Gregory Wochos v. Tesla, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

GREGORY WOCHOS, Individually and No. 19-15672
on Behalf of All Others Similarly
Situated, D.C. No.
Plaintiff, 3:17-cv-05828-
CRB
and

KURT FRIEDMAN; UPPILI OPINION
SRINIVASAN, Individually and on
Behalf of All Others Similarly
Situated
Plaintiffs-Appellants,

v.

TESLA, INC.; ELON MUSK; and
DEEPAK AHUJA,
Defendants-Appellees.

Appeal from the United States District Court
for the Northern District of California
Charles R. Breyer, District Judge, Presiding

Argued and Submitted April 30, 2020
San Francisco, California

Filed January 26, 2021
2 FRIEDMAN V. TESLA

Before: J. Clifford Wallace, Susan P. Graber, and
Daniel P. Collins, Circuit Judges.

Opinion by Judge Collins

SUMMARY *

Securities Fraud

The panel affirmed the district court’s dismissal with
prejudice of a putative securities fraud class action brought
under § 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5, alleging that Tesla, Inc., and two of its officers
misled the investing public during 2017 about Tesla’s
progress in building production capacity for the Model 3, its
first mass-market electric vehicle.

The panel held that, to the limited extent that the specific
statements challenged in plaintiffs’ operative second
amended complaint were not protected by the “safe harbor”
for forward-looking statements in the Private Securities
Litigation Reform Act, plaintiffs failed adequately to plead
falsity.

The panel held that plaintiffs’ proposal to amend the
complaint further, to challenge an additional statement,
failed for lack of the requisite loss causation.

*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
 FRIEDMAN V. TESLA 3

COUNSEL

Jacob A. Goldberg (argued) and Gonen Haklay, The Rosen
Law Firm P.A., Jenkintown, Pennsylvania; Laurence M.
Rosen, The Rosen Law Firm P.A., Los Angeles, California;
for Plaintiffs-Appellants.

Dean S. Kristy (argued) and Jennifer Bretan, Fenwick &
West LLP, San Francisco, California; Alison Jordan,
Fenwick & West LLP, Mountain View, California; for
Defendants-Appellees.

OPINION

COLLINS, Circuit Judge:

Plaintiffs Kurt Friedman and Uppili Srinivasan, on
behalf of a putative class of shareholders, allege that Tesla,
Inc. and two of its officers, Chairman and Chief Executive
Officer Elon Musk and Chief Financial Officer Deepak
Ahuja, (collectively, “Defendants”) misled the investing
public during 2017 about Tesla’s progress in building
production capacity for the Model 3, its first mass-market
electric vehicle. We conclude that, to the limited extent that
the specific statements challenged in Plaintiffs’ operative
Second Amended Complaint are not protected by the “safe
harbor” for forward-looking statements in the Private
Securities Litigation Reform Act (“PSLRA”), see 15 U.S.C.
§ 78u-5(c), Plaintiffs have failed adequately to plead falsity.
We also hold that Plaintiffs’ proposal to amend the
complaint further, to challenge an additional statement, fails
for lack of the requisite loss causation. We therefore affirm
the district court’s dismissal of this action with prejudice.
4 FRIEDMAN V. TESLA

I

When reviewing a motion to dismiss, we accept
Plaintiffs’ well-pleaded factual allegations as true, keeping
in mind the heightened pleading standards established in the
PSLRA. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d
981, 989–91 (9th Cir. 2009); see also Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 321–23 (2007). We may
also consider “materials incorporated into the complaint by
reference” and any “matters of which we may take judicial
notice.” Zucco Partners, 552 F.3d at 989.

A

As of 2016, Tesla remained a “niche” carmaker,
delivering only 76,000 electric vehicles a year. All of these
were luxury vehicles with a suggested retail price of over
$74,000. For years, though, Musk had been hoping to
expand Tesla’s production into mass-market electric
vehicles, and the fruit of those efforts was the “Model 3.” In
2016, Tesla first announced concrete plans to build the
Model 3, which was envisioned as a sedan with a
recommended retail price starting at $35,000. At such
prices, Musk anticipated selling hundreds of thousands of
cars a year by 2018. To achieve this scale of production,
Tesla planned to develop fully automated production lines
for the Model 3 at a factory in Fremont, California, and to
produce the vehicle’s battery in-house at a factory in Reno,
Nevada, called “Gigafactory 1.” In a May 2017 quarterly
report filed with the U.S. Securities and Exchange
Commission (“SEC”), Tesla described its production goals
for the Model 3, but it warned that the production of the
vehicle might not be a seamless process: “We have
experienced in the past . . . significant delays or other
complications in the design, manufacture, launch and
production ramp of new vehicles and other products,” and
 FRIEDMAN V. TESLA 5

“may also experience similar delays or other complications
in bringing to market and ramping production of new
vehicles, such as Model 3.” Tesla further cautioned that it
had “no experience to date in manufacturing vehicles” at
such a high volume and that its “ability to achieve these
plans” depended on a number of risk factors.

B

Plaintiffs’ claims in this case are based on a number of
statements Tesla made to investors between May 3, 2017 and
November 1, 2017, during the ramp-up to mass production
of the Model 3. 1 Plaintiffs’ theory is that, during this “Class
Period,” Tesla announced Model 3 production goals for the
end of 2017 that it knew it would not be able to achieve, and
it repeatedly reaffirmed that it was on track to reach those
targets, even as the end-of-the-year deadline drew closer and
as delays grew increasingly significant. Plaintiffs start with
May 3, 2017, because on that date Tesla publicly affirmed
that its 2017 production goal was to manufacture 5,000
Model 3s per week. Specifically, Plaintiffs stated, in a Form
8-K filed that day, that “preparations at our production
facilities are on track to support the ramp of Model 3
production to 5,000 vehicles per week at some point in
2017.” The Class Period ends on November 1, 2017,
because that is the day Tesla publicly admitted that it would

1
Most of the alleged misrepresentations and omissions stem either
from Tesla’s disclosures of financial data and strategic risks in its various
filings with the SEC or from statements made during “earnings calls.”
The various SEC filings at issue involved reports that, as a public
company, Tesla was required to make at periodic intervals: for example,
Form 10-Ks are required annually, Form 10-Qs are required quarterly,
and Form 8-Ks are required when specified events occur. The “earnings
calls” at issue here were conference calls to investors and investment
analysts that were typically conducted on the day of an SEC filing.
6 FRIEDMAN V. TESLA

not, in fact, be able to produce 5,000 vehicles per week by
the end of 2017.

