Tesla now on the receiving end of a lawsuit, Magna sues for breach of contract
By now we are all aware of the sad saga of Tesla Motors and their quest for a reliable two-speed transmission for the battery powered Roadster. After failing to get the necessary durability from the original gearbox supplied by X-Trac, Tesla turned to Magna to try and create a new unit. That obviously didn't work out any better, so they tried to design their own before giving up and revising the motor instead and going to a single speed transmission. Unfortunately Magna apparently didn't take the break-up well and has now resorted to courts for redress.
According to Magna Powertrain's suit against Tesla, they didn't get the money they were owed for the design and development work they did. Interestingly, Magna is claiming that they suggested to Tesla as far back as September 2006 that they should go with a single speed unit, but that path wasn't followed at the time. The suit claims that Tesla had Magna stop work in October 2007 and the Canadian company isn't taking issue with the cancellation of the program. They aren't happy about the fact that Tesla is paying them the $5.6 million they say they are owed for work that was done.
To the best of our knowledge none of Tesla's prospective customers have started litigation yet over the delays and specification changes. If that does happen, things to get ugly for the San Carlos startup. It's not that prospective customers necessarily have a case against Tesla because it appears that Tesla is letting anyone unhappy with what's happening cancel their orders. It's just the distraction and legal costs that could be better spent elsewhere. For Tesla's other legal case, click here.
Update: The filings are public records and the San Mateo Court has them online. You can read them here.
Update 2: Tesla VP Darryl Siry contacted us to clarify the issue with the original X-Trac gearbox. Apparently the problem was not one of actual durability of the transmission itself. Tesla evidently spec'ed out a two speed unit with no clutches. The design intent was to do clutch-less shifting and manage the torque output of the motor during the shifts. Unfortunately the rotational inertia of the motor made this plan unworkable as the torque output couldn't be changed fast enough. According to Siry there were never actually any mechanical failures of the X-Trac transmission, it was simply a matter of Tesla not being able to get their control strategy to work adequately with the hardware. Subsequently Tesla contracted Magna to develop a dual clutch two speed gearbox. Unfortunately, this is the design that had durability issues leading to Tesla's ultimate decision to revise the motor for more power and go with a single speed unit for production. The vehicles running with the interim single speed gearbox are actually using the original X-Trac box with the lower gear locked out (for prototypes) or removed entirely (early production cars). - Sam
[Source: Earth2Tech.com, thanks to Craig for the tip]
Reader Comments (Page 1 of 1)
Joseph 9:37PM (4/15/2008)
I read the complaint.
Magna is asking for $5,599,024 in damages. (How do they calculate those last twenty-four dollars?)
At first, 5.6 million sounded a little steep to me, but considering that Tesla has spent something like 100 million on the car (someone correct me with a precise number if they know) it seems to be in perspective.
It says Tesla told Magna that Whitestar was cancelled in June 07 (that doesn't make much sense to me) and that in late October 07 Tesla suddenly fired Magna and got a new transmission company.
And Magna even says that they tried to tell Tesla all along for a one-speed.
All the elements of a glamorous drama wrapped up in a law suit against Tesla Motors. It's interesting to watch the events happening behind the company's doors. Tesla, and it vehicles, will be an eternal source of entertainment for us. :)
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Sam Abuelsamid 9:42PM (4/15/2008)
All Magna is trying to recover is their engineering, development and component costs. When a supplier does work like this for another company they typically bill for the hours worked by all the people on the project, supplies and materials. This isn't just an arbitrary number they chose, it's what they can document.
As for the WhiteStar cancellation, all that was cancelled at that point is Magna's contract for the transmission work. Tesla had obviously made program changes at that point.
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why not the LS2LS7? 10:33PM (4/15/2008)
I'm sure Whitestar has changed...into a plug-in hybrid (Extended Range EV as Tesla will call it).
Anyway, I don't see how Magna saying they suggested a 1-speed all along is relevant. There's nothing in the law that says your business partner has to pay you money just because they are boneheads. If you want to get paid when your business partner makes a mistake, you need to structure your contract to protect yourself.
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Kevin Nugent 5:43PM (4/16/2008)
hey we will see , what comes out of it
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jake 10:49PM (4/15/2008)
@why not the LS2LS7?
I think Magna is suing precisely because they claim Tesla violated the contract by terminating the contract early and not giving them 30 days notice that they were not meeting standards. But I agree, the single speed/ two speed thing doesn't play that big of a role because if Magna felt they couldn't do it, they shouldn't have even signed the contract. But I think Magna is mentioning it because they want to shift some of the blame of the transmission failing to perform up to par on Tesla for deciding to go with a 2 speed.
But it's too early to know who's right or wrong, because if Tesla really violated the contract, they should pay the outstanding costs that Magna spent developing the transmission.
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Lad 11:04PM (4/15/2008)
I guess part of doing business in the U.S. is paying lawyers to define differences. I wouldn't read a lot into any of this.
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stevefazek 11:40PM (4/15/2008)
well they have to pay their engineers. lets say you pay your engineer 40 bucks an hour which is totally reasonable, to make a profit from billing that out you need to concider the cost of his office, the cost or the various insurance, the cost of electricity, his retirement fund that you contribute to.
To make a profit of 25% after this they need to bill tesla 160 an hour. Of course the gruntwork is done be fresh college grads who get around 25 an hour.
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rob 7:49AM (4/16/2008)
Stevefazek writes: "To make a profit of 25% after this ..."
Chortle, gufaww, spit take... 25% in automotive? I thinks it's time to run a random drug test on Steve. I don't ever recall a supplier ever making that sort of profit even in the day of high profit SUVs. Heck, 10% is considered outstanding and also the point where the OE purchasing department sends out your drawings for "competitive bidding."
Now had Tesla been a GM, Ford, or Chrysler then cancelling the contract and not paying would be a normal operating procedure. Note to Tesla: Always have the supplier roll the development costs into piece price based on an overly optimistic sales forecast. For example, tell Magna that they should have rolled their $6 mill of engineering costs into the transmission assuming 20,000/yr unit sales. That way, if you only sell 1000 units, the engineering costs to you are negligible.
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Dustin 9:43AM (4/16/2008)
If I recall, Martin Eberhard wanted the one-speed transmission from the get-go. It was Elon Musk who demanded otherwise.
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rgseidl 9:52AM (4/16/2008)
At first glance, this sounds like a legitimate claim by Magna. Tesla management made a pig's ear of the transmission issue. The amount may be in dispute, but the principle should not be.
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Noah 1:04PM (4/16/2008)
Aaaaand this is why electric cars will have a lot of trouble getting into the mainstream..
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