The bizarre case of Elon Musk and the Tesla whistleblower has closed, but questions about millions of dollars wasted at the Gigafactory remain
Leaked court documents reveal that Tesla was worried about millions of dollars in waste in 2018. Where did that go?
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- Tesla quietly settled its suit against whistleblower Martin Tripp. Tesla didn't get the $167 million in damages it sued for, instead, Tripp will pay $400,000.
- Back in August, Tripp leaked documents from the case in violation of his confidentiality agreement with the court.
- Those documents point to millions of dollars wasted on scrap that does not appear to be accounted for anywhere in Tesla's financials.
- Tesla did not respond to a request for comment.
- Visit Business Insider's homepage for more stories.
On Monday Tesla settled its case against Martin Tripp, a former worker at Tesla's Nevada Gigafactory who leaked information to Business Insider back in 2018.
It was a vicious case. Elon Musk accused Tripp of trying to sabotage the company and sued him for $167 million (the case settled for $400,000). Tripp countersued, claiming he was a whistleblower and that Musk and Tesla had stalked and harassed him.
Back in August, in the midst of all this drama, Tripp violated his confidentiality agreement with the court and posted a lot of the documents from the case — internal Tesla emails, depositions, and others — on the internet for all to see.
Business Insider went through those documents and found that — in document after document — Tesla employees mention trying to control scrap piling up at the Gigafactory. Tripp himself was charged with trying to round up battery scrap. He claimed in an email that scrap totals could reach $200 million by the end of the year.
Musk himself responded to that email saying: "Getting scrap...down to 1% needs to be a hardcore goal." Tripp's colleagues also mentioned the scrap problem in internal emails, meetings, and in depositions for the case. One of Tripp's superiors, a man named John Sheridan testified on December 5th, 2018 that Telsa's battery scrap alone was totaling around $50 million per quarter, and that he'd worked with the finance department to calculate that number, according to the documents.
All over the company reducing scrap had become a company imperative in order to boost profitability. Musk had promised his investors fatter margins (so, alternatively lower costs) but tracking all the scrap proved to be a serious challenge.
The problem here is that the amount of scrap mentioned in these documents appears to be unaccounted for in Tesla's 2018 annual report. Accountants told Business Insider that it should have been taken as part of an inventory write-down, and that such a large amount of money should be material for a company like Tesla. At the time, the company had yet to turn out a profitable year and even now its profitability hinges on a few hundred million dollars in energy credits it sells to combustible automakers.
The most important question surrounding these missing millions is one of materiality, professor Thomas Selling, who teaches accounting at Southern Methodist University, told Business Insider.
"The question Tesla lawyers have to ask themselves is whether or not this is important historical information or information about a future trend that needs to be disclosed," he said, adding later. "Seems to me like generating abnormal amounts of scrap would be material."
You might expect this kind of information to reach investors in the management discussion and analysis section of a quarterly report, Selling explained. That's where Tesla can explain how long costs would remain high and compare them to previous periods.
"If you think an investor would like to know this," Selling said, "if you think some investors would make different investment decisions based on this information then it's material."
If you want to talk about your experience working for Tesla, shoot me an email at llopez@businessinsider.com