Plaintiffs allege that, long before the May 3, 2017
announcement, Defendants were aware that, due to a variety
of logistical issues, producing 5,000 vehicles a week in 2017
was unattainable. Plaintiffs allege that Former Employee
(“FE”) 1, who was then the Fremont plant’s director of
manufacturing, told Musk at a meeting in late April or early
May 2016 that “there was zero chance that the plant would
be able to produce 5,000 Model 3s per week by the end of
2017.” FE1 “told Musk directly at the meeting that the start
of manufacturing would be at least 6 months later than July
2017, i.e., in 2018.” At the end of the meeting, “Musk told
FE1 that he should look for new employment,” and FE1
resigned shortly thereafter. The vice president of
manufacturing likewise told Musk around the same time that
Tesla would never be able to produce 5,000 Model 3s by the
end of 2017, and Musk responded by forcing him out of the
company in May 2016.

The complaint alleges that, as 2017 progressed, Tesla
struggled to build the automatic assembly line that would be
necessary to produce Model 3s at the hoped-for rate by
year’s end. FE4, a manufacturing engineer who left Tesla in
June 2017, stated that the automated production line was not
finished when FE4 left and that the few Model 3s being
produced were made “mostly by hand.” FE4 was told by the
technician who oversaw FE4’s team that “the new projection
for completion of the automated line was in 2018.” FE5, a
subcontractor employee who was onsite from June or July
2017 to September 2017, estimated that the full production
line was only about 45 percent complete by September. A
production supervisor, FE3, stated that “until October 18,
 FRIEDMAN V. TESLA 7

2017,” when he left Tesla, he “never saw a single Model 3
being constructed on the assembly line.”

In addition, there were problems with battery
manufacture at the Gigafactory throughout 2017. FE9, a
technician at the Gigafactory until October 2017, stated that
the Gigafactory did not accomplish even partial automation
until September. Production problems continued through
FE9’s departure, such that the Gigafactory produced only
about two battery packs per day, and prior to October, none
of these were “customer saleable” battery packs that were
ready to be installed in a Model 3. Shortly after joining the
Gigafactory as operations planning manager in May 2017,
FE12 realized that the Gigafactory would be unable to
produce 5,000 batteries a week by the end of the year. FE12
stated that, nonetheless, Musk (who regularly visited the
Gigafactory) “was still saying 5,000, 5,000, 5,000” in July.
FE12 estimated that the shift from manual to automatic
battery production did not occur until the end of the third
quarter of 2017, and even then the automatic production was
so beset by problems that the Gigafactory subsequently
shifted back to manual production.

At a July 28, 2017 event that was streamed online, Tesla
“‘handed over’ the first 30 Model 3s to buyers.” During the
event, Musk referred to the vehicles as “production cars,”
which, according to the complaint, implied that they had
been produced on an automatic production line. But “every
part of those Model 3s had actually been built by hand, and
Tesla was not even close to automated production of the
Model 3” at that time.

On October 6, the Wall Street Journal broke the news
that:
8 FRIEDMAN V. TESLA

Unknown to analysts, investors and the
hundreds of thousands of customers who
signed up to buy it, as recently as early
September major portions of the Model 3
were still being banged out by hand, away
from the automated production line . . . .

Automotive experts say it is unusual to be
building large parts of a car by hand during
production. . . .

It isn’t uncommon for much larger auto
makers to hand build pre-production versions
of a car prior to the sales launch, but . . . [b]y
the time a car goes on sale, the body shop is
typically fully automated.

By October 9, Tesla’s stock had dropped 3.9 percent.

On November 1, 2017, Tesla formally confirmed in a
Form 8-K filing with the SEC that it would not meet its end-
of-year production goal. On November 2, an article in the
car blog Jalopnik detailed a large number of supply and
production delays at Tesla. Tesla’s stock fell 6.8 percent
between the close of the market on November 1 and 2.
Overall, Tesla’s closing stock price fell from $356.88 on
October 6 to $299.26 on November 2.

According to Plaintiffs, Tesla was still producing only
2,266 Model 3s per week at the end of September 2018.

C

Gregory Wochos filed this putative class action in the
district court on October 10, 2017. Kurt Friedman, a
member of the putative class, thereafter moved to be
 FRIEDMAN V. TESLA 9

appointed “lead plaintiff” in accordance with the PSLRA,
and the district court granted that unopposed motion on
February 2, 2018. Thereafter, a First Amended Complaint
was filed adding Friedman and Uppili Srinivasan as
additional named plaintiffs. 2 On Defendants’ motion, the
district court dismissed that complaint with leave to amend,
and Plaintiffs Friedman and Srinivasan filed the operative
Second Amended Complaint (“SAC”) in September 2018.
The SAC alleges that Defendants’ challenged statements
concerning Tesla’s production of the Model 3 were false and
misleading in violation of § 10(b) of the Securities Exchange
Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R.
§ 240.10b-5. The complaint also asserted an additional
claim against the individual defendants, Musk and Ahuja,
alleging that they were “controlling persons” who were
liable under § 20 of the Securities Exchange Act, 15 U.S.C.
§ 78t, for Tesla’s alleged violation of § 10(b) and Rule 10b-
5.

