. The Court considers 14 them in evaluating the motion to dismiss for the sole purpose of determining what 15 representations Tesla made to the market. The Court is not taking notice of the truth of 16 any of the facts asserted. Cf. Khoja v. Orexigen Therapeutics, Inc., —F.3d—, No. 16- 17 56069, 2018 WL 3826298, at *7 (9th Cir. Aug. 13, 2018). 18 B. 19 Defendants move to dismiss Plaintiffs’ claims pursuant to §§ 10(b) and 20(a) of the Motion to Dismiss 20 Securities Exchange Act of 1934 (“Exchange Act”) and SEC Rule 10b-5. Section 10(b) 21 makes it unlawful “to use or employ in connection with the purchase or sale of any 22 security . . . any manipulative or deceptive device or contrivance in contravention of” SEC 23 rules. 15 U.S.C. § 78j(b). Meanwhile, Rule 10b-5 proscribes, in connection with the 24 purchase or sale of any security, (1) employing any device, scheme, or artifice to defraud; 25 (2) making a material misstatement or omission; or (3) engaging in any act, practice, or 26 course of business which operates or would operate a fraud or deceit upon any person. 27 17 C.F.R. § 240.10b-5. To state a claim under § 10(b) and Rule 10b-5, a plaintiff must 28 allege (1) a misrepresentation or omission of (2) material fact (3) made with intent (4) on 4 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 5 of 13 1 which the plaintiff justifiably relied (5) that proximately caused the alleged loss. Binder v. 2 Gillespie, 184 F.3d 1059, 1063 (9th Cir. 1999). Section 20(a), meanwhile, provides for 3 joint and several liability for violations of the securities laws. 4 The statements identified in the complaint fall into basically three categories: 5 (1) representations that preparations on the Model 3 were “on track” or “progressing” to 6 Tesla’s goal of producing 5,000 vehicles per week by the end of 2017; (2) positive 7 assessments of the Model 3 production process; and (3) a representation regarding the 8 then-current status of Model 3 production. 9 1. 10 United States District Court Northern District of California 11 Representations re: production goals a. Plaintiffs’ allegations Plaintiffs state that Defendants’ representations regarding the progress Tesla was 12 making toward its production goals were misleading because the carmaker had no chance 13 of actually achieving those goals. See FAC ¶¶ 209–12, 216–28, 231–41. Plaintiffs plead 14 the following facts in support of their contention that Tesla’s goals were impossible: 15 (1) An employee referred to in the FAC as “Former Employee 1” (“FE1”), a 16 director of manufacturing at Tesla’s Fremont plant who specialized in plastics and coating, 17 told Tesla CEO Elon Musk in late April or early May of 2016 that it would be impossible 18 to produce 5,000 vehicles per week by the end of 2017. Id. ¶¶ 125, 210. FE1 believed this 19 to be the case because Tesla had not released plans for body-part molds as of June 2016, 20 and molds take 9 to 12 months to make; and because Tesla had not yet begun ordering 21 manufacturing equipment to be installed at the Fremont plant as of June 2016, and it takes 22 19 to 20 months to get a manufacturing plant up and running. Id. ¶¶ 126–27; see also id. 23 ¶ 171. FE1 stated that Josh Ensign, a vice president of manufacturing, agreed with FE1’s 24 assessment, and that Musk later forced both Ensign and FE1 out of the company. 25 Id. ¶¶ 129–30. 26 (2) The automated production lines in Fremont were “not built, or close to 27 completion” when Tesla made the statements. Id. ¶ 210. FE2, a senior project engineer 28 involved in supplying parts for the production line, stated that the firms supplying parts for 5 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 6 of 13 1 the production lines told it that its timelines were “impossible” to meet. Id. ¶¶ 136, 217. 2 She stated that, when she left the company in June 2016, she and her team “had not yet 3 even finalized their plans for the production line, nor settled on all of the suppliers for the 4 equipment and/or solutions,” and that she heard through the grapevine that plans were still 5 not finalized as of July or August 2016. Id. ¶¶ 135, 142, 217. She stated that the goal of 6 completing the production lines by Tesla’s planned deadline was impossible because “it 7 would take 18–24 months to construct the system and get it up and running and ready for 8 production to begin.” Id. ¶ 139. She said that her superiors were aware of the difficulties 9 she identified. Id. ¶ 141. Similarly, FE6, who worked in processing and manufacturing, stated that during his last few months at Tesla in late 2016, “everyone at the Fremont plant, 11 United States District Court Northern District of California 10 including Musk, was aware that the Company would not be able to produce 5,000 Model 12 3s a week by the end of 2017, and that the timeline was unrealistic.” Id. ¶ 174. (3) 13 Meanwhile, according to FE9, the Reno facility was “plagued by problems 14 related to producing usable modules, and the first battery module was completed long past 15 the deadline when the Model 3 was supposed to have been launched.” Id. ¶ 190. “During 16 FE9’s tenure, which lasted almost to the end of the Class Period, the [Reno factory] 17 produced no more than two battery packs, at most, per day, sufficient for two cars.” 18 Id. ¶ 195. 