In an unprecedented move, US-based electric vehicle maker Tesla has made a request to examine a competitor’s entire repository of autonomous-driving source code and senior executives’ hard drives as part of a lawsuit against a former employee.

The EV giant has escalated its offensive against Cao Guangzhi, whom the company has accused of stealing trade secrets before he moved to XMotors, a US-based sister company to Chinese EV manufacturer Xpeng, in January 2019.

This article first appeared in Drive I/O, TechNode’s biweekly newsletter on autonomous and electric vehicles, on April 29. Didn’t get this in your inbox? Get in touch and we’ll fix it!

Cao served as head of perception at XMotors, though he has been on leave since the investigation began. Tesla alleges that Cao copied Autopilot source code during his time at Tesla, and that the software could have benefited Xpeng.

Now, one year after filing a suit against the Chinese engineer, Tesla is attempting to gain access to a vast array of Xpeng’s internal communications and proprietary code in a push to indict Cao. Court documents reviewed by TechNode reveal that Tesla is taking an extraordinarily aggressive approach to the dispute with its smaller rival.

Tesla argues that Cao’s arrival at XMotors mirrors that of former Apple engineer Zhang Xiaolang, who was arrested in the US on charges of stealing proprietary information related to Apple’s self-driving car project before joining XMotors.

Xpeng is hardening its stance in the escalating legal battle with Tesla in an uncharacteristically public way.

Tesla’s offensive

Tesla first filed a civil complaint against Cao in March 2019, claiming the engineer had copied Autopilot-related source code to his personal iCloud account in a nine-month period before leaving Tesla. Neither Xpeng nor XMotors have been charged in Tesla’s suit.

In July 2019, Cao acknowledged that he had downloaded and stored Tesla source code on his personal laptop, but pleaded not guilty to theft charges. The dispute remained at a deadlock.

In November of 2019, Tesla issued its first subpoena to XMotors, seeking a broad array of information, including “all non-privileged” internal communications involving Cao. The request included any correspondence on the popular messaging app WeChat that was related to Tesla and Autopilot.

Tesla also requested Cao’s personal messages to XMotors employees, as well as his compensation and employment terms with Xpeng. XMotors responded to Tesla’s request in December by filing 6,333 pages of documents. An initial investigation found no evidence that XMotors encouraged Cao to exploit Tesla’s source code for its benefit. 

After nearly a year of litigation, Tesla issued a second subpoena to XMotors this January, requesting an array of documents as well as XMotor’s entire repository of autonomous-driving source code from before Cao was recruited, to after he was placed on leave in March 2019.

Tesla’s request extended to images of entire hard drives from various Xpeng employees’ work computers, including those of the company’s CEO He Xiaopeng and president Brian Gu. The request also demanded that Xpeng make an employee available for an interview.

Tesla’s latest requests have infuriated the domestic EV startup. This is “just a fishing expedition meant to bully and disrupt a young competitor,” Xpeng said in an announcement released April 24, just two days before the company launched the P7, its first sedan model, which competes with Tesla’s China-made Model 3. The Chinese EV maker said that Tesla’s request to broaden the scope of the investigation is “based on nothing more than sheer speculation.”

Most notably, Tesla asked XMotors for documents related to a case against Apple’s former employee Zhang Xiaolang, looking for a pattern of misconduct by XMotors in its operations and recruiting. What has caused the American EV giant to prolong its campaign against its Chinese rival? Here are some of the key findings revealed in the recent documents filed by XMotors in US courts.

Opposing views

Tesla’s arguments: The US EV giant is seeking to connect a previous employee accused of stealing trade secrets before joining Xpeng and the latest case against Cao. Tesla is also suspicious about the conditions under which Cao left the company.

  • Cao copied more than 300,000 Autopilot files from a working computer to his personal iCloud account before starting at XMotors in January 2019, Tesla said in the lawsuit filed last March. The Silicon Valley carmaker also raised suspicions about Cao transferring confidential information to his new employer by noting that he gave only one day’s notice before leaving his job at Tesla.
  • Tesla claims that Cao copied its Autopilot source code onto a Sandisk thumb drive, a popular brand of USB storage device. According to information gathered during Tesla’s investigation, a Sandisk drive was then inserted into an Xpeng-issued laptop. Cao’s personal device “could be the same” as the one inserted in Xpeng’s computer, Tesla argues.
  • Tesla’s latest demands for documents related to the arrest of former Apple employee Zhang Xiaolong were made on the grounds that Cao texted a friend saying, according to a disputed translation from Chinese, that “I guess they [Zhang and Xpeng] agreed on the price before to get the documents.” Cao’s work experience at Apple had also caught Tesla’s attention, causing the EV giant to wonder if Cao knew or had contact with Zhang—and whether the two engineers had acted in concert.

