In 2016, Elon Musk was rationalising Teslaโs acquisition of a solar panel installer known as SolarCity to investors. Despite its less-than-ideal financial health, the operation was then the top of its kind within the US.
โIโm pretty optimistic about how itโs going to turn out,โ Musk reassured during a November call with analysts.
โItโs pretty transformational. Itโs been extremely well received at the consumer levelโฆ There are quite a few naysayers on the financial front, some of the big hedge funds, whatnot. I see no chance of SolarCity going bankrupt. Zero.โ
There was just a few issues. According to the lawsuit originally filed in 2017 by a consortium of Tesla shareholders, in the years since, SolarCity has demonstrated virtually no fiscal upside, โconsistently [failing] to turn a profitโฆ mounting debtโฆ and burning through cash at an unsustainable rate.โ As Forbes explains, the majority of company growth / debt was tied to heavy marketing spend. Even after this part of the budget was reallocated under the guidance of Musk, however, it wasnโt enough to salvage a sinking ship.
RELATED: โBig Shortโ Investor Michael Burry Predicts Tesla Stock Could Plummet By 90% This Year
By all accounts, this was nothing more than a conveniently timed bail out for a failing business โ a failing business, which was reportedly US$3 billion in the red prior to this ten-figure life raft, founded and and run by Elon Muskโs own cousins, Lyndon and Peter Rive. The cherry on top of this conflict-of-interest sundae? Musk himself was both Executive Chairman and the largest investor with a 22.2% stake at the time of acquisition / bail out.
On July 12th, Elon Musk will head to the Court of Chancery in Delaware as the sole defendant of the SolarCity lawsuit brought forth by Tesla shareholders, where he alone will be on the hook for damages amounting to between US$2.2 billion (AU$2.95 billion) โ the total investment from the EV manufacturer โ and US$2.6 billion (AU$3.48 billion). Led by Chair Robyn Denholm, every other Tesla board member originally named in the SolarCity lawsuit accused of benefitting from the deal โat the expense of Tesla and its minority stakeholdersโ have already settled as of January 2020, forfeiting a considerably more lenient US$60 million (AU$80 million).
For a bit of light reading, you can skim through the Elon Musk SolarCity lawsuit filing here.