19 (4) The individual defendants visited the factories, and “were personally aware 20 from eyewitness observation” that “mass production of the Model 3 was not possible in 21 2017.” Id. ¶ 210. 22 (5) Production equipment necessary to produce batteries at the Reno facility was 23 in Germany during the class period (May 3, 2017, through Nov. 1, 2017). Id. ¶¶ 207–208, 24 210. 25 26 27 28 (6) During the class period, “there were no fully automated lines to produce” car bodies or batteries sufficient to reach Tesla’s production goals. Id. ¶ 210. b. Tesla’s representations To determine whether Plaintiffs have stated a claim for securities fraud, the Court 6 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 7 of 13 1 must compare their allegations about the true state of affairs with Defendants’ public 2 representations. Tesla first announced its Model 3 production goals in a quarterly report 3 filed with the SEC on May 10, 2016, stating that it “expect[ed] to achieve volume 4 production and deliveries in late 2017.” Bretan Decl. at 23 (Ex. 3). In an earnings call 5 around the same time, Musk acknowledged that Tesla’s expectations of suppliers were 6 higher than those of other manufacturers, saying he would seek “a commitment from [the 7 supply team] that they intend to work harder than they ever have on any other program”— 8 otherwise Tesla would not work with them. Id. (Ex. 2) at 19. 9 In that quarterly report, Tesla described a host of uncertainties regarding the production process. It stated, “We have experienced in the past . . . significant delays or 11 United States District Court Northern District of California 10 other complications in the design, manufacture, launch and production ramp of new 12 vehicles and other products,” and “may experience similar delays or other complications in 13 bringing to market and ramping production of new vehicles, such as Model 3.” Id. at 26. 14 It further cautioned that it had “no experience to date in manufacturing vehicles at the high 15 volumes that we anticipate for the Model 3,” and noted that its production plan was based 16 on a number of assumptions. Id. at 27. It went on to spell out those assumptions in detail. 17 Id. It stated, “Our ability to achieve these plans will depend upon a number of factors, 18 including our ability to add production lines and capacity as planned while maintaining our 19 desired quality levels and optimize designs and production changes, and our suppliers’ 20 ability to support our needs.” Id. It noted the complexity of building the planned Reno 21 battery factory and the difficulties of dealing with single-source suppliers as particular 22 sources of risk. Id. at 28–29. Tesla reiterated these risk factors in later quarterly reports. 23 See id. at 54–57 (Ex. 6). 24 On an Oct. 26, 2017, earnings call, Musk stated that “it’s looking good for 25 production volume second half of 2017,” but cautioned that “a car consists of several 26 thousand unique items,” and that Tesla could “only go as fast as the slowest item.” Id. at 27 73 (Ex. 8). He also cautioned that the production ramp is “exponential,” and that “it’s very 28 difficult to predict exactly where the beginning part of the exponential curve . . . fits in 7 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 8 of 13 1 between quarterly reporting.” Id. He added, “I think things will look very good exiting 2 2017, but it will be complicated and bumpy and dealing with a lot of unexpected issues . . . 3 at the beginning of Model 3 production in Q3, Q4.” Id. The quarterly report that 4 followed, filed Nov. 2, 2016, repeated Tesla’s earlier statements about the possibility that 5 it would not hit its targets in Model 3 production. Id. at 81–84 (Ex. 9). 6 Musk repeatedly reiterated his statements regarding production difficulties. For 7 instance, during an earnings call on Feb, 22, 2017, he stated: “There are new issues that 8 pop up every week and we attack them and get them to solve for schedule. But then 9 another issue will pop up in the following week. It’s schedule whack-a-mole . . . some of these things only come to light late in the game.” Id. at 102 (Ex. 11). He described 11 United States District Court Northern District of California 10 dealing with suppliers as the “term paper problem,” noting that some were going to be late 12 in deliveries, but that it was impossible to predict which ones. Id. at 103–04. “The things 13 that are likely to be schedule issues are things that we actually just don't know about 14 today.” Id. at 105. On an earnings call on May 3, 2017, Musk again described the 15 difficulties of predicting an exponential production curve, stating, “predicting the rapidly 16 changing portion of the S-curve is just, I think, not within the ability of anyone to predict 17 with accuracy.” Id. at 131 (Ex. 14). 