Defendants again moved to dismiss for failure to state a
claim, and this time the district court dismissed the action
with prejudice and without leave to amend. The district
court concluded that, as to the challenged statements made
by Tesla, Plaintiffs had failed to plead any material
misrepresentation that was not within the PSLRA’s safe
harbor for “forward-looking” statements “accompanied by
meaningful cautionary statements.” 15 U.S.C. § 78u-
5(c)(1)(A)(i). The district court expressly declined to reach
the additional issues of scienter or loss causation that had
also been raised in the motion to dismiss.

2
Jason Wheeler, who had been Ahuja’s immediate predecessor as
Chief Financial Officer, had been named as a defendant in the original
complaint, but he was dropped from the First Amended Complaint.
10 FRIEDMAN V. TESLA

Plaintiffs Friedman and Srinivasan timely appealed. We
have jurisdiction under 28 U.S.C. § 1291, and we review the
district court’s dismissal de novo. In re VeriFone Holdings,
Inc. Sec. Litig., 704 F.3d 694, 700–01 (9th Cir. 2012).

II

Section 10(b) of the Securities Exchange Act generally
makes it “unlawful” to “use or employ, in connection with
the purchase or sale of any security registered on a national
securities exchange . . . any manipulative or deceptive
device or contrivance in contravention of such rules and
regulations as the [SEC] may prescribe . . . .” 15 U.S.C.
§ 78j(b). The SEC has implemented this provision by
promulgating Rule 10b-5, which in turn generally makes it
unlawful, “in connection with the purchase or sale of any
security,” to “make any untrue statement of a material fact
or to omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under
which they were made, not misleading.” 17 C.F.R.
§ 240.10b-5(b). “Though the text of the Securities Exchange
Act does not provide for a private cause of action for § 10(b)
violations, the [Supreme] Court has found a right of action
implied in the words of the statute and its implementing
regulation.” Stoneridge Inv. Partners, LLC v. Scientific-
Atlanta, Inc., 552 U.S. 148, 157 (2008). “In a typical § 10(b)
private action a plaintiff must prove (1) a material
misrepresentation or omission by the defendant; (2) scienter;
(3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and
(6) loss causation.” Id. On appeal, the parties contest
whether Plaintiffs adequately pleaded falsity, scienter, and
loss causation.
 FRIEDMAN V. TESLA 11

In addressing the adequacy of the operative SAC, we
find the issue of falsity to be dispositive, and we therefore do
not reach the issues of scienter or loss causation with respect
to that complaint. In reviewing the question of falsity, we
begin by reviewing the general substantive standards that
govern the pleading of falsity in Rule 10b-5 claims, and we
then apply those standards to the specific statements
challenged by Plaintiffs in their complaint.

A

In addition to the normal rule that “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face,’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citation omitted), the
PSLRA imposes heightened pleading requirements that
require a securities fraud complaint, inter alia, to “specify
each statement alleged to have been misleading, [and] the
reason or reasons why the statement is misleading.”
15 U.S.C. § 78u-4(b)(1); see also Fed. R. Civ. P. 9(b). In
setting forth the reasons why they contend that each
challenged statement is misleading, securities plaintiffs may
rely on either an affirmative misrepresentation theory or an
omission theory. See 17 C.F.R. § 240.10b-5(b). Under Rule
10b-5, an affirmative misrepresentation is an “untrue
statement of a material fact,” and a fraudulent omission is a
failure to “state a material fact necessary in order to make
the statements made, in the light of the circumstances under
which they were made, not misleading.” Id.

Because both of these theories require falsity with
respect to a “material fact,” id. (emphasis added), there are
substantial limits in applying such theories to a pure
statement of honest opinion. See Omnicare, Inc. v. Laborers
Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175,
183 (2015); see also City of Dearborn Heights Act 345
12 FRIEDMAN V. TESLA

Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605,
616 (9th Cir. 2017) (“Although Omnicare concerned Section
11 claims, we conclude that the Supreme Court’s reasoning
is equally applicable to Section 10(b) and Rule 10b-5
claims.”). But Omnicare identified three ways in which a
statement of opinion may nonetheless involve a
representation of material fact that, if that representation is
false or misleading, could be actionable. First, every
statement of opinion “explicitly affirms one fact: that the
speaker actually holds the stated belief.” Omnicare,
575 U.S. at 184. Second, “some sentences that begin with
opinion words like ‘I believe’ contain embedded statements
of fact.” Omnicare, 575 U.S. at 185 (emphasis added). As
the Court explained, a statement that “‘I believe our TVs
have the highest resolution available because we use a
patented technology’” could give rise to misrepresentation
liability if the speaker’s technology was not patented. Id.
Third, “a reasonable investor may, depending on the
circumstances, understand an opinion statement to convey
facts about how the speaker has formed the opinion—or,
otherwise put, about the speaker’s basis for holding that
view.” Id. at 188. For example, if a company declares that
“‘We believe our conduct is lawful,’” a reasonable investor
“likely expects such an assertion to rest on some meaningful
legal inquiry.” Id. Accordingly, if in fact that company
made “that statement without having consulted a lawyer,”
the statement “could be misleadingly incomplete,”
potentially giving rise to liability under an omission theory.
Id.

