Advertisement

We need your help now

Support from readers like you keeps The Journal open.

You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.

If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.

Musk arriving to court in Delaware this week Saquan Stimpson

Debt, solar shingles and Desperate Housewives — Why are some Tesla shareholders suing Elon Musk?

The Tesla chief could be forced to pay $2 billion if he loses the court case.

WHETHER YOU BELIEVE the hype or not, Tesla is an important company.

Listed on the NASDAQ and a member of the S&P 500, the Elon Musk-fronted electric car-maker is currently valued at over $620 billion after its share price ballooned from about $133 per share in February 2020 to around $650 at the time of writing.

While its chief executive Musk owns about 20% of the company at last count, 43% of its shares are held by institutional investors including banks, pension fund managers and hedge funds.

It’s safe to say that many fortunes are wrapped up with the health of the Californian automaker and its frontman.

So when a group of Tesla shareholders sue its chief executive alleging that he breached his duties as a controlling shareholder in Tesla by allegedly ramming through a deal to buy one of his other, less successful companies, it’s important stuff.

This week in the US state of Delaware, Musk faced down some difficult questions about his role in Tesla’s 2016 acquisition of SolarCity for $2.6 billion.

If he loses, he could be forced to fork over $2 billion to the plaintiffs, a group of union pension funds and asset managers. The court might also order Musk to pay the money back to Tesla directly.

Whatever happens, that’s likely to be a drop in the ocean for Musk, who was recently named the world’s richest man by Bloomberg. But the trial may reveal some interesting details about the inner workings of Tesla and could be a black eye for the reputation of its founder if it goes the wrong way for him.

What was SolarCity?

SolarCity, founded by Musk’s cousins Peter and Lyndon Rive with seed money from the Tesla boss, started as a sort of leasing company for solar panels.

Its business model allowed customers to rent normally pricey solar panels for a certain amount of time with no money down for installation.

They would then be sent a monthly bill by SolarCity — where Musk was the largest single shareholder and served as chairman — for the electricity generated by the panels.

Eventually, the company got into manufacturing the panels itself. But its leasing model meant that it had to borrow heavily to fund the installation process and the system itself.

With revenues trickling in gradually from customers, month by month over the often long lifetime of the lease, SolarCity’s debt pile ballooned over the years to around $3.25 billion by the summer of 2016 while cash flow seems to have been a perennial issue.

The product itself was also bedevilled by bad publicity.

In 2019, three years after Tesla agreed to buy SolarCity, the company was sued by US retail giant Walmart, alleging that its panels caught fire causing millions of dollars of damage since 2012.

Walmart accused SolarCity of having”an ill-considered business model that required it to install solar panel systems haphazardly and as quickly as possible in order to turn a profit”.

That lawsuit was dropped last year after an out-of-court settlement.

Its biggest PR disaster started in 2016 when the company tried to launch a new product, solar roofing shingles, a more aesthetically pleasing alternative to clunky panels.

Musk — who was synonymous with SolarCity brand in the public’s mind at this stage — famously promoted the product in a demonstration on the set of Desperate Housewives in 2016, kitting out of some of the houses on Wisteria Lane with the product. 

But it’s been in development hell since then and still hasn’t been released to the wider public. Musk, putting it mildly earlier this year, admitted he had made “significant mistakes” with the solar roof idea.

Why did Tesla buy it?

Well, that’s the question, isn’t it? Why did Musk urge a publicly-listed company to take over a struggling, heavily indebted, cash-poor operation like SolarCity?

After all the company was facing significant debt repayment deadlines over the next few years and had experienced a cash crunch in 2015, just a year before Tesla shareholders voted through the deal.

But Musk, who was chairman of both companies at the time, says the deal made sense.

The acquisition was part of his “Master plan: Part deux” to transform Tesla into a dominant player in both electric cars and green energy.

He maintains that “the SolarCity acquisition was critical to Tesla’s success as a fully integrated clean-energy company”.

He resolutely denies that the purchase was “a bailout” of the struggling company, which is the allegation at the heart of the lawsuit or that he financial benefitted from the transaction.

The plaintiffs argue that Musk breached his duty as controlling shareholder of Tesla because his role as chairman of both companies at the time “poisoned” the Tesla board’s ability to evaluate the deal.

What happened in court this week?

Musk began his two days of testimony in typically combative, headline-hungry style.

Under questioning from the plaintiff’s lawyer, he bristled at any suggestion that he had strong-armed the Tesla board — members of which include his brother Kimball Musk — or its shareholders into the acquisition.

“I think you are a bad human being,” the Tesla founder told Randall Baron, a lawyer for shareholders.

“I have great respect for the court,” Musk later added, “but not for you, sir.”

At times, he seemed to contradict himself. Musk disagreed that there was “significant evidence” that SolarCity was in severe financial distress and yet he was warned about the cash crunch in an email from the company’s chief executive to Musk from July 2016, which was read out in court.

At one point, he said never wanted to be the chief executive of Tesla, “but I had to or it would die”.

That’s probably not a great argument to make when you’re trying to convince a judge that you don’t wield an outsized degree of influence over a company’s board, as Bloomberg’s Matt Levine pointed out.