18 When Tesla unveiled the Model 3 at a launch event on July 28, 2017, Musk again 19 acknowledged production challenges, saying: “[T]he thing that’s going to be the major 20 challenge for us over the next six to nine months is how do we build a huge number of cars 21 and frankly, we’re going to be in production hell.” Id. at 150 (Ex. 16). And Musk 22 reiterated the difficulties in the supply chain: “[A]lmost anything that goes wrong 23 anywhere in the world . . . if we haven’t buffered the supply chain, will interrupt the 24 production progress. When you have 10,000 unique items in a vehicle . . . any one of them 25 can slow down the production process. So the production rate will move as fast as the 26 slowest and least luckiest component in the whole mix.” Id. at 151. 27 28 In an earnings call on Aug. 2, 2017, Musk again emphasized the difficulties of predicting production timelines with certainty: “I would certainly urge people to not get 8 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 9 of 13 too caught up in what exactly falls within the exact calendar boundaries of a quarter, one 2 quarter over the next, because when you have an exponentially growing production ramp, 3 slight changes of a few weeks here or there can appear to have dramatic changes, but that 4 is simply because of the arbitrary nature of . . . when a quarter ends.” Id. at 166 (Ex. 18). 5 Musk continued, “What we have ahead of us, of course, is an incredibly difficult 6 production ramp,” adding, “It’s just fundamentally impossible to predict the exponential 7 part of the manufacturing S-curve. It’s crazy hard.” Id. at 168. He clarified that even this 8 was an oversimplification, saying that the process involved “running through a series of 9 constraints . . . it’s like a really jagged sort of upward growth, and it’ll plateau, and then 10 it’ll grow rapidly, and it’ll plateau again. And then sometimes it’ll go backwards because 11 United States District Court Northern District of California 1 something broke. When I said manufacturing hell . . . and supply chain hell on Friday, I 12 meant it.” Id. 13 14 c. Analysis The Private Securities Litigation Reform Act of 1995 (“PSLRA”) carves out a safe 15 harbor from liability for statements that are identified as “forward-looking” and are 16 “accompanied by meaningful cautionary statements.” 15 U.S.C. § 78u-5(c)(1)(A)(i). A 17 forward-looking statement is “any statement regarding (1) financial projections, (2) plans 18 and objectives of management for future operations, (3) future economic performance, or 19 (4) the assumptions ‘underlying or related to’ any of these issues.” No. 84 Employer- 20 Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 21 (9th Cir. 2003). A projection may be said to contain an implied factual misstatement 22 where (1) the speaker does not actually believe the statement to be true, (2) there is no 23 reasonable basis to believe the statement to be true, or (3) the speaker is aware of 24 undisclosed facts tending seriously to undermine the statement’s accuracy. Provenz v. 25 Miller, 102 F.3d 1478, 1487 (9th Cir. 1996). 26 Plaintiffs claim that Tesla’s statements that it was “on track” to achieving its goal of 27 producing 5,000 Model 3 vehicles per week by the end of 2017 were representations of the 28 then-current state of affairs, rather than forward-looking projections, because they 9 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 10 of 13 1 purported to describe how far Tesla was, at that moment, from meeting its goal. But every 2 future projection depends on the current state of affairs. Were the Court to adopt 3 Plaintiffs’ conclusion, the distinction between present statements and forward-looking 4 statements would collapse. Tesla’s representations fall solidly within the category of 5 forward-looking statements regarding plans and objectives for future operations. See Joint 6 Council Pension Trust Fund, 320 F.3d at 936. 7 Accordingly, Tesla’s statements are only actionable if they are not identified as 8 being forward-looking or are unaccompanied by meaningful cautionary statements. See 15 9 U.S.C. § 78u-5(c)(1)(B); Provenz, 102 F.3d at 1493. Plaintiffs are correct that Defendants’ qualifications would not have been meaningful if Defendants had known that it was 11 United States District Court Northern District of California 10 impossible for Tesla to meet its stated production goals, not merely highly unlikely. See 12 FAC ¶¶ 219, 234; see also FAC ¶ 221. However, the facts Plaintiffs have put forth do not 13 tend to establish that this was the case. 14 (1) That FE1 believed the production timeline to be impossible because Tesla 15 had not release plans for body-mold parts as of June 2016 does not contradict Tesla’s 16 public statements: Tesla disclosed that this was the case. Bretan Decl. at 18. Market 17 analysts appear to have had the same information on this point that FE1 did, and could 18 have evaluated for themselves whether Tesla’s planned timeline was possible. See 19 Provenz, 102 F.3d at 1487. That FE1 believed Tesla did not have enough time to get the 20 Fremont plant up and running also is consistent with Tesla’s public statements: the 21 company repeatedly represented that it had set an aggressive production schedule, and that 22 there it was not certain it would be able to meet the deadlines it had set. 23 (2) That suppliers may have believed Tesla’s timelines were impossible to meet 24 similarly does not contradict Tesla’s public statements. Defendants repeatedly stated that 25 Tesla was demanding of