But even if a statement would otherwise be actionable
under these standards, the PSLRA carves out a “safe harbor
for forward-looking statements” by adding § 21E to the
Securities Exchange Act. 15 U.S.C. § 78u-5 (heading). This
safe harbor “is designed to protect companies and their
 FRIEDMAN V. TESLA 13

officials” when they merely fall short of their “optimistic
projections.” In re Quality Sys., Inc. Sec. Litig., 865 F.3d
1130, 1142 (9th Cir. 2017). The relevant statutory language
states:

(c) SAFE HARBOR

(1) IN GENERAL

Except as provided in subsection (b),
in any private action arising under this
chapter that is based on an untrue
statement of a material fact or omission
of a material fact necessary to make the
statement not misleading, a person . . .
shall not be liable with respect to any
forward-looking statement, whether
written or oral, if and to the extent that—

(A) the forward-looking statement
is—

(i) identified as a forward-looking
statement, and is accompanied by
meaningful cautionary statements
identifying important factors that
could cause actual results to differ
materially from those in the forward-
looking statement; or

(ii) immaterial; or

(B) the plaintiff fails to prove that the
forward-looking statement—
14 FRIEDMAN V. TESLA

(i) if made by a natural person,
was made with actual knowledge by
that person that the statement was
false or misleading; or

(ii) if made by a business entity;
was—

(I) made by or with the
approval of an executive officer
of that entity; and

(II) made or approved by such
officer with actual knowledge by
that officer that the statement was
false or misleading.

15 U.S.C. § 78u-5(c)(1). As we explained in Quality
Systems, the use of the disjunctive term “or” between
subclauses (A) and (B) confirms that “a defendant will not
be liable for a false or misleading statement if it is forward-
looking and either is accompanied by cautionary language
or is made without actual knowledge that it is false or
misleading.” 865 F.3d at 1141; see also In re Cutera Sec.
Litig., 610 F.3d 1103, 1112–13 (9th Cir. 2010).
Consequently, where a defendant has made a sufficient
showing that a challenged forward-looking statement was
accompanied by meaningful cautionary statements, see
15 U.S.C. § 78u-5(e), a plaintiff cannot defeat that
invocation of § 21E’s safe harbor merely by alleging, for
example, that the company knew that the announced
forward-looking objective was unlikely to be achieved.
Rather, the plaintiff must plead additional facts that would
vitiate an element of that version of the safe harbor—such
 FRIEDMAN V. TESLA 15

as, for example, facts indicating that the “cautionary
statements” cited by the defendant were not “meaningful.”

Importantly, however, Quality Systems held that the
PSLRA’s safe harbor does not apply in an all-or-nothing
fashion, because some statements about the future may
combine non-actionable forward-looking statements with
separable—and actionable—non-forward-looking statements.
865 F.3d at 1142. In the context of such “mixed” statements,
only the forward-looking aspects could be immunized from
liability, because the safe harbor is not “designed to protect
[issuers] when they make a materially false or misleading
statement about current or past facts, and combine that
statement with a forward-looking statement.” Id. at 1141–
42 (collecting cases from multiple circuits).

B

In applying these standards to the 15 challenged
statements identified in the SAC, we group those statements
into three chronological sets—those made in May 2017,
those made in July, and those made in August. We conclude
that Plaintiffs have not adequately pleaded falsity as to any
of these statements.

1

With respect to each of the challenged statements from
May 2017, we hold that Plaintiffs have failed to plead
sufficient facts to avoid the PSLRA’s safe harbor or to
establish falsity.
16 FRIEDMAN V. TESLA

a

The SAC specifically alleges that the following seven
statements Tesla made in May 2017 were materially false
and misleading.

(1) On May 3, 2017, Tesla filed a Form 8-K announcing,
in part, that “preparations at our production facilities are on
track to support the ramp of Model 3 production to 5,000
vehicles per week at some point in 2017.”

(2) During a related May 3, 2017 earnings call, Musk
stated:

Well, actually it seems to be—we’re not
really seeing any significant change that
needs to occur with Model 3. So it’s coming
in as expected, as the design continuation has
predicted, it’s getting pretty close to the
bull’s-eye, and I’m not aware of anything that
would affect our prior statements about
volume target. . . .

...

There’s plenty of things with uncertainty, but
I don’t know anything that would prevent us
from starting firstly in July, and exceeding
5,000 units per week by the end of the year.

(3) Later during this same earnings call, Musk
responded to a question about “the biggest challenges or
bottlenecks in ramping production to 5,000 vehicles per
week by some point in 2017.” He did so by contrasting
Tesla’s approach to the Model 3 with the approach Tesla had
taken to its luxury Model X cars:
 FRIEDMAN V. TESLA 17

[The Tesla Model] X became kind of like a
technology bandwagon of every cool thing
you can imagine all at once. . . . That was a
terrible strategy. You really want to start off
simple and add things over time. . . . So with
Model 3 it’s the opposite. We’ve designed it
to be easy to make. We’ve got I think a much
better supply chain in place where we’ve got
the A team from the A suppliers. We didn’t
have that for the Model X or the S. And as
far as we know, there are no issues.

(4) In its Form 10-Q, filed on May 10, 2017, Tesla stated
that “Model 3 vehicle development is nearly complete as we
approach the start of initial production in July of this
year. . . . [P]reparations at our production facilities are
progressing to support the ramp of Model 3 production to
5,000 vehicles per week at some point in 2017.”

(5) This same 10-Q also stated: “We have started the
installation of Model 3 manufacturing equipment at the
Fremont Factory and Gigafactory 1, and we are on-track for
start of Model 3 production in July 2017.”

(6) The 10-Q further stated that:

Although we continue to remain on track
with our progress at Gigafactory 1, given the
size and complexity of this undertaking, it is
possible that future events could result in the
cost of building and operating Gigafactory 1
exceeding our current expectations and
Gigafactory 1 taking longer to expand than
we currently anticipate. In addition, we
continue to expand production capacity at our
18 FRIEDMAN V. TESLA

Fremont Factory and are exploring additional
production capacity in Asia and Europe.

