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Tesla stock (TSLA) falls as scrutiny over SolarCity acquisition increases with lawsuit

Tesla’s stock (TSLA) took a big hit this morning while the rest of the market was up and it comes as a lawsuit brings more scrutiny to the SolarCity acquisition and Elon Musk’s involvement.

Court documents were unsealed on Monday in a lawsuit that Tesla shareholders filed against the company and Elon Musk alleging that the CEO was more involved in the acquisition process than previously thought.

They paint a picture of Musk finding out that SolarCity was under a cash crunch and he, along with SolarCity leadership, decided to hide that fact and push for a bailout by Tesla:

Reuters reports:

“According to the filing, Musk was informed at a SolarCity board meeting in October 2015 that SolarCity needed to raise up to $300 million and was slashing its solar installation forecast for the year. The company issued $113 million in convertible notes a month later, of which Musk bought $10 million.

By February 2016, SolarCity management told the board its cash balances were forecast to drop below amounts required for a key line of credit for several months of the year. A default on that line of credit would trigger defaults on other debt instruments, the filing said.”

The CEO suggested that Tesla should acquire the solar installer and at the time, he said he would recuse himself from the process since he was SolarCity’s biggest shareholder.

However, Musk admitted in a deposition that he was involved in some discussions:

“I could not be recused from all discussions … I needed to voice my opinion, obviously,”

Tesla’s board and shareholders ended up approving a $2.6 billion acquisition of SolarCity with a strong majority and yet, several Tesla shareholders were not happy about the process and they ended up filing lawsuits against Tesla’s board and Musk specifically.

At the time, Musk said that the merger was a “no-brainer” due to the synergy between the solar installer and the automaker.

The CEO suggested things like selling SolarCity’s solar products through Tesla’s stores and the two companies were already partnering on the sale and installation of the Powerwall.

It has now been 3 years and the transition wasn’t as smooth as Musk made it look at the time.

The solar installation business has consistently been falling since Tesla took over and restructured it.

Only recently, Tesla started to focus on its solar business again with the launch of a new solar subscription service and updated commercial solar business.

The defendants tried to have the lawsuits dismissed, but they moved forward leading to the current situation.

Tesla’s stock (TSLA) by more than 5% on Tuesday morning.

Electrek’s Take

I can see both sides here. I agree that Tesla’s acquisition of SolarCity was a bailout, however, it also made sense for Tesla to buy the company.

Despite the rough start, most people can see that it makes sense to address both the energy consumption and energy generation sides of the equation.

EV owners are more likely to be interested in generating their own power with solar and vice-versa, homeowners with solar are more likely to be interested to drive electric and consume their own energy with their cars.

In the long term, I think it’s going to become obvious to everyone that bundling the sale of those products is a “no-brainer”.

However, it doesn’t mean that the actual acquisition process was handled correctly, but I am no lawyer…

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Avatar for Fred Lambert Fred Lambert

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