Two days after Tesla delivered a record $312 million profit for the third quarter that far outstripped analysts’ expectations the electric-car maker that’s had more than its share of drama this year is contending with a new headache: a federal probe into whether it broke the law by misstating Model 3 production goals.
The Federal Bureau of Investigation is reviewing public statements by the Palo Alto, California-based company dating back to early 2017 to determine if it misled investors based on what it said regarding its ability to produce the Model 3, according to The Wall Street Journal, citing unnamed people familiar with the matter. The company’s better-than-expected quarterly profit was driven by that car, but it took half a year longer than CEO Elon Musk had predicted to reach a production pace of 5,000 Model 3s per week.
Tesla confirmed in an e-mailed statement that earlier this year it received “a voluntary request for documents from the Department of Justice about its public guidance for the Model 3 ramp and we were cooperative in responding to it. We have not received a subpoena, a request for testimony, or any other formal process, and there have been no additional document requests about this from the Department of Justice for months.”
Musk had said early last year that production of Model 3, currently priced from $46,000, would reach 5,000 units per week in 2017’s fourth quarter, and reiterated that target in July 2017 after production of it began in Fremont, California. In fact, the company built only about 2,700 of the cars last year. Although it has reached the 5,000 a week rate intermittently since this year’s second half, Tesla said in its results letter to shareholders that production averaged 4,300 units a week in the third quarter.
Former Tesla employees have been contacted by FBI agents seeking their testimony in a criminal case, the report said. The pace of activity in the investigation, which is led by the U.S. attorney’s office in San Francisco, intensified after Musk and Tesla settled a dispute with the Securities and Exchange Commission stemming from his tweets in August about taking Tesla private, the report said.
The SEC had sued the billionaire for comments the regulator viewed as share price manipulation. As part of a settlement concluded this month, Musk agreed to step down as Tesla’s chairman, a position he assumed long before becoming its CEO, and pay a $20 million fine to settle the matter. Tesla also must pay a further $20 million and add two independent directors to its board.
Tesla shares surged 15%, or by $42.40, to $330.90 in the days following its surprise quarterly results. The stock was down less than 1% in after-hours trading following the WSJ story.
Tesla defended its past statements, and that its “philosophy has always been to set truthful targets – not sandbagged targets that we would definitely exceed and not unrealistic targets that we could never meet.”
“When we started the Model 3 production ramp, we were transparent about how difficult it would be, openly explaining that we would only be able to go as fast as our least lucky or least successful supplier and that we were entering ‘production hell,’” the company said. “Ultimately, given difficulties that we did not foresee in this first-of-its-kind production ramp, it took us six months longer than we expected to meet our 5,000 unit per week guidance.”