(7) Finally, Plaintiffs alleged that the following
disclosure of risk factors in this 10-Q was materially
incomplete and misleading: “We may experience delays in
realizing our projected timelines and cost and volume targets
for the production, launch and ramp of our Model 3 vehicle,
which could harm our business, prospects, financial
condition and operating results.”

b

The district court held that Tesla’s various statements
that it was “on track” were protected by the PSLRA’s safe
harbor because they were “forward-looking statements
regarding plans and objectives for future operations” and
“were accompanied by meaningful cautionary statements.”
Plaintiffs challenge this ruling, asserting that these
predictive statements contain embedded assertions
concerning present facts that are actionable under Quality
Systems, 865 F.3d at 1142. We disagree.

The definition of “forward-looking statement[s]” in
§ 21E(i)(1) expressly includes “statement[s] of the plans and
objectives of management for future operations,” 15 U.S.C.
§ 78u-5(i)(1)(B) (emphasis added), and “statement[s] of the
assumptions underlying or relating to” those plans and
objectives, id. § 78u-5(i)(1)(D) (emphasis added).
Consequently, in order to establish that a challenged
statement contains non-forward-looking features that avoid
this definition, a plaintiff must plead sufficient facts to show
that the statement goes beyond the articulation of “plans,”
“objectives,” and “assumptions” and instead contains an
express or implied “concrete” assertion concerning a
specific “current or past fact[].” Quality Sys., 865 F.3d
 FRIEDMAN V. TESLA 19

at 1142, 1144. Thus, in Quality Systems, we held that, even
though they were combined with forward-looking
projections about revenue growth, the defendants’
affirmative statements that the defendant company’s current
sales and performance were comparable to those in the past
were not forward-looking because they “provided a concrete
description of the past and present state of the [company’s
sales] pipeline.” Id. at 1143–44. With only one exception,
Plaintiffs have failed to plead that the challenged May
statements contain any such representation of current or past
fact.

Tesla’s goal to produce 5,000 vehicles per week is
unquestionably a “forward-looking statement” under § 21E,
because it is a “plan[]” or “objective[] of management for
future operations,” and this plan or objective “relat[es] to the
products” of Tesla. 15 U.S.C. § 78u-5(i)(1)(B). Contrary to
what Plaintiffs contend, Tesla’s various statements that it
was “on track” to achieve this goal and that “there are no
issues” that “would prevent” Tesla from achieving the goal
are likewise forward-looking statements. Because any
announced “objective” for “future operations” necessarily
reflects an implicit assertion that the goal is achievable based
on current circumstances, an unadorned statement that a
company is “on track” to achieve an announced objective, or
a simple statement that a company knows of no issues that
would make a goal impossible to achieve, are merely
alternative ways of declaring or reaffirming the objective
itself. The statutory safe harbor would cease to exist if it
could be defeated simply by showing that a statement has the
sort of features that are inherent in any forward-looking
statement.

The question, then, is whether Plaintiffs have sufficiently
pleaded that any of the challenged May statements went
20 FRIEDMAN V. TESLA

beyond the mere declaration of the year-end goal in a way
that includes a non-forward-looking statement. In this
regard, we reiterate that it is not enough to plead that a
challenged statement rests on subsidiary premises about how
various future events will play out over the timeframe
defined by the forward-looking statement. As noted earlier,
such “statement[s] of the assumptions underlying or
relating” to a declared objective are also deemed to be
forward-looking statements. 15 U.S.C. § 78u-5(i)(1)(D).
This reasoning precludes Plaintiffs’ theory that Tesla’s year-
end goal rested on scheduling assumptions that Tesla knew
it was unlikely to meet. Any such schedule about how future
production would play out on the way toward the announced
goal is simply a set of the “assumptions” about future events
on which that goal is based. Like the goal itself, such
projected timelines are forward-looking statements.

In contrast to such “assumptions” about future events, a
concrete factual assertion about a specific present or past
circumstance goes beyond the assertion of a future goal, and
beyond the articulation of predicate assumptions, because it
describes specific, concrete circumstances that have already
occurred. Such statements are therefore not forward-
looking, and—unlike “on track” assertions—they do not rest
on the sort of features that are intrinsic to all forward-looking
statements. Thus, while one cannot declare a goal without
implicitly or explicitly stating that it is achievable, one can
readily announce an objective without stating, for example,
that the reason why it is achievable is because production of
relevant units actually rose 75% over the last quarter or
because the company has actually hit certain intermediate
benchmarks. If such factual assertions are made and are
false, then they are outside the safe harbor and potentially
actionable.
 FRIEDMAN V. TESLA 21

Although Plaintiffs claim to have pleaded such
actionable statements, we disagree. The closest that
Plaintiffs come to alleging that one of Tesla’s May
statements conveyed a representation as to a specific past or
present fact was in the fifth of the seven statements listed
above. See supra at 17. In that statement, Tesla represented,
in its first quarter 2017 10-Q, that it had “started the
installation of Model 3 manufacturing equipment.” We
agree with Plaintiffs that this aspect of the statement is not
itself forward-looking, because it asserts a fact about what
Tesla’s operations had already achieved. We nonetheless
conclude that the statement is not actionable, because
Plaintiffs have not pleaded sufficient facts to establish that
the statement is materially false or misleading. Plaintiffs’
brief rewrites this statement as if it asserted that Tesla had
“begun installation of automated equipment in the first
quarter” (emphasis added). But that is not what the
statement says—it simply confirms that some unspecified
“manufacturing” equipment had been installed at the Tesla
facilities, and the complaint does not plead any facts to
establish that that representation was false. Plaintiffs argue
that, under the standards applicable to Rule 12(b)(6)
motions, we must accept as true their assertion that
installation of “manufacturing equipment” actually means
installation of “automatic manufacturing equipment.” This
contention overlooks the heightened pleading requirements
imposed by the PSLRA. Where, as here, a plaintiff claims
that the words used in a statement have some special or
nuanced meaning that differs from what the literal words
suggest, the plaintiff must plead facts that will support this
crucial premise in order to satisfy the PSLRA’s requirement
that a private securities plaintiff adequately plead “the
reason or reasons why [a] statement is misleading.”
15 U.S.C. § 78u-4(b)(1) (emphasis added).
22 FRIEDMAN V. TESLA

c

Because the remaining May statements are forward-
looking, the safe harbor applies if they were accompanied by
“meaningful cautionary statements.” 15 U.S.C. § 78u-
5(c)(1)(A)(i). The district court correctly concluded that all
of the challenged statements, including the May ones, were
accompanied by such cautionary statements.

