Tesla slammed with a new lawsuit that claims the company purposely sold defective cars

Hannibal Hanschke / Reuters

Tesla would be particularly vulnerable to a scandal given its history of production problems and quarterly losses.

• A lawsuit filed in January claims Tesla intentionally sold defective cars to customers as "used" or "demo/loaner" vehicles.
• The plaintiff claims he was fired for reporting and objecting to the practice.
• Tesla denies the charges and says the plaintiff was fired for performance reasons.

A lawsuit filed in January claims Tesla intentionally sold defective cars to customers as "used" or "demo/loaner" vehicles. The plaintiff, Adam Williams, is a former regional manager for Tesla in New Jersey who started working at the company in 2011, and claims he was demoted and fired after reporting the practice to his superiors. The Verge first reported the lawsuit.

The lawsuit alleges that, during Williams' time with the company, he became aware of "high-dollar, pre-delivery damage repairs" to vehicles that were not revealed to the customers who bought them. Williams claims he told his supervisor and a vice president at the company about the practice in late 2016 or early 2017 and was demoted in early 2017 while the company allegedly continued to hide significant repairs made to vehicles before they were sold.

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Williams claims he was demoted again in July before being fired in September. The lawsuit alleges that, in demoting and firing Williams, Tesla violated the Conscientious Employee Protection Act (CEPA), which prevents companies located in New Jersey from punishing any employee who reveals, objects to, or refuses to participate in any company activities or policies the employee believes are illegal.

"There's no merit to this lawsuit. Mr. Williams' description of how Tesla sells used or loaner vehicles is totally false and not how we do things at Tesla," a company spokesperson told Business Insider. "Mr. Williams was terminated at Tesla for performance reasons, not for any other reason."

Customers tend to report high levels of satisfaction with Tesla vehicles, and the significant demand for the company's vehicles reflects that reputation. So the lawsuit is surprising and could potentially create a headache for Tesla as it currently is struggling to ramp up production of its newest car, the Model 3.

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