In most years, Tesla (TSLA +0.30%) losing its title as the world's best-selling electric vehicle (EV) maker would have been the biggest topic of discussion about the company. But this year, there are so many other options to choose from. In addition to declining sales and a smaller market share last year, Tesla faced consumer backlash due to CEO Elon Musk's political dabbling, underutilized production across multiple factories, rising Chinese competition, and China's brutal price war. And that's not even all of it.
What often goes overlooked, however, are the automaker's mounting litigation problems. These could leave the company on the hook for billions in financial exposure.
Image source: Tesla.
What's going on with Tesla?
It's understandable if investors have lost track, but it's also important to keep an eye on Tesla's mounting litigation concerns. In fact, Tesla is currently facing more than 20 active lawsuits and investigations, ranging from wrongful death claims and discrimination allegations to regulatory investigations and shareholder litigation. All said and totaled, Tesla's total financial exposure to its current litigations could reach as high as $14.5 billion, according to Electrek, which did the cold hard math.
Complicating matters for investors is that Tesla's defense strategy hasn't been as effective as the company hoped when it developed a "hardcore litigation department." While Tesla's defense has successfully had cases dismissed, settled, or moved to arbitration, it has pivoted its strategy somewhat. One example was litigation for a fatal 2019 Autopilot crash, when Tesla rejected a $60 million settlement offer before trial, lost, and then was dinged for $243 million in damages. Since that verdict, Tesla has opted to settle more Autopilot crash lawsuits instead of facing another jury and having potentially higher damages awarded.
NASDAQ: TSLA
Key Data Points
Tesla's legal problems will likely accelerate
It's perhaps equally concerning that the mounting litigation woes aren't slowing down. One could easily argue that Tesla's most dangerous lawsuits are still on the way. That's because most of the current litigation Tesla is fighting was from a time when Autopilot was less used than it is currently, and before the company's Full Self Driving (FSD) was beta-launched in late 2020. Cases from 2021 and later, when FSD became more prevalent, are still making their way through the court system. The litigation pile will almost certainly grow, not shrink.
For investors, litigation isn't usually top-of-mind, but these litigations are like landmines in an investment thesis, and could complicate business in a hurry. That's especially true as investors grasp the fact that Tesla's capital expenditures are expected to soar in the near term. It's also important to use this information to look at Tesla's recent robotaxi expansion with a healthy skepticism, as it, too, is a potential liability.
Tesla is caught between a rock and a hard place. On one hand, it needs to justify its high valuation with demonstrative progress in its potential robotaxi business. Remember, it's estimated that robotaxi potential accounts for 52% of Tesla's valuation. On the other hand, Tesla needs to be socially responsible for the lives at stake when it's developing driverless vehicle technology, and minimize future litigation.
The most important thing is that investors stop overlooking the massive potential $14.5 billion litigation problem Tesla has currently, before it turns into an even bigger problem.