As the district court highlighted, Plaintiffs did not
directly challenge the adequacy of Tesla’s cautionary
statements below, and the same is true of Plaintiffs’ briefs in
this court. 3 The only issue Plaintiffs have raised in this
regard concerns the district court’s express assumption that,
if Plaintiffs had adequately pleaded that the relevant Tesla
officer knew that “it was impossible” to meet the company’s
forward-looking projections, and “not merely highly
unlikely,” then any accompanying “cautionary” language
that failed to reveal this impossibility would not be
“meaningful” (emphasis added). We need not decide
whether the district court was correct in this assumption,

3
That is unsurprising, because Tesla’s cautionary statements were
detailed and specific. For example, Tesla’s May 3, 2017 Form 8-K
enumerated important “[r]isk [f]actors” that could lead to results that
“differ materially from those projected,” such as “risk of delays in the
manufacture, production, delivery and/or completion of our vehicles . . .
particularly Model 3” and “the ability of suppliers to meet quality and
part delivery expectation at increasing volumes.” Tesla’s May 10, 2017
Form 10-Q also enumerated a wide range of risks, including “[t]he loss
of any single or limited source supplier or the disruption in the supply of
components,” that “could lead to product design changes and delays in
product deliveries.” Tesla acknowledged in this document that it had
“experienced in the past . . . significant delays or other complications in
the design, manufacture, launch and production ramp of new vehicles”
and that it “may also experience similar delays . . . in bringing to market
and ramping production of new vehicles, such as Model 3.”
 FRIEDMAN V. TESLA 23

because we agree with that court that Plaintiffs failed to
plead such a known “impossibility” during the entire May
through August timeframe in which Defendants made the
various challenged statements.

Plaintiffs rely on allegations that two employees told
Musk in 2016 that the goal of producing 5,000 cars per week
by the end of 2017 was impossible to achieve, but the district
court correctly held that Plaintiffs failed to plead any facts
showing that Musk ever accepted those employees’ views
that the goal was impossible. In particular, the district court
properly held that Plaintiffs had failed to plead facts showing
that Defendants adopted the conservative timeline for
production on which these employees’ pessimism was
based. Similarly, Plaintiffs’ allegations that “[s]uppliers had
informed Tesla that the production timelines were
impossible” do not establish that Defendants (who were still
in the process of choosing suppliers) shared that gloomy
view. Because Plaintiffs therefore failed to plead that
Defendants knew their year’s end goal was impossible to
achieve, there is no basis for concluding that any of their
cautionary statements were supposedly deficient on that
ground.

2

Plaintiffs allege that one statement made by the
Defendants in July 2017 constitutes an actionable
misrepresentation. We disagree.

During a televised event at which Tesla “handed over”
the first Model 3s to buyers, Musk stated that “there’s
actually a total of 50 production cars that we made this
month.” Plaintiffs argue that, by using the phrase
“production car,” Musk was implying that these Model 3s
had been made on an automated assembly line. For reasons
24 FRIEDMAN V. TESLA

similar to those discussed above with respect to the fifth May
2017 statement, we agree with the district court that
Plaintiffs failed sufficiently to plead that this statement was
false. Because the statement would not be false unless the
term “production car” actually means “car produced on a
fully automated line,” Plaintiffs had to plead sufficient facts
to establish that the actual term used had the distinctive, and
false, meaning that Plaintiffs claim. See 15 U.S.C. § 78u-
4(b)(1); see also supra at 21. But as the district court
correctly held, Plaintiffs pleaded no facts to support their
premise that “production car” would be understood as
referring exclusively to the fully automated production of
identical vehicles. Plaintiffs’ allegations concerning this
alleged misrepresentation consequently fail to meet the
heightened pleading standards of the PSLRA.

3

Plaintiffs’ SAC challenged seven statements made in
August 2017, but we conclude that none of them is
actionable.

a

The SAC alleges that the following seven statements that
Tesla made in August 2017 were materially false and
misleading.

(1) In its August 2, 2017 Form 8-K, Tesla repeated that
“[b]ased on our preparedness at this time, we are confident
we can . . . achieve a run rate of 5,000 vehicles per week by
the end of 2017.”

(2) Similarly, during Tesla’s August 2, 2017 earnings
call, Musk stated that “we remain—we believe on track to
achieve a 5,000 unit week by the end of this year.”
 FRIEDMAN V. TESLA 25

(3) During the same call, Musk stated that Tesla was
“also making great progress on the battery front.”

(4) When asked during the earnings call about Tesla’s
unfavorable third quarter profit margin forecast, Musk
responded that “Model 3 [has] fundamentally negative gross
margin in the very beginning, because you’ve got a gigantic
machine producing—that’s meant for 5,000 vehicles a week
and it’s producing a few hundred vehicles a week.”

(5) Two days later, Tesla filed its quarterly 10-Q report.
In that report, Tesla represented that “[w]e may experience
delays in realizing our projected timelines and cost and
volume targets for the production, launch and ramp of our
Model 3 vehicle, which could harm our business, prospects,
financial condition and operating results,” and restated that
“[w]e . . . have announced our goal to increase Model 3
vehicle production to 5,000 vehicles per week by the end of
2017.”

