Tesla Sued Over New Mexico Model S Factory That Never Was

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Tesla Sued Over New Mexico Model S Factory That Never Was

Nikki Gordon-Bloomfield

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2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

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Tesla Motors’ decision to purchase the former NUMMI automotive manufacturing facility in Fremont, California might have been one of its shrewdest business decisions to date.

Not only did Tesla Motors [NASAQ:TSLA] obtain a pre-built facility --complete with the essential machinery it needed to build its 2012 Model S Sedan -- at the heavily-discounted fire-sale price of $59 million, but it helped offer skilled jobs to those who had previously been made redundant when the factory closed under General Motors’ bankruptcy.

But now a developer in New Mexico, where Tesla had originally planned to build a factory, is suing the electric automaker for picking California over New Mexico.

According to Gigaom, the claimant in the case, Rio Real Estate Investment Opportunities, filed a law suit back in May against Tesla for fraud, breach of contract, negligent misrepresentation and negotiating in bad faith.

The developer claims it entered into a binding development agreement with Tesla in February 2007 to build a new factory in New Mexico that Tesla would then lease from it for $1.35 million a year for ten years, plus a 2 percent annual increase.

In early 2008, the deal became public when New Mexico Governor Bill Richardson publicly announced Tesla had chosen the Cactus State as the home of Model S manufacturing.

NUMMI plant in Fremont, California

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Less than six months later however, the then-Californian Governor Arnold Schwarzenegger leaked the news that Tesla had decided to build the Model S in California, scuppering New Mexico’s hopes of being home to Tesla.

In the official court filing with the New Mexico State Court, Rio Real Estate Investment Opportunities claims it spent money on creating environmental reports, obtaining relevant government permits, and drawing up engineering designs for the site as a consequence of signing the 2007 contract with Tesla.

When Tesla changed its mind about where to site its Model S factory, Rio Real Estate Investment Opportunities said it suffered financially.

Tesla Motors does not comment on pending litigation, as it has consistently told reporters.

At the moment, Tesla has mad no official statement concerning the case, other than to deny the allegations.

It has also sought to move the trail from New Mexico State Court to Federal Court.

The first hearing is on September 18, in Albuquerque, New Mexico.

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Comments (17)

CDspeed . Posted: 8/1/2012 5:41am PDT

I'm glad that Tesla bought the Nummi factory, they basically recycled an already existing factory and restored jobs that had been lost. A new facility may have increased their costs and Nummi would probably still be sitting there going to waste. I hope Tesla wins in court. They are still relatively small and need to make decisions based on keeping the company healthy .

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EV Enthusiast Posted: 8/1/2012 7:26am PDT

so there is one city that tesla lied to, that is fighting back ?

do something once too often !!

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Brian Henderson Posted: 8/1/2012 11:02am PDT

It's interesting to look back five years to 2007.02.19 and read NM Gov. Richardson's announced and Tesla's tentative plans:
http://webarchive.teslamotors.com/media/press_room.php?id=257

Contrast this to California's announcement on 2008.07.01: http://www.abqjournal.com/biz/0101230biz07-01-08.htm

It sounds like none of the NM incentives had been spent as of 2008.06.30: http://www.marioburgos.com/2008/12/remember-tesla.html
During 2007, and into 2008 Tesla was very focused on delivering its Roadster plus dealing with battery & assembly. Model S (WhiteStar) got little attention as Tesla focused on delivering to survive. The movie; http://www.RevengeOfTheElectricCar.com provides a bit of insight into this chapter of Tesla's timeline.

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robok2 Posted: 8/1/2012 1:52pm PDT

Like most here, I don't know enough about the legal background to really comment, but in Tesla's defense, there really was no way they could turn down the NUMMI factory once it became available. That doesn't immediately justify other legal obligations, if there were any, but it does explain part of the thinking at the time.

Even if Tesla is in the wrong here, and that's far from certain, one would hope a kinimal token payment would suffice in this case. Much ado about nothing, perhaps...?

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EV Enthusiast Posted: 8/1/2012 4:53pm PDT

musk lied to long beach and downey, and a northern california city before that.

that is his way of doing business.

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Gavin Shoebridge Posted: 8/1/2012 11:31pm PDT

Doesn't bother me, as long as I get my hands on one of those cars.

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robok2 Posted: 8/2/2012 6:15am PDT

EV Enthusiast, thank you. I've heard a little about Long Beach, but again, not enough to comment yet. I hope it's not as bad or one-sided as you state, but again, I just can't comment yet. Time to do a little weekend reading, I guess...

