In the run-up to Tesla Inc.’s 2016 acquisition of a company called SolarCity, Elon Musk hailed the deal as “no-brainer” – a purchase that would combine the leading electric vehicle maker with a solar panel maker that can recharge electric vehicles. .
It didn’t exactly work that way.
Tesla CEO to testify in Delaware Court of Chancellery on Monday on $ 2.5 billion deal in shareholder lawsuit alleging dispute over Tesla acquisition interests, ignored SolarCity’s fundamental weaknesses, and, unsurprisingly, failed to deliver the profits Musk promised.
When 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 its chairman. Seven shareholder lawsuits, bundled into one, alleged Tesla directors breached their fiduciary duties by complying with Musk’s wishes and agreeing to buy the ailing company. In what the plaintiffs call an obvious conflict of interest, SolarCity was founded by Musk and two of his cousins, Lyndon and Peter Rive.
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 fault. This left Musk, who refused to settle, as the only remaining defendant. The trial which begins on Monday was scheduled for March of last year but has been postponed due to the viral pandemic.
Daniel Ives, analyst at Wedbush Securities, called the acquisition a “clear black eye” for Musk and Tesla, in large part because SolarCity did not make a profit.
“It was basically about putting the good money after the bad,” Ives said. “For all the successes and unimaginable heights that Musk has reached, this is one of the weak spots.”
Most investors, Ives said, don’t place any value on the company’s solar business.
“I just think Musk and Tesla underestimated the challenges and obstacles that the company brings,” he said.
That said, Ives said he believes Tesla’s energy business may yet become “a modest success.”
Tesla, who disbanded its media relations department, did not respond to a message on Friday requesting comment on the lawsuit. In its 2020 annual report, the company argued that the lawsuit was without merit and that Tesla would vigorously defend itself.
“We are unable to estimate the possible loss or the extent of loss, if any, associated with these claims,” the company report said.
Tesla’s energy production and storage business generated $ 1.9 billion in revenue last year, up 24% from the previous year. Much of this income came from the sale of battery storage units. Tesla does not say whether the company has made a profit, and it also has debts and expenses.
The plaintiffs’ lawsuit argues that Musk motivated the decision to acquire SolarCity despite his obvious conflict of interest.
Musk has a history of fighting government agencies and lawsuits. He was forced to pay the Securities and Exchange Commission a $ 20 million fine for making statements on Twitter about having the money to privatize the company when he did not. But he won a libel lawsuit filed by a British diver involved in rescuing a Thai football team trapped in a flooded cave. Musk had called the man a “pedo guy” on Twitter.
Even if the lawsuit ends with Musk having to personally pay for the entire SolarCity deal, $ 2.5 billion won’t do much harm to the third richest person in the world. Forbes magazine estimated that Musk is worth around $ 163 billion.
Ives suggested that while such a payment wouldn’t seriously affect Musk’s wealth, it would hurt his reputation for picking acquisitions.
Musk is fighting the lawsuit after others settle “because that’s what Musk does,” Ives said. “I think Elon thinks it was the right deal and still is.”