(6) In this same 10-Q report, Tesla also addressed
progress at the Gigafactory: “While we currently believe that
our progress at Gigafactory 1 will allow us to reach our
production targets, our ultimate ability to do so will require
us to resolve the types of challenges . . . that we have
experienced to date, including at Gigafactory 1.”

(7) In this 10-Q report, Tesla also made these further
disclosures about problems at the Gigafactory:

While Gigafactory 1 began producing
lithium-ion cells for energy storage products
in January 2017 and has since begun
producing lithium-ion cells for Model 3, we
have no other direct experience in the
production of lithium-ion cells. Given the
26 FRIEDMAN V. TESLA

size and complexity of this undertaking, it is
possible that future events could result in . . .
Gigafactory 1 taking longer to ramp
production and expand than we currently
anticipate. In order to reach our planned
volume and gross margin for Model 3, we
must have significant cell production from
Gigafactory 1 . . . . We are now in the early
stages of production and have experienced
the types of challenges that typically come
with a production ramp. We expect that we
will continue to experience challenges . . . .
While we currently believe that we will reach
our production targets, if we are unable to
resolve ramping challenges and expand
Gigafactory 1 production in a timely manner
and at reasonable prices, . . . our ability to
supply battery packs to our vehicles,
especially Model 3, and other products could
be negatively impacted.

b

We agree with the district court that none of these
statements is actionable. The August reaffirmations of
Tesla’s year-end goal—e.g., “we are confident we can . . .
achieve a run rate of 5,000 vehicles per week by the end of
2017” and “we remain . . . on track to achieve a 5,000 unit
week by the end of the year”—are forward-looking for the
same reasons that Tesla’s original projections and
assumptions in May are. See supra at 18–19. Accordingly,
Tesla’s reiterations of its ultimate “objective[]” for 2017
production rates in its first, second, and fifth August
statements are therefore forward-looking statements within
the meaning of the PSLRA. See 15 U.S.C. § 78u-5(i)(1)(B).
 FRIEDMAN V. TESLA 27

Tesla’s fifth, sixth, and seventh August statements are
also forward-looking to the extent that they describe the
future challenges Tesla might confront over the remaining
months of 2017. In explaining these issues, these statements
set forth the “assumptions underlying or relating to” the
announced year-end goal and therefore fall squarely within
the statute’s definition of a forward-looking statement.
15 U.S.C. § 78u-5(i)(1)(D). Plaintiffs contend that, by
failing to disclose that some of these types of risks had
already been experienced, Tesla’s statements constituted
misleading omissions about current or past challenges. But
unlike the affirmative statements about “backlog” figures at
issue in the case on which Plaintiffs rely, see Berson v.
Applied Signal Tech., Inc., 527 F.3d 982, 985–87 (9th Cir.
2008) (“backlog reports” were misleading because they
failed to disclose that they included, as backlog, work that
had been halted due to stop-work orders), these challenged
statements contain no explicit or implicit representation that
Tesla had not already experienced such issues. On the
contrary, the sixth statement affirmatively acknowledges
that Tesla has “experienced to date” the sort of “challenges”
that it would have to overcome in order to achieve its stated
objective.

Plaintiffs contend that the first, third, and fourth August
statements contain material misrepresentations concerning
specific present or past facts, but the district court correctly
rejected these claims. Because, as explained earlier, every
announcement of a production goal implicitly represents an
assertion that the goal is presently achievable, see supra
at 19, Tesla’s unadorned comment in its first statement that
its “preparedness at this time” would allow it to achieve its
year-end goal does not go beyond what is inherent in
declaring any forward-looking objective. Such a generic
statement does not include the sort of “concrete description”
28 FRIEDMAN V. TESLA

about the facts concerning the “past and present state” of
production that we confronted in Quality Systems. See
865 F.3d at 1144. On appeal, Plaintiffs now argue that the
reference to “preparedness” in the first statement (which is
from Tesla’s August 2, 2017 Form 8-K filing) should be
understood as a cross-reference to another statement that
was made in that same filing and that is not mentioned in the
complaint. But Plaintiffs cannot properly rely on such
unpleaded additional statements in defending the adequacy
of their SAC, because the PSLRA explicitly requires that the
complaint “specify each statement alleged to have been
misleading” and “the reason or reasons why the statement is
misleading.” 15 U.S.C. § 78u-4(b)(1). This argument thus
presents, at most, a question of whether leave to amend
should have been granted, and we address that question
separately below. See infra at 29–33.

To the extent that the third and fourth statements
arguably contain representations about current facts, we
agree with the district court that Plaintiffs have failed to
allege sufficient facts to establish falsity. Given that a “pure
statement of opinion” is generally not actionable, see
Omnicare, 575 U.S. at 187, Tesla’s remark in the third
statement that “great progress” was being made on battery
production would potentially be an actionable false
statement only if, as the district court put it, Tesla had been
“making no progress at all.” Plaintiffs pleaded no facts that
would establish falsity in that sense. As to the fourth
statement’s contrast between third-quarter performance and
Tesla’s year-end goal, the district court correctly concluded
that it was a “projection, rather than a statement about then-
current production levels.” This August 2 statement was
made in response to a question about anticipated gross
margins for the third quarter of 2017, which still had nearly
two months left to go. Given that the question sought an
 FRIEDMAN V. TESLA 29

explanation for the projected third-quarter margins, the
ensuing reference to a production system that is “meant for
5,000 vehicles a week and it’s producing a few hundred
vehicles a week” can be understood only as contrasting
overall third-quarter expectations with the year-end goal.

Plaintiffs have thus failed to plead falsity as to any
August 2017 statement that is not forward-looking. As to
the statements that are forward-looking, they were
accompanied by meaningful cautionary statements, as
explained earlier. See supra at 22–23.