One would hope the business ethics would be equal to the impressive vehicles, but Tesla struggled mightily during the economic crash 3-4 years ago and perhaps options were limited in order to stay alive? Not that this would work in a potential breach of contract claim, but again, what exactly was agreed to, etc...? Hard to comment without seeing the actual agreements. How iron-clad was the agreement with N.M., for example?

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EV Enthusiast Posted: 8/2/2012 8:41am PDT

hi robok2,

i was not aware of the northern city until after the long beach downey thing. that went on for over a year.

i simply believe in a high code of ethics in business dealings.

for example, in my personal life, i do not go to store A to get information, knowing for sure that i will go somewhere else to buy.

i dont say that musk is the only business person like he is. in fact, i would not be surprised to find that the majority of big businesses operate this way.

just like politicians - say whatever they need to, in order to get the results they want.

the ends do not justify the means. and it will be a sorry site indeed, if the majority of us humans start adopting/accepting that it does.

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robok2 Posted: 8/3/2012 6:06am PDT

EV Enthusiast, thanks again for the comments. I agree with almost all of what you say, although I don't personally have a problem with getting a price from one place even though I expect to buy elsewhere. I just did it last week when buying my wife's new car.

As I mentioned, I'll have to read more on this and will. What was planned versus what was legally promsied, for example. Where there contingency clauses, etc..? If Tesla was in the wrong, how to proceed? If Tesla had good intentions and wasn't legally bound to NM yet before NUMMI became available, is this an issue? The devil is in the details, perhaps...

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Erik Roberts Posted: 8/3/2012 5:27pm PDT

You seem to have a good perspective on this issue...like me. I wish more were unbiased on this and other issues on learning about and deciding whether or not a business acted properly.

It seems to me that Telsa shopped around and talked a big game with a few areas, cities regarding where they were going to place their production facility. If they didn't sign the dotted line to contractually produce Telsa vehicles at the NM site, then F***'em.

However, if Telsa is in the wrong, legally, in this matter then I have a good idea on how Telsa can compensate the NM folks and other, if necessary, potential production cities: Give the winning plaintiffs new Telsa S models(5, 10, or 100) with 10 years free maintenance.

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Norbert N Posted: 8/5/2012 4:07pm PDT

Erik, you should make clear who you responded to. It currently looks as if you responded to me, but I know your response was there before I commented in this article's section.

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Norbert N Posted: 8/5/2012 4:04pm PDT

It seems EV Enthusiast is making his vague claims without any knowledge about "contingency clauses" or "dotted lines".

There were negotiations with two places in LA at the same time, but that in itself is nothing wrong, and it doesn't appear that EV Enthusiast knows anything I don't, except reading conspiracy theory blogs.

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Al Bunzel Posted: 8/4/2012 3:14pm PDT

Maybe the federal and various state governments should start buying Teslas (as official, gov fleet cars, police cars etc) so that the NUUMI factory reaches capacity and the NM plant will have to be utilized.

I heard when BMW almost went broke (many decades ago), the Bavarian government bought heaps of BMWs for its gov fleet to help BMW out and look at how successful BMW is today.

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Erik Roberts Posted: 8/6/2012 11:34am PDT

What makes you think the NUMI factory is at Telsa S capacity now? Telsa already has thousands of S model orders to fufill currently let alone the additional orders that will come from people in the following months, years when more people see and drive it for themselves.

It also doesn't make geographically sense to have two factories so near each other in such a big country. If Telsa ever opened another production facility it might be located in the upper eastern midwest(Ohio maybe?), the northeast(Maryland/NY?), or the South(Georgia or FL?). Those other areas are closer to where more of Telsa's other non West/Southwestern future customers reside. And each area has a good workforce ready to build Telsas.

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John Voelcker Posted: 8/6/2012 11:55am PDT

@Erik: It's T-E-S-L-A.

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Brian Hall Posted: 8/5/2012 8:05pm PDT

My recollection is a bit different. After the NM deal was announced, the Governator went into a huddle with the CA legislature, etc., and came up with a superior tax-break package. NUMMI wasn't on the table at that point. That came later, and really sealed the deal.

My take on NUMMI is that Toyota basically bought some Tesla shares with the factory; it was a no-hope white elephant as far as Toyota was concerned, not even in very good shape after decades of use. So the share/factory swap turned into a major win-win.

I suspect the NM developer has enough of a case to get damages for its direct costs, but that this will be comparatively trivial financially for TM. There may be an out-of-court settlement.

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Norbert N Posted: 8/12/2012 3:27am PDT

Yes, between NM and NUMMI, at least one location in San Jose, and 2 locations in the LA area were considered, or in negotiations, before NUMMI became the obvious choice. San Jose was not a brownfield which the DOE loan asked for (and NW would not have been either, I think, but that was before the DOE loan).

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