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Is Tesla bullying its own biggest fan? · TechNode


Chinese electric vehicle startup Xpeng has never been shy about its Tesla fandom.

“One of the reasons Xpeng was founded was because Elon Musk made Tesla’s patents available. It was so exciting,” He Xiaopeng, the company’s CEO, told Quartz in 2018. These words would return to haunt him.

Back in June of 2014, Tesla invited competitors to learn from its work on EVs by open-sourcing approximately 200 of its patents. In a blog post, Elon Musk wrote that he hoped a “common, rapidly-evolving technology platform” would encourage more companies to make electric cars—and that patent protections often “stifle progress.”

Xpeng founder Henry Xia took Musk up on his offer. That same month, he and two friends started their own autoworks in Guangzhou.

Tesla v. Cao

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Today, Tesla’s attitude has changed. It argues that Xpeng crossed the line from imitation to theft. Tesla is suing its former employee Cao Guangzhi, alleging that the engineer misappropriated code for its Autopilot driving assistance function before leaving to take a job at Xmotors, Xpeng’s US-based sister company. At stake is Xpeng’s reputation, the limits of competition, and the ability of Chinese companies to hire leading engineers from Silicon Valley.

As TechNode wrote last week, Tesla is using the case against a former employee to justify a broad hunt through a competitor’s files to find proof of its IP theft suspicions.

In 2014, Musk wrote that gasoline-fueled vehicles were the company’s main competitors, not rival EV companies.

Neither Xpeng nor Xmotors has been named in the lawsuit, but Xmotors has been listed as a third party in the proceedings. The company has argued that Tesla’s moves are aimed at “bullying and disrupting” it.

Tesla has asked a San Francisco court to allow it access to its competitor’s entire repository of autonomous driving code and clones of its executives’ hard drives—including those of He, its CEO. A hearing on the matter was due to take place on May 7 in a San Francisco federal court, but has been delayed until May 28.

If Tesla wins its motion, Xpeng will have to hand over much of its most sensitive information. Even if Tesla ultimately loses the lawsuit, it would send a message that engineers who switch jobs to Chinese employers are automatically suspected, which could chill recruiting for years.

How did it get so bad?

TechNode reviewed public court documents, spoke to industry insiders, interviewed Chinese lawyers about the case, and attempted to reach Cao’s friends. What emerged was the story of a tragic relationship—a group of Chinese EV enthusiasts who loved Tesla so much they tried to become it, and an American company that went from nurturing competitors to accusing them of theft.

Tesla did not respond to TechNode’s request for comment.

Bidding for talent

To compete in self-driving technology, Xpeng began recruiting engineers from top Silicon Valley companies, including Tesla and Apple, in 2017. For years, Tesla engineers have been sought after as some of the most capable leaders in the future of driverless mobility. These employees have been chased by US tech companies hungry for self-driving talent, as well as by Chinese tech firms with US operations.

When Xpeng hired Gu Junli, a young engineering manager from Tesla, they made her vice president of autonomous driving. The promotion allowed Gu to jump three ranks up from her previous job—equivalent to 10 years in the career of a typical engineer. Xpeng also issued a press release boasting that she was a “leading figure” in Tesla’s machine-learning technology.

But Gu’s Tesla resume did not automatically lead to success. One year after joining the company, Chinese media reported, she was missing her targets. Two persons close to Xpeng told TechNode she was just too inexperienced to build a team that could compete with the giants in a field like self-driving.

In December 2018, Xpeng replaced Gu as head of the team with a hire from Qualcomm, Wu Xinzhou. It was Wu who would later recruit Cao from Tesla.

Gu was given another job as a leader for development of “advanced” technologies, but was later sidelined. She left the company in March.

Sincerest form of flattery

In 2018, Xpeng launched its first production vehicle, the G3. At the time of launch, the vehicle had a range of around 350 kilometers and shipped with driver assistance features. Observers noticed several similarities between the G3 and Tesla’s Model X and Model S—from the front profile of the car to the interior dash design.

This influence came as no surprise, given how open Xpeng had been about where it had drawn its inspiration.

Xpeng had a lot in common with the Chinese smartphone giant Xiaomi, one of the company’s recent investors. When Xiaomi began operating, it took many of its cues from Apple—so much so that it was often called an Apple clone. The company adopted the same minimalist aesthetic as its US counterpart, but quickly began developing its own signature line of devices, from smart home equipment to computers, clothing, and cookware.

But copying an idea is not against the law. “The reason Apple won’t sue Xiaomi is that, while their products look similar, they don’t necessarily constitute copyright infringement,” Fang Chaoqiang, a lawyer at Beijing-based Yingke Law Firm, told TechNode.

