Elon Musk hailed Tesla Inc.’s 2016 acquisition of SolarCity as a “no brainer” – a transaction that would unite the top producer of electric vehicles with a manufacturer of solar panels that can recharge EVs.
That didn’t turn out to be the case.
Musk intends to justify the purchase as a justified purchase if questioned under oath.
Musk was SolarCity’s largest shareholder and chairman at the time of the all-stock transaction. Tesla boards allegedly broke their fiduciary obligations by succumbing to Musk’s desires and agreeing to acquire the ailing firm, according to seven shareholder complaints combined into one. SolarCity was created by Musk and two of his cousins, Lyndon and Peter Rive, in what the plaintiffs claim an obvious conflict of interest.
Wedbush Securities analyst Daniel Ives termed the purchase an “obvious black eye” for Musk and Tesla, owing to SolarCity’s failure to make a profit.
“It was essentially throwing good money after bad,” Ives explained. “Despite all of Musk’s accomplishments and unfathomable heights, this is one of the lowlights.”
The company’s solar business, according to Ives, is worthless to most investors.
“I just believe Musk and Tesla undervalued the problems and roadblocks that the business presents,” he added.
Despite this, Ives believes Tesla’s energy sector may still be “modestly successful.”
Tesla’s public relations staff has been dismantled, and the company did not respond to a message requesting comment on the complaint on Friday. Tesla said in its 2020 annual report that the case was without merit and that it would fiercely defend itself.
According to the business report, “we are unable to quantify the potential loss or range of damage, if any, connected with these claims.”
Last year, Tesla’s energy generating and storage division brought in $1.9 billion in sales, up 24% from the prior year. The sale of battery storage units provided a significant portion of the revenue. Tesla doesn’t say if the company earned a profit or not, because it has debt and costs.
The plaintiffs’ case claims that despite his obvious conflict of interest, Musk spearheaded the decision to buy SolarCity.
Even if Musk is forced to personally pay for the whole SolarCity acquisition as a result of the trial, $2.5 billion won’t damage the world’s third-richest person. Musk is projected to be valued at $163 billion by Forbes magazine.
While any such payment would not have a significant impact on Musk’s fortune, Ives believes it would harm his reputation as a buyer.
“Because that’s what Musk does,” Ives said, Musk is fighting the lawsuit after others have settled. “I believe Elon still feels this is the correct deal.”