Tesla's Other Lawsuit: Transmission Troubles

While Tesla Motors v. Fisker Automotive is a juicy story of alleged automotive espionage, we came across another lawsuit involving the Roadster maker as we were digging through the online records of the San Mateo Superior Court: Magna Powertrain Inc. USA v. Tesla Motors. And in this one Tesla is the defendant, not the plaintiff.

The suit, filed by Magna on Feb. 22 , accuses Tesla Motors of two counts of breach of contract for allegedly failing to pay Magna for transmission work. Magna was contracted in March 2007 to design a two-speed transmission for Tesla’s Roadster, then code-named “Dark Star.” Magna is seeking $5.6 million from Tesla, or about 56 new Roadsters.

This is just the latest twist in the saga of Tesla’s elusive transmission, which has caused major production delays and will require the company to retrofit the first vehicles later on with a new and simpler single-speed transmission. And Magna actually says in its suit that back September of 2006, when it started talking with Tesla, it originally suggested a one-speed transmission:

TESLA wants MPT to design, develop, test and produce a production-ready dual speed transmission for the Dark Star by September 2007. MPT informed TESLA that designing, developing, testing and producing a two speed transmission for the Dark Star by September 2007 would be very challenging and that TESLA should consider a single speed rather than dual speed transmission.

Tesla had originally contracted Magna Powertrain, a subsidiary of Canadian auto parts giant Magna International, to design and build 800 Dark Star transmissions in the first year, 1,500 in the second and 2,000 in the third. On top of that, Tesla contracted Magna to design and build 40,000 White Star transmissions, with production starting in March of 2009.

The suit says that in March of 2007, Tesla signed a “Development Agreement and a Statement of Work” with Magna to start work on the transmission. Magna says it shipped the first transmission prototype to Tesla in July and told Tesla that the September target would be missed. Tesla then pushed back the start of its pilot production to January 2008 and full-scale production to May.

The filing goes on to say that in October, Tesla instructed Magna to transition all engineering designs and development to Xtrac, the maker of Tesla’s interim transmission. Magna alleges it had no warning nor any indication that Tesla was dissatisfied with their work, but that the electric vehicle startup cooperated fully.

Now, Magna might be miffed about losing the contract, but it couldn’t have come as a complete surprise that their two-speed transmission was not what Tesla was hoping for. And the lawsuit does not allege wrongful termination of the contract, but instead seeks payment for “all outstanding costs, fees and expenses as required by the Development Agreement and the SOW,” to the tune of $5,599,024, plus interest and fees.

In the end, the single-speed transmission that will be put into the cars will actually be a Tesla in-house creation. Xtrac, the second transmission supplier, was contracted to make an interim transmission — Update: Xtrac was never contracted to develop a permanent solution, says Tesla. Darryl Siry, Tesla’s VP of sales, marketing and service, tells us:

“One of our lessons is that we need to have more control over our fate and manage the process in house.”

The startup seems to learn most of its lessons the hard way, and now the cost of those lessons might be settled in court.

Katie Fehrenbacher contributed to this report.