Xiaomi is the poster child for an argument that critics of IP law have made for years—if the Chinese company had not been able to learn from Apple, dozens of innovative products would never have come on the market.

Allegations emerge

If Tesla took issue with the G3’s similarities to its own vehicles at the time of launch, it didn’t say much. In Musk’s 2014 patent blog post, he wrote that manufacturers of gasoline-fueled vehicles were the company’s main competitors, not rival EV companies. Indeed, the 16,608 vehicles Xpeng shipped in 2019 were a drop in the ocean compared to Tesla’s sales.

But after US-based Xpeng engineer Zhang Xiaolang was arrested by the FBI for stealing Apple IP while switching jobs in July 2018, rumors simmered that the Chinese company was cheating to catch up. Zhang was arrested on July 7, 2018, after Apple accused him of downloading sensitive information before he resigned to take a job with Xmotors in China.

Xpeng leaders deny that they encouraged Zhang to misappropriate Apple’s IP. The company added that there is no evidence Zhang transferred sensitive information from Apple to Xpeng, and that the engineer’s contract has been terminated.

The fallout for Xpeng’s reputation was immediate. Now, the company faces challenges in hiring talent, as US-based Chinese engineers have reportedly distanced themselves from the company.

In the 29 reviews about Xmotors to be found on job search website Glassdoor, three employees addressed concerns that their career prospects might be affected by these lawsuits, since “no one wants to hire someone from a company with all the public news about FBI investigation.”

An Xpeng spokesperson told TechNode that the company has not had trouble hiring new engineers in the US or China.

Cao, then an engineer at Tesla, condemned Zhang, the former Apple employee, in text messages that have since become public in the course of the lawsuit. Zhang’s case would cause a “bad impression on us Chinese,” he said, according to translated message transcripts.

Xpeng hires Cao

When Wu Xinzhou, Xpeng’s new self-driving team leader, interviewed Cao about a job as “head of perception” in late 2018, the Tesla employee was concerned about how the job switch would look. Cao later told the court that Wu had soothed his worries by saying Xpeng “did not get involved at all” in Zhang’s actions.

Cao was a high-flying computer vision expert and a natural fit for the perception job. With both a bachelor’s and master’s degree in electrical engineering from Zhejiang University—one of China’s top schools, which houses an entire startup accelerator in an ultramodern egg-shaped building at the center of campus—and a Ph.D. from Purdue University, he’d worked on medical applications of computer vision at GE and Apple before working at Tesla.

Cao joined Xpeng in January 2019.

Just two months later, he was in court.

Xpeng’s work on autonomous driving had begun long before Cao joined them. The company was developing its driver assistance technology as far back as 2015, three years before its first mass-produced vehicle was released. Level 2.5 autonomous driving capabilities were included in the G3 upon delivery in early 2019, with assisted lane changing, cruise control, lane centering, and automatic speed limitations.

(Screenshot: TechNode/Jill Shen)

But in December 2019, Musk aired suspicions on Twitter that Xpeng was copying Tesla’s code. When a Twitter user with the moniker “The Cyber Pope of Muskanity” suggested that Xpeng had stolen Tesla’s software, Musk replied, “That’s certainly our impression.”

When Cao left Tesla in January 2019, the company suspected another engineer, surnamed Zhang. In addition to a shared nationality, both engineers had previously worked at Apple—though Cao has testified that they worked in separate divisions located at different buildings and campuses.

When Tesla found out that Cao had copied files to a personal computer, they decided that he had taken the code for his new employer. In March 2019, the company filed a suit against Cao, formally accusing him of misappropriating code by copying it to his personal iCloud account.

Fool me twice?

Tesla is trying to paint Xpeng as a repeat offender that poached engineers in order to gain access to IP, said a Chinese lawyer who spoke to TechNode under the condition of anonymity. Successfully linking the cases could have serious reputational implications for Xpeng.

Tesla admits that it can’t prove the theft.

Unlike smartphone design, in the world of self-driving software, it’s difficult to tell if someone has copied your product without actually getting your hands on the code. Tesla claims, in essence, that the fact that Cao had the code when he left Tesla is so suspicious that they should be allowed to rifle through Xpeng’s files in an effort to prove that the Chinese company used it.

As tech giants turn into corporate behemoths, they’ve taken a more possessive attitude to their employees.

Tesla’s case is built heavily on parallels between Cao and Zhang, but the company argues that its document requests will allow it to find proof. Cao has admitted to downloading files to a personal computer, but claims it was common practice at the company.

Other evidence submitted by Tesla is weaker. For example, an edited translation of Cao’s text message exchange about the Zhang case made it appear that Cao was speculating about how much money Zhang had gotten from Xpeng—when in fact this message was sent by his friend. Cao had responded by condemning Zhang’s actions.

