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Tesla feels the heat in China as it faces a litany of lawsuits

Written by Song Jingli Published on   4 mins read

Tesla has faced a number of lawsuits from Chinese customers accusing the company of fraud and deceptive sales practices.

A Beijing court ruled that Tesla fraudulently sold a secondhand vehicle to a customer, named Han Chao, and must issue a refund and compensation to the tune of RMB 1.1 million (USD 175,600), triple the vehicle’s price, online news portal Tencent Tech reported last week. The ruling was made by the Daxing district court in Beijing in December, but recently surfaced again following the protest of a woman against Tesla during the Shanghai Auto Show. The US company has come under fire in its second biggest market, where it is currently being sued by multiple customers.

Tesla didn’t accept the decision in the case against Han and appealed to the Beijing No. 2 Intermediate People’s Court, which was expected to read out a verdict before May 3. (The court has since then extended the deadline.) According to Tencent Tech and also the claimant’s Jinri Toutiao account, Tesla approached Han for a settlement out of court, but he rejected the proposal.

Han purchased a secondhand Model S from Tesla in June 2019, but the car needed repair seven times due to various problems in the two and a half months that followed. The most serious incident happened on August 24, when he lost control of the vehicle after both the accelerator pedal and brakes malfunctioned, nearly causing an accident, he said. An appraisal service later found structural damages on the car and confirmed that it was indeed involved in an accident before being sold to Han.

The plaintiff argued that Tesla defrauded him as it claimed that all secondhand vehicles in their inventory have never been in serious accidents and have no structural damage. Tesla said that the vehicle in question was only involved in a fender bender, and that its broken fender had been replaced.

The court entrusted a second vehicle appraisal company to examine the vehicle, which found the fender repair led to a reduction of RMB 82,089 (USD 12,655) from the car’s value and affected the vehicle’s operational safety. It then ruled against Tesla, stating that the company cheated the customer by not properly clarifying the status of the vehicle, including the past accident and corresponding repair.

A woman protests on top of a Tesla Model 3 at the Shanghai Auto Show on April 19. Photo by and courtesy of Hao Yan.

Earlier incidents

Han is not alone in his dispute with Tesla. Several others in China have also spent years suing the EV maker for practices they alleged as “fraud,” as shown by verdicts posted on an online portal run by the Supreme People’s Court of China.

Zheng Xin bought a brand new Model X 75D5 from Tesla’s Tianjin sales unit in 2017, but later found there were maintenance tracks on the doors. She sued Tesla, suspecting the company of misleading her during the sales process by saying the vehicle had never been repaired. The Tianjin Hexi district court ruled in favor of Zheng, demanding Tesla’s Tianjin unit issue a refund and pay RMB 2,460,450 (USD 378,000) in compensation.

Tesla appealed to a higher court, which in November 2019 ruled against Zheng after confirming the repair was made before being exported to China so that the Tianjin unit had no information about this and thus could not inform the buyer, lacking grounds for committing fraud.

Beijing-based Zhang Fengying entrusted her grandson Sun Yu to buy a secondhand Model X 90D from Tesla’s subsidiary Ludesi in June 2019. Sun, who received the vehicle one month later, found in August that the car was involved in an accident in March 2018 and received repairs before being resold. Zhang sued Ludesi, alleging fraud.

The court concluded that the seller did not know about the accident and denied Zhang’s requests, including a full refund, and ruled that the firm should instead compensate Zhang with RMB 100,000 (USD 15,500). The buyer appealed but a higher court upheld the original decision in December.

The wrong model

One case took a bizarre turn. Wang Hailin intended to purchase a secondhand Model S 75D in May 2018. Running low in stock, a Tesla salesperson proposed that he buy a Model S 60D, which could later be upgraded to the desired version. Wang signed an agreement for the purchase of a Model S 75D and paid RMB 67,600 (USD 105,000), but transportation authorities denied the vehicle’s registration as the credentials didn’t match Wang’s car.

Wang alleged fraud and pleaded for a refund and compensation of around RMB 2 million (USD 313,000). The court agreed that he deserved a refund, but did not conclude that this was a fraudulent transaction as Wang knew that the vehicle in question was a Model S 60D.

With a litany of lawsuits affecting its image in China, Tesla is now taking a more conciliatory approach. “We will continue to try our best to cooperate with the courts and hope to minimize the impact on the industry and car owners,” Tesla said in a statement with regards to Han’s case last week. To have a future in the country, the EV maker will need plenty of skilled local lawyers, as much as it takes on assertive sales teams.

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