* * *

As a result, the district court correctly concluded that
none of the 15 statements challenged in the SAC was
actionable. And because Plaintiffs have “not sufficiently
alleged violations of Section 10(b) and Rule 10b-5,” they
likewise “cannot establish control person liability” under
§ 20(a). See City of Dearborn Heights, 856 F.3d at 623. The
SAC was therefore properly dismissed.

III

The only remaining question is whether the district court
erred in dismissing the SAC without leave to amend because
of the futility of further amendment. “We review the denial
of leave to amend for an abuse of discretion, but we review
the question of futility of amendment de novo.” United
States v. United Healthcare Ins. Co., 848 F.3d 1161, 1172
(9th Cir. 2016) (citations omitted); see also Eminence
Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051–53 (9th
Cir. 2003) (per curiam). We conclude that further
amendment would be futile and that leave to amend was
properly denied.
30 FRIEDMAN V. TESLA

As stated earlier, Plaintiffs’ briefs on appeal place heavy
reliance on an additional August 2017 statement that was not
pleaded in the SAC. Specifically, Plaintiffs contend that the
following statement from Tesla’s August 2, 2017 Form 8-K
filing is false and misleading:

During Q2, our engineering, manufacturing
and supply chain teams were focused on the
final stages of Model 3 product development
and building the “machine-that-makes-the-
machine” for the start of production. . . .

...

Having started production of Model 3 on
schedule in July, and having installed the first
Solar roofs, our teams are now focused on
ramping the production rate of these products
to support our mission of accelerating the
world’s transition to sustainable energy.

Plaintiffs argue that the reasonable import of this statement
is that Tesla had completed the “machine-that-makes-the-
machine”—that is, the automated assembly line—and had
started such automated production in July. We need not
decide whether Plaintiffs have demonstrated that they can
sufficiently plead falsity and scienter for this additional
statement. Even assuming arguendo that they have done so,
we conclude that such an amendment would be futile
because Plaintiffs have failed to show that they can plead
loss causation as to this statement.

The loss causation element of a § 10(b) claim “is simply
a variant of proximate cause,” and “the ultimate issue is
whether the defendant’s misstatement, as opposed to some
 FRIEDMAN V. TESLA 31

other fact, foreseeably caused the plaintiff’s loss.” Lloyd v.
CVB Fin. Corp., 811 F.3d 1200, 1210 (9th Cir. 2016). Loss
causation thus focuses on whether a loss can be attributed to
“‘the very facts about which the defendant lied.’”
Mineworkers’ Pension Scheme v. First Solar, Inc., 881 F.3d
750, 753 (9th Cir. 2018) (per curiam) (citation omitted).
Because the nature of a fraud is that it conceals “underlying
facts . . . that affect the stock price,” id. at 754, then if the
stock price falls shortly after the disclosure of the true facts,
that decline suggests that the fraud had artificially propped
up the stock price. The analysis is contextual, and where, for
example, a “modest” drop in the stock price coincides with
the disclosure of certain news but then “recover[s] very
shortly after,” the allegation of loss causation may be
insufficient. Metzler Inv. GMBH v. Corinthian Colleges,
Inc., 540 F.3d 1049, 1064–65 (9th Cir. 2008).

The record here confirms that Plaintiffs have failed to
show that they can adequately allege loss causation based on
the theory that Tesla misrepresented in August 2017 that
automatic production had begun in July. Any such
misrepresentation would have been revealed by the Wall
Street Journal’s report, after market hours on Friday,
October 6, 2017, that “[u]nknown to analysts, investors and
the hundreds of thousands of customers who signed up to
buy it, as recently as early September major portions of the
Model 3 were still being banged out by hand, away from the
automated production line, according to people familiar with
the matter.” The same article further explained that, “[w]hile
the car’s production began in early July, the advanced
assembly line Tesla has boasted of building still wasn’t fully
ready as of a few weeks ago.” Because this October 6 article
disclosed precisely the fact that Plaintiffs contend had been
misrepresented—viz., that automatic production had not
started in July—it provides a singularly appropriate context
32 FRIEDMAN V. TESLA

for assessing the adequacy of Plaintiffs’ theory of loss
causation. 4 Tesla’s stock price, which had closed at $356.88
on October 6, closed at $342.94 on the next trading day,
October 9. However, the stock price immediately
rebounded, closing at $355.59 on October 10 and trading
between $350 and $360 over the next week. The quick and
sustained price recovery after the modest October 9 drop
refutes the inference that the alleged concealment of this
particular fact caused any material drop in the stock price.
See Metzler, 540 F.3d at 1064–65; see also In re Oracle
Corp. Sec. Litig., 627 F.3d 376, 392 (9th Cir. 2010) (“To
adequately plead loss causation . . . a plaintiff must allege
that the ‘share price fell significantly after the truth became
known.’” (emphasis added) (citation omitted)); cf. 4 T.
Hazen, Law of Securities Regulation § 12.93 (2020 update)
(“If the price movement of the stock in question is not in
sync with the plaintiff’s theory of recovery, loss causation
will be extremely difficult, if not impossible, to prove.”).

Plaintiffs have thus failed to show that they can
adequately plead loss causation as to the additional August
2 statement that they did not include in the SAC. Because
Plaintiffs have not shown any other basis for concluding that

4
Plaintiffs are therefore wrong to focus on the asserted impact of a
later November 2, 2017 article in the car blog Jalopnik. The alleged
falsity in the August 2 statement had already been revealed by the Wall
Street Journal article in October, and the November 2 article came after
Tesla’s public acknowledgment, in its November 1, 2017 Form 8-K
filing, that it would not produce 5,000 cars per week until at least the end
of the first quarter of 2018. The October 6 article thus provides the
appropriate point of reference for assessing whether the alleged falsity in
the August 2 statement affected Tesla’s stock price.
 FRIEDMAN V. TESLA 33

further amendment would not be futile, the district court
correctly dismissed this action with prejudice.

AFFIRMED.