Elon Musk called to defend Tesla’s acquisition of SolarCity

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In the lead-up to the acquisition of Tesla Inc. In 2016 on a company called SolarCity, Elon Musk hailed the deal as a “no-brainer” — a purchase that would bring together the leading maker of electric cars with a maker of solar panels that can recharge electric vehicles. .

It didn’t work out exactly that way.

On Monday in Delaware court, Tesla’s CEO will testify about a $2.5 billion deal in a shareholder lawsuit alleging that the Tesla acquisition was riddled with conflicts of interest, ignored SolarCity’s fundamental weaknesses and unsurprisingly failed to deliver the profits Musk promised.

Questioned under oath, Musk plans to defend the purchase as a justifiable acquisition.

At the time of the purchase of all the shares, Musk was SolarCity’s largest shareholder and chairman. Seven shareholder lawsuits, combined into one, allege that Tesla managers violated their fiduciary duties to comply with Musk’s wishes and agree to buy out the troubled company. In what prosecutors call an apparent conflict of interest, SolarCity was founded by Musk and two of his cousins, Lyndon and Peter Reeve.

Last August, a judge approved a $60 million settlement that resolved claims against all directors on Tesla’s board except Musk without any admission of wrongdoing. That left Musk, who refused to settle, as the only remaining accused. The trial, which began on Monday in March last year, was due to take place but was postponed due to the viral pandemic.

Daniel Ives, an analyst at Wedbush Securities, described the acquisition as a “pure black eye” for Musk and Tesla, in large part because SolarCity failed to turn a profit.

“It was basically putting good money after bad money,” Ives said. “Despite all the successes and all the unimaginable heights that Musk has achieved, this is one of the highlights.”

Ives said most investors place no value on the company’s solar business.

“I just think Musk and Tesla have underestimated the challenges and obstacles that business brings,” he said.

However, Ives said he believes Tesla’s energy business could become “modestly successful.”

Tesla, which dissolved its media relations division, did not respond to a letter Friday seeking comment on the lawsuit. In its 2020 annual report, the company argued that the lawsuit was groundless and that Tesla would vigorously defend itself.

“We cannot estimate the potential loss or the extent of loss, if any, associated with these claims,” ​​the company’s report said.

Tesla’s power generation and storage business generated $1.9 billion in profit last year — a 24% increase from the previous year. Much of that revenue came from selling battery storage units. Tesla doesn’t determine if the company turned a profit, and it also has debts and expenses.

The lawsuit filed by the plaintiffs alleges that Musk led the decision to acquire SolarCity despite an apparent conflict of interest.

Musk has a history of fighting government agencies and lawsuits. He was forced to pay a $20 million fine to the Securities and Exchange Commission for making statements on Twitter about having the money needed to make the company private when he didn’t. But he won a defamation suit brought by a British diver involved in rescuing a Thai soccer team that was trapped in a flooded cave. Musk had dubbed the man “the juggler” on Twitter.

Even if the trial ends and Musk has to personally pay for the entire SolarCity deal, the $2.5 billion won’t do much harm to the world’s third-richest person. Forbes magazine estimated that Musk is worth about $163 billion.

Ives suggested that while any such payments would not seriously affect Musk’s fortune, it would damage his reputation for picking acquisitions.

Ives said Musk is resisting the lawsuit after settling others “because that’s what Musk does.” “I think Elon thinks that was the right deal and it still is.”

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