suppliers, and that its expectations of them might differ from 26 suppliers’ own estimates. Bretan Decl. at 19. And Tesla implied at the time that it was 27 still in the process of choosing suppliers when FE2 said this was the case. Id. (“We’ll be 28 asking for firm commitments from suppliers to meet that timeframe.”). That Tesla 10 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 11 of 13 1 employees and suppliers may have disagreed with Tesla’s own estimates of what was a 2 realistic timeline does not make Tesla’s estimates false, given that the market had access to 3 the same factual information as those employees and suppliers. Meanwhile, FE6’s 4 allegation that everyone at Tesla, including Musk, knew by the end of 2016 that the goal of 5 achieving a run rate of 5,000 Model 3s per week by the end of 2017 was impossible is a 6 conclusory allegation, not a fact, and cannot be taken as true. See Iqbal, 556 U.S. at 678. (3) 7 The allegation that the Reno facility was running behind schedule fails to negate any of Tesla’s public statements because Plaintiffs have not put forth detailed facts 9 regarding Tesla’s production schedule, aside from its overall goal. While Plaintiffs claim 10 that Musk at the July 28 unveiling event “led investors to believe that Tesla’s automated 11 United States District Court Northern District of California 8 production line had built the Model 3s it had just delivered, when in fact Tesla built those 12 cars by hand,” Opp. (dkt. 37) at 8, they point to no specific statement in which Tesla made 13 this representation. (4) 14 The allegation that Defendants must have known from visiting the plants that 15 Tesla’s goals were impossible to reach fails because it is not a factual statement, but rather 16 a conclusion based on the assumption that the goal was in fact impossible to reach. See id. (5) 17 That production equipment necessary to produce batteries at the Reno 18 facility was in Germany during the class period does not contradict Tesla’s public 19 statements because Plaintiffs do not put forth any facts tending to show that it would have 20 been impossible for Tesla to transport and reassemble the equipment in time to reach its 21 production goals. 22 (6) Similarly, that there were no fully automated lines to produce car batteries 23 during the class period does not negate Tesla’s public statements because Plaintiffs have 24 not put forth any facts tending to show that this made Tesla’s projections impossible to 25 reach. 26 27 28 2. General representations re: production process Plaintiffs also contend that two more general statements Tesla made regarding its production process constituted misrepresentations. 11 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 12 of 13 1 First, they argue that the following statement by Musk regarding the supply chain 2 for the Model 3 is misleading: “We’ve got I think a much better supply chain in place 3 where we’ve got the A team from the A suppliers. We didn’t have that for the Model X or 4 the S. And as far as we know, there are no issues [with the supply chain].” FAC ¶ 214. 5 Plaintiffs argue that this is misleading because of the facts already listed discussed 6 regarding Tesla’s representations about its production goals. 7 To the extent Plaintiffs contend that this statement was misleading because Musk 8 represented that Tesla had the best suppliers, their claim fails because Plaintiffs do not put 9 forth any facts tending to show that this was not the case. Moreover, it is an inactionable statement of opinion. See Omnicare v. Laborers Dist. Council Constr. Indus. Pension 11 United States District Court Northern District of California 10 Fund, 135 S. Ct. 1318, 1327 (2015). To the extent Plaintiffs contend that Musk’s 12 statement that as far as he knew there were “no issues” with the supply chain as of May 3, 13 2017, was misleading, their claim fails because they have put forth no facts tending to 14 show that Tesla was behind schedule, or that there were challenges other than the ones 15 Tesla disclosed. To the extent they rely on FE1 and FE2’s judgments regarding the 16 progress Tesla had made to show that Tesla was behind schedule, this fails because Tesla 17 disclosed the factual basis on which these differing judgments were based, as already 18 explained. 19 Plaintiffs also contend that Musk’s statement on an Aug. 2, 2017, earnings call that 20 the company was “making great progress on the battery front” (FAC ¶ 229) was 21 misleading because progress was in fact slow. This statement might perhaps be actionable 22 if Tesla were making no progress at all, but the statement is sufficiently general that it 23 cannot be said to contradict the facts on the ground. 24 25 3. Representation re: then-current production Finally, Plaintiffs argue that Musk misrepresented the then-current state of Model 3 26 production when he said during the Aug. 2, 2017, earnings call that Tesla was “producing 27 a few hundred vehicles a week.” FAC ¶ 231. Specifically, they contend that Musk was 28 aware that the automated production line for the Model 3 in Fremont was not yet 12 Case 3:17-cv-05828-CRB Document 42 Filed 08/27/18 Page 13 of 13

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