Nature of the Case
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Facts
Ds made a number of statements to investors between May 3, 2017, and November 1, 2017, during the ramp-up to mass production of its Model 3. During this 'Class Period,' Ds announced Model 3 production goals for the end of 2017 that it knew it would not be able to achieve, and it repeatedly reaffirmed that it was on track to reach those targets, even as the end-of-the-year deadline drew closer and as delays grew increasingly significant. On May 3, 2017, Ds publicly affirmed that its 2017 production goal was to manufacture 5,000 Model 3s per week. Ps stated, in a Form 8-K filed that day, that 'preparations at our production facilities are on track to support the ramp of Model 3 production to 5,000 vehicles per week at some point in 2017.' The Class Period ended on November 1, 2017, when Ds publicly admitted that it would not, in fact, be able to produce 5,000 vehicles per week by the end of 2017. Ps claim that, long before the May 3, 2017 announcement, Ds were aware that, due to a variety of logistical issues, producing 5,000 vehicles a week in 2017 was unattainable. The Fremont plant's director of manufacturing, told Musk (D) at a meeting in late April or early May 2016 that 'there was zero chance that the plant would be able to produce 5,000 Model 3s per week by the end of 2017.' A now-former employee 'told Musk (D) directly at the meeting that the start of manufacturing would be at least 6 months later than July 2017, i.e., in 2018.' At the end of the meeting, 'Musk told the employee that he should look for new employment,' and the employee resigned shortly thereafter. The vice president of manufacturing likewise told Musk (D) around the same time that Tesla would never be able to produce 5,000 Model 3s by the end of 2017, and Musk (D) responded by forcing him out of the company in May 2016. The same facts were verified by a number of other ex-employees or contractors. These same types of issues plagued the battery factory as well and were verified by a number of former employees. At a July 28, 2017 event that was streamed online, D ''handed over' the first 30 Model 3s to buyers.' During the event, Musk (D) referred to the vehicles as 'production cars,' which, according to the complaint, implied that they had been produced on an automatic production line. But 'every part of those Model 3s had actually been built by hand, and Tesla was not even close to automated production of the Model 3' at that time. The Wall Street Journal discovered the truth and by October 9, D’s stock had dropped 3.9 percent. On November 1, 2017, Ds formally confirmed in a Form 8-K filing with the SEC that it would not meet its end-of-year production goal. D's stock fell 6.8 percent. According to Ps, D was still producing only 2,266 Model 3s per week at the end of September 2018. Ps filed this putative class action on October 10, 2017. Kurt Friedman (P), a member of the putative class, thereafter moved to be appointed 'lead plaintiff' in accordance with the PSLRA, and the district court granted that unopposed motion on February 2, 2018. A First Amended Complaint was filed adding Friedman (P) and Uppili Srinivasan (P) as additional named plaintiffs. Ds moved to dismiss and Ps filed another complaint and Ds renewed the motion to dismiss for failure to state a claim, and this time the district court dismissed the action with prejudice and without leave to amend. The court held that Ps had failed to plead any material misrepresentation that was not within the PSLRA's safe harbor for 'forward-looking' statements 'accompanied by meaningful cautionary statements.' 15 U.S.C. § 78u-5(c)(1)(A)(i). Ps appealed.
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