Xpeng’s testimony: Meanwhile, Xpeng and Cao have contradicted Tesla’s claims, arguing that conversations between the engineer and his colleague had been mistranslated.

  • Cao cloned the entire Autopilot source code repository to his personal computer, without telling anybody or asking if he was permitted to do so, according to his testimony in a deposition held earlier this year. Cao said he thought it was “common practice” for engineers at Tesla. “Everyone was using personal devices, personal storage, cloud storage to access Tesla information,” Cao said.
  • Cao’s testimony contradicts Tesla’s claims that he only gave one day’s notice before leaving the company. Cao said he told his then-supervisor in late December 2018 that he planned to leave and expressed willingness to stay as long as necessary to ensure a smooth transition. “I don’t know who made that lie intentionally or unintentionally,” Cao said of his disputed resignation date.
  • Xpeng challenges Tesla’s translation of the text message exchange. According to a certified translation, it was the friend who first brought news of Zhang’s arrest to Cao’s attention, not vice versa. It was also Cao’s friend who sent the text message about payment for documents to Cao. Cao rebuked the friend, saying, “It creates really bad impressions of us Chinese people.”
  • Cao denied knowing Zhang, the defendant in Apple’s pending criminal case. “He and I did not work in the same division at Apple … and our respective engineering groups were located in different physical buildings and different campuses,” Cao wrote in his testimony.

In competing with their US counterparts, Chinese companies have long been known to seek shortcuts by poaching their employees. However, it is also true that not every job switch amounts to trade secret misappropriation. At the moment, Tesla’s suspicions remain mostly hypothetical: XMotors has not been named or charged in either the criminal case against Zhang or the civil action with Cao.

“We have engaged in no wrongdoing and we have fully cooperated with Tesla for months, including voluntarily providing our own confidential information. However, Tesla’s latest demands crossed the line, seeking to rummage through our IP on Tesla’s terms,” the company said in an announcement issued last week. Tesla did not respond to a request for comment.

Is Xpeng a threat?

In its court filing of last week, XMotors said Tesla’s latest demands are an attempt to “obtain competitive information” in order to make their rival less competitive. On the other hand, Tesla claimed it had no interest in the substance of XMotors’ source code but rather wants to ascertain whether there is anything resembling its intellectual property.

Given Tesla’s dominant position in the Chinese EV market, the argument is plausible. The US carmaker delivered more than 16,000 EVs in China during the first quarter of this year, representing nearly a third of market share—even as domestic EV giant BYD faltered amid the Covid-19 outbreak. Tesla’s first-quarter sales in China are on par with nearly all of Xpeng’s annual deliveries, a margin wide enough to solidify Tesla’s leadership in the market.

Tesla’s dominance could be challenged by companies like Xpeng, which launched its first electric sedan this week. Xpeng claims the P7 is the first “L3 autonomy-ready” production vehicle with the longest driving range in China.

The company also claims that its assisted-driver system Xpilot differs from those of its rivals because it is tailor-made for congested Chinese traffic situations. CEO He Xiaopeng promised to offer the “best user experience” with features that include autonomous lane changing on highways—to be made available via an update next year.

At a third of the price of Tesla Model S, Xpeng’s newest vehicle has elicited strong interest from some Chinese EV enthusiasts. “The P7 could be the most cost-effective EV sedan available in the market,” said one netizen in a WeChat group for EV fans after Tuesday’s press conference.

Although it’s still unclear whether the P7 could be a “Tesla killer” that may also help Xpeng outperform its Chinese rivals, the two companies’ escalating court battle and the fight for pole position in the world’s largest EV market is only just beginning.

Correction: A previous version of this newsletter incorrectly stated that two former Apple engineers joined Xpeng after leaving the US tech giant. Only Zhang Xiaolang joined the company. This text has also been amended to clarify that Cao Guangzhi was placed on administrative leave in March 2019. 

Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen

Chris Udemans

Christopher Udemans is TechNode's former Shanghai-based data and graphics reporter. He covered Chinese artificial intelligence, mobility, cleantech, and cybersecurity.