Tesla CEO Elon Musk goes to trial Monday to defend $2.6 billion SolarCity acquisition

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Elon Musk speaks at SolarCity’s Inside Energy Summit in New York.

Rashid Umar Abbasi | Reuters

Tesla CEO Elon Musk is expected in court on Monday, and the stakes are high — if he loses he could have to pay upwards of $2 billion from his considerable personal wealth.

Musk will be the first witness in a trial to defend his role in Tesla’s $2.6 billion acquisition of SolarCity. Shareholders have sued Musk and members of the Tesla board, alleging that the 2016 deal amounted to a SolarCity bailout.

They also allege that it unfairly enriched the Musk family, who were among the largest shareholders, and that Musk and others failed to disclose all pertinent details and breached their fiduciary responsibilities. Musk has insisted he was “fully recused” from negotiations over the deal. 

Last year, the board members named in the suit settled with the Tesla shareholders for $60 million with no admission of wrongdoing. Musk, the second-richest person in the world, was the only defendant who chose to take the fight to court.

There’s no jury to persuade in this matter. His fate will be determined by the Delaware Chancery Court’s judge, Vice-Chancellor Joseph Slights III.

Days in court

Musk has had his share of legal problems beyond SolarCity.

For example, the SEC sued him in 2018 for fraud, with Musk and Tesla settling, paying $20 million each. The charges came after Musk tweeted about taking Tesla private for $420 a share, a move that sent Tesla’s stock price soaring. Musk had to temporarily relinquish his chairman role at Tesla as one of the terms of the settlement.

Company connections

According to a filing with the chancery court, Musk owned 22.1% of Tesla common stock at the time of the deal, and 21.9% of SolarCity. SolarCity was a troubled asset that was bleeding cash in the capital-intensive market of residential solar deployment.

Vehicles sit parked outside the Tesla Inc. solar panel factory in Buffalo, New York, U.S., on Wednesday, Dec. 26, 2018.

Andrew Harrer | Bloomberg | Getty Images

How he pitched it

To Musk and many of his supporters, the acquisition of SolarCity in 2016 represented a natural combination of his companies and a way for Tesla to pursue its environmental mission with a broader array of products. Homeowners would be able to finance and install solar rooftop panels from the same company that provided their electric vehicle, home charging station and backup battery for energy storage.

Tesla had already launched an energy division in late 2015, with a home battery dubbed the Powerwall and other big batteries for use by businesses and utilities.

By June 2016, Musk said Tesla would bid $2.8 billion to buy SolarCity. “I don’t think this creates additional financial risk for Tesla,” he said at that time, and called a merger “blindingly obvious.” But Tesla investors were skeptical, with the stock price plunging more than 10% on the announcement. 

In July 2016, Musk presented his vision of Tesla as an automotive innovator and renewable energy titan in his famous “Master Plan Part Deux.”

As CNBC previously reported, unsealed court documents, including emails between Musk and SolarCity execs, would later reveal that he knew SolarCity was facing a “liquidity crisis” even as Tesla pursued the acquisition.

“Three things need to happen to change investor sentiment: SolarCity solving its liquidity crisis, an LOI with Panasonic to address solar cell production risk, and a joint product demo,” Musk wrote to SolarCity execs in September that year. “Should be able to do all those before the shareholder vote.”

In October 2018, Tesla and SolarCity jointly announced a combined solar roof and battery pack. Musk showed off what looked like a solar panel, miniaturized and sleek enough to be mistaken for high-end roofing materials, at the Hollywood set of Desperate Housewives. 

After the deal



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