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Tesla Motors Co-Founder Sues CEO For Libel

Martin Eberhard claims he was falsely accused of responsiblity for the luxury electric car maker's financial instability.

Antone Gonsalves

June 11, 2009

3 Min Read

Tesla Roadster Sport

Tesla Roadster Sport

Tesla Roadster Sport
(click for larger image)

The co-founder of luxury electric automaker Tesla Motors has sued the company and its chief executive for libel and slander, claiming he was falsely accused of being responsible for the company's financial instability.

Martin Eberhard is also accusing CEO Elon Musk and the company of breach of contract in a 146-page lawsuit filed last month in Superior Court in San Mateo County, Calif. The lawsuit, which auto blogs started reporting on late Wednesday, is seeking compensation for damages, but does not list an amount.

Eberhard claims that, after he was ousted from the company in November 2007 by then-chairman Musk, a co-founder of PayPal and a major Tesla investor, Musk "began a pattern and practice of defaming and disparaging Eberhard in various widely distributed media outlets, including National Public Radio, USA Today, Newsweek, and The New York Times."

Eberhard also claims in the suit that Musk tried to "rewrite history" by falsely claiming that Eberhard was principally responsible for production delays of the Tesla Roadster, the company's original all-electric sports car, and the company's financial instability. In addition, Musk claimed Eberhard "deceived and made misrepresentations" to the board while he was head of Tesla.

"These actions are remarkable, but they are also part of Musk's broader personal history of misrepresentation -- his educational degrees and professional affiliations being symbolic examples -- and of the extent of his involvement with other companies, such as PayPal," the lawsuit said.

In a statement sent to the media late Wednesday, a Tesla spokeswoman said the company planned to file a counterclaim against Eberhard.

"This lawsuit is an unfair personal attack and, more importantly, paints an inaccurate picture of Tesla's history," the statement said. ''This lawsuit is a fictionalized account of Tesla's early years -- it's twisted and wrong, and we welcome the opportunity to set the record straight.

"Martin was unanimously fired by the board, largely over the fact that the cost of the car was more than twice what Martin portrayed it to be at the time. Incidentally, Tesla will also be filing counterclaims and in the process present an accurate account of the company's history."

On the breach-of-contract allegations, Eberhard claimed he did not receive the second Roadster off of the production line, as he was entitled to under a written contract. Instead of receiving the so-called "Founder's Series Production," he was given a "wrecked Roadster" that had been smashed into the back of a truck by a Tesla employee during an endurance test.

The Roadster he was contracted to receive was likely to be worth "several million dollars" because of its historical value, Eberhard claimed. Tesla gave the one-of-a-kind car to a friend of Musk.

Eberhard was not the only CEO removed from Tesla. In October 2008 the company replaced Ze'ev Drori with Musk. The ouster followed financial troubles and production delays of the Roadster.

Since then, the company claims to have delivered 500 Roadsters and is scheduled to begin delivery of the higher-performing Roadster Sport in Europe beginning this summer. The cars, which get more than 200 miles on a single charge, cost $109,000 and $128,000, respectively.

In late 2011, Tesla plans to start production of a more affordable sedan called the Model S, which is expected to have a starting price of $57,400.

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