Elon Musk Defends Tesla's SolarCity Acquisition in Court

Elon Musk Testifies in SolarCity Acquisition Lawsuit

Elon Musk appeared in court on Monday morning to provide testimony in a lawsuit concerning Tesla’s 2016 acquisition of SolarCity. This $2.6 billion transaction is being challenged by a group of shareholders who contend that the purchase functioned as a “bailout” for the struggling solar energy firm.

Shareholder Allegations

The shareholders are requesting that Tesla be reimbursed for the full cost of acquiring SolarCity. Filed in the Delaware District Court in 2017, the lawsuit asserts that SolarCity was facing imminent bankruptcy prior to the acquisition.

It is alleged that Musk, serving as chairman of the board and largest stockholder of the then-ailing company, personally benefited from the deal, as did several of his close associates and family members. Lyndon and Peter Rive, the founders of SolarCity, are, in fact, Elon Musk’s cousins.

SolarCity’s Financial Condition

According to the plaintiffs, SolarCity consistently operated at a loss, accumulated substantial debt, and experienced an unsustainable rate of cash expenditure. Over its decade-long history, the company amassed over $3 billion in debt, with nearly half becoming due before the close of 2017.

The acquisition was ultimately approved by a shareholder vote, with 85% in favor of the transaction.

Musk’s Vision for Integration

Musk’s legal representation argues that the acquisition aligned with his broader strategic vision for Tesla – to evolve the company into a comprehensive transportation and energy provider.

In a blog post titled “Master Plan, Part Deux,” published around the time the deal was finalized, Musk detailed how integrating SolarCity with the electric vehicle manufacturer was crucial to realizing his concept of combining Powerwall (Tesla’s battery storage solution) with solar roof panels.

Recent Testimony and Claims

During Monday’s testimony, Musk stated that Tesla had to divert resources from its solar business to prioritize meeting production targets for the Model 3 sedan. This information was shared via Twitter by Will Oremus of The Washington Post, reporting from outside the courtroom.

USA Today’s Isabel Hughes, also present, reported that Musk attributed the underperformance of the company’s solar division to the impact of the pandemic. He reportedly referred to the plaintiff’s attorney, Randall Baron, as “a shameful person” during a 2019 deposition.

Recusal and Undue Influence

While Musk’s lawyers claim he recused himself from board discussions and negotiations related to the acquisition, the plaintiffs contend that this recusal was merely a pretense. A central issue for the court will be determining whether Musk exerted inappropriate influence over the transaction and if crucial information was withheld from shareholders.

Previous Settlements

Other board members involved in the suit – Robyn Denholm, Ira Ehrenpreis, Antonio Gracias, Kimbal Musk, and Stephen Jurvetson – reached a settlement of $60 million last year, alongside $16.8 million in legal fees and expenses covered by insurance.

Trial Details and Potential Outcomes

The current trial, featuring Elon Musk as the sole defendant, was delayed for a year due to the coronavirus pandemic. It is anticipated to last for 10 business days.

The case is being heard by Vice-Chancellor Joseph Slights III in the Delaware Court of Chancery, which operates without a jury. Even if the judge determines the deal was improper, the financial penalty imposed on Musk may be significantly less than the $2.6 billion originally paid for SolarCity.