Having a direct-sales model and no dealerships presents many advantages for Tesla and also some serious issues. It can’t sell in all states, for example. Another problem is that anything that happens in its is on Tesla’s back, not anyone else’s, as a recent case in China shows. The company was sentenced to pay three times what a customer spent on his Model S P85 after discovering the car had structural damages.
As Sina Finance reports, Han Chao bought his certified used Tesla on June 1, 2019, for 379,700 RMB ($58,002 under the current exchange rate). The company told him the car passed 200 tests and had not suffered any major accidents nor presented any structural damages.
That did not prevent Chao from having to make seven repairs in the car from June 5 up to August 24, 2019, when the car stopped working on the road at 120 km/h (75 mph). According to the court ruling Chao shared, he heard a loud noise, the accelerator pedal stopped working, and five fault codes popped out. Chao made it to the road shoulder but said he could have been involved in a serious accident. In total, the car was repaired more than ten times and spent 80 days at the Tianjin Tesla Service Center, where Chao lives.
The diagnostic for that issue on the road was the battery pack. The circumstances seem very similar to when Rich Benoit discovered rats ate the harness of his Model S. That made a fuse blow, provoking a loud noise in Benoit’s Model S and bringing it to a halt on the road.
On November 15, 2019, Chao took his car to Wanfeng Motor Vehicle Appraisal and discovered the electric sedan was involved in a crash before being sold to him. The repair demanded replacing the C-pillar and the rear fender: the damaged ones were cut. That was the main reason for him to sue the company.
This is not Tesla’s first case of issues with the used cars it sells. On March 11, 2020, we have shown that the company was selling a Model 3 with severe paint issues in Canada. Ever since then, Tesla does not use pictures of the real used cars on its website anymore.
On July 12, lawyers and consumer protection entities accused the company of lemon laundering its cars in the US. That would be one of the reasons for Tesla to name warranty repairs as goodwill. A while later, on July 21, customers in Norway also said Tesla sold them cars it knew were defective.
The Chinese consumer rights protection law is one of the most severe regulations in the world about this matter. It establishes that if a company is convicted of using fraud to sell goods to a customer, it has to pay three times what the buyer spent with such goods. This was what the Beijing Daxing District People’s Court ruled Tesla did.
The decision was issued on December 4, and it was based on a third-party evaluation. This new inspection determined that the repairs were real and that the car’s drivability could have been affected by them. If they were duly informed to the customer, the car should have cost 241,099 RMB, or 138,601 RMB ($21,173) less.
Starting the lawsuit was Chao’s last option. He asked for the car to be replaced, but Tesla refused. Without an option, he tried to sue the company in Tianjin but was obliged to take his lawsuit to Beijing, which is 114 km (71 miles) away from his home and from the Service Center where he took delivery of his car. He started the proceedings on March 10.
In the process, Tesla provided documents that the previous owner had had a crash on January 8, 2019, on the car's left rear fender while it was changing lanes. The company claimed the damages were not structural and that it did not know about the wreck, which would prove there was no intention to deceive Chao.
The court did not understand it that way. It said that “Tesla meets the objective requirements for deception” regardless of its “positive actions or inaction.” The decision also states this:
“Whether Tesla has fraud Intentional problems, based on the facts of the case, we know that Tesla is aware of or should be aware of the accident and maintenance of the vehicle involved, and it has the subjective conditions for fraud. In summary, that constitutes fraud.”
Apart from giving Chao his 379,700 RMB back, Tesla will have to pay him a compensation of 1,139,100 RMB ($174,008). Do the math, and you’ll see the company had to pay him the equivalent of $232,010. Tesla said it would appeal the ruling, but it did not answer Sina Finance’s request for comment.
At Weibo, China’s main social media, Han Chao made fun of Elon Musk after the decision with a picture of him holding a bunch of grass. Our Chinese readers may be able to explain what that means.
In that post, Chao celebrates getting his money back and compliments the judge for not disclosing the sentence. If we understood it right, that could cause the decision to be invalidated at the second instance. Regardless of that, the Chinese customer presented part of the sentence, the one with the description of his problems with the car and why the court concluded that Tesla acted deceptively.
Considering this is not the final decision on the situation, we shall have to wait a bit longer to see if Tesla managed to reverse the court decision or not. If it doesn’t, Chao’s celebration post on Weibo will be “res judicata.”