Tesla’s case against Cao and the US authorities’ move to indict Zhang are two independent lawsuits, at least for now, said Lin Hang, a lawyer at Guangzhou-based F&P Law Firm. There are different parties involved in each case; moreover, Cao’s is a civil case, while Zhang’s is criminal. Xmotors is a third party in both. 

Lin questioned the grounds of demonstrating a pattern of misconduct by Xmotors in its operations and recruiting. “You can’t just say C stole from D because A allegedly stole from B,” he said.

Another counsel, who wished to remain anonymous, was pessimistic about Xpeng’s chances, as the US has increasingly treated all Chinese companies as potential IP thieves. Tesla’s move against Xpeng may trigger more US tech companies targeting Chinese competitors for intellectual property theft, he said.

Whether he wins or loses, Cao’s life has been permanently changed. Xpeng placed him on administrative leave “until further notice” in March 2019, when the investigation began. His position has since been filled by a subsequent hire. The damage to his reputation will likely last much longer.

A non-compete by any other name …

In 2014, Musk wrote that Tesla’s leadership was defined by its ability to “attract and motivate the world’s most talented engineers.” Nowadays, he’s less willing to compete for talent.

In its complaint against Cao, Tesla cited Xpeng’s pursuit of its engineers as part of a pattern of “copying,” writing that “at least five former Tesla Autopilot team members including Cao have gone to work for Xmotors.” Xpeng, and other Chinese EV startups, are known in the industry for recruiting Chinese employees from US tech giants with highly competitive salaries and stock option plans.

If Tesla wins its suit, it could have broad effects on the market for tech talent, scaring off engineers who had been considering working for Chinese companies.

Hiring away a rival’s staff is a normal part of competition, and Silicon Valley was built on disloyal employees. In the US, California is the only state that bans non-compete agreement—contracts are common throughout the rest of the US—and this fact is often credited with spurring the state’s culture of entrepreneurship.

Nevertheless, as tech giants turn into corporate behemoths, they’ve taken a more possessive attitude in regard to their employees—and the US’s Department of Justice (DOJ) has taken notice. In 2010, the DOJ alleged that companies including Apple, Adobe, Intel, and Google had made a deal not to recruit each other’s employees, limiting competition in the labor market and holding down salaries for coding talent. The measures effectively barred rivals from reaching out to potential employees at competing companies to offer them new positions.

In 2011, the companies settled with the DOJ, promising to end the practice. Subsequently, in 2015, they agreed to pay $415 million to settle a related class-action lawsuit in order to compensate around 64,000 employees.

While tech firms can’t use non-compete agreements to retain their employees, if Chinese engineers who start jobs at rival companies face probes or life-altering lawsuits, they are effectively bound by fear of repercussions from moving to better jobs.

He Xiaopeng, Chairman and CEO of Xpeng Motors said its Xpilot driver assisted system is tailored-made for complex Chinese traffic scenarios during the launch event of its first sedan model P7 on Monday, April 27, 2020. (Image credit: Xpeng Motors)

Is Xpeng ready to leave the nest?

For most consumers, an Xpeng is still just a cheaper version of a Tesla. But as the company fights in court to prove that it’s not stealing IP, it is making moves in self-driving in an effort to find its own identity.

Xpeng has seen several changes in its self-driving team since Tesla began its legal offensive. Gu, the young Tesla hire who previously led autonomous driving, finally left the company this March due to “personal career and family reasons,” after reportedly being idle from any management roles for a couple of months.

Meanwhile, Cao’s position has been filled by Wang Tao, the co-founder of Drive.ai, the self-driving startup acquired by Apple in June 2019, according to Xpeng slides that were shared with the media last year.

Xpeng is forging on. In March, the company launched its first electric sedan model, the P7. The vehicle is equipped with Xpilot 3.0, Xpeng’s latest driver assistance system. The EV startup is attempting to follow the path set by backers Alibaba and Xiaomi—from copycat to Chinese original. It’s promising self-driving technology software and hardware that is different from Tesla, with executives claiming that its systems are optimized to better handle China’s crowded roads.

“I strongly believe that P7 will provide the best driver-assist experience in China,” Xpeng’s He said during the sedan’s launch event last month.

As the legal battle between Tesla and Xpeng heats up, the P7 could allow Xpeng to show that its days of imitating Tesla are over. But the stakes are high. EV leaders expect bankruptcies to dominate the headlines. Li Xiang, the founder of rival EV firm Lixiang, recently warned: “Given the hardship in the Chinese auto market, there is a possibility that only three out of more than 100 EV startups could survive … and I hope Nio and Xpeng can be with us.” It may all come down to a judge in San Francisco.





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Written by Aakash Malu

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