“If you’ve got a wealthy impulsive CEO who is also the only person who could possibly lead the company, you have to let him do whatever he wants,” Levine wrote this week.

“Just as a matter of fiduciary responsibility to shareholders, I mean, the directors should prefer approving a terrible conflicted deal that they hate if the alternative is disappointing Musk and possibly losing him.”

The trial continues next week.

— Additional reporting by PA 

 

 

 

 

 

Readers like you are keeping these stories free for everyone...
A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation.

Close
8 Comments
This is YOUR comments community. Stay civil, stay constructive, stay on topic. Please familiarise yourself with our comments policy here before taking part.
Leave a Comment
    Install the app to use these features.
    Mute Nemethon
    Favourite Nemethon
    Report
    Jul 8th 2024, 9:32 AM

    Yayyyyy paid out so to pay for some of the holidays to Spain yippee. I volunteer with a charity and within the next few weeks we’ll be inundated with calls for help for to pay for uniforms. I think the BOS allowance should be paid out differently not in cash but a credit note therefore the money is used for it’s intended purpose and not wazzed up again a wall on holidays or extensions or nails etc.

    432
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 9:58 AM

    @Nemethon: yes totally agree .

    147
    Install the app to use these features.
    Mute P. V. Aglue
    Favourite P. V. Aglue
    Report
    Jul 8th 2024, 10:38 AM

    @Nemethon: there’ll be an extra in the Christmas bonus allowance to help with election voting decisions

    66
    See 1 more reply ▾
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 12:27 PM

    @Nemethon: also why is it payed so early in month sould be later

    18
    Install the app to use these features.
    Mute Fiona Wyse
    Favourite Fiona Wyse
    Report
    Jul 8th 2024, 10:09 AM

    Surely the back of school allowance should be reduced now that there is free primary school books and that the tablets for the secondary schools have also been reduced due to this initiative?
    I just feel sorry for all of the working dads who pay for all of the school fees as part of a maintenance agreement and don’t get the benefit of any of this money back from their taxes because it all is paid to the mother.

    215
    Install the app to use these features.
    Mute CP
    Favourite CP
    Report
    Jul 8th 2024, 10:30 AM

    @Fiona Wyse, fair play Fiona,

    52
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:02 AM

    @Fiona Wyse: are you a parent do you know the cost of. Uniforms fleeces jumpers with crests on them. And only one s that benefit from the free school books is the principals . Still parents. Are asked /expected to pay. €80 +school fees. That is just primary school s and the secondary schools some of the schools that use the tablets parents pay for .

    30
    See 2 more replies ▾
    Install the app to use these features.
    Mute Fiona Wyse
    Favourite Fiona Wyse
    Report
    Jul 9th 2024, 11:17 AM

    @Karen Marten: I’m very aware of the cost of them, my husband has purchased all his children’s tablets, books, uniforms and school fees without any governmental assistance. Two tablets in 2 years, €1,500 and all back to school allowance paid to ex wife. It’s ok for us, we plan and manage that cost between us (it’s tight and we work two jobs) but some men might not have the luxury of having a partner to fall back on and help financially. When there is a maintenance order in place it should go to the primary payer of the school kit, not the mother exclusively as that outlay is removed from them so why should they be paid the benefit. I look forward to your explanation on this one.

    3
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 10th 2024, 9:48 PM

    @Fiona Wyse some people need financial supports that’s why even those who have jobs. It’s called th cost of living I know what your problem is it’s crystal clear so obvious but I’m not going to get into that

    1
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 9:55 AM

    Pity it’s so badly. Means tested so many working parents earning too much to avail but yet need it as uniforms getting more expensive every year.

    88
    Install the app to use these features.
    Mute Toyo Ke
    Favourite Toyo Ke
    Report
    Jul 8th 2024, 10:13 AM

    @Karen Marten: I don’t agree, I am by anybody standards not a high earner, but if you pay your taxes, you have earned the benefit. Same for children’s allowance. Some can afford to put it straight into savings accounts, which doesn’t appear fair for alot of people, but they paid their taxes.

    43
    Install the app to use these features.
    Mute marklars81
    Favourite marklars81
    Report
    Jul 8th 2024, 10:25 AM

    @Toyo Ke: I think you do agree. You both seem to be saying it shouldn’t be means tested. I also agree, if you pay your taxes you should get more than a free dental cleaning once a year.

    77
    See 5 more replies ▾
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:16 AM

    @Toyo Ke: are you for real cop on . How many parents you know have applied for this both working or one working and one a carer getting turned down because earning. €50 too much .

    12
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:35 AM

    @Toyo Ke: those who can afford to go with out children’s allowance should apply to not receive it . .

    8
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:38 AM

    @Toyo Ke:

    2
    Install the app to use these features.
    Mute marklars81
    Favourite marklars81
    Report
    Jul 8th 2024, 2:17 PM

    @Karen Marten: Why? Those who can afford to go without it are paying a lot more tax than you and I.

    8
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 2:40 PM

    @marklars81: I agree but if they don’t need it … don’t take it and. Child allowance has nothing to do with paying taxes any baby born In Ireland parent gets it… and children who’s parent is Irish who have moved back here.

    3
    Install the app to use these features.
    Mute marklars81
    Favourite marklars81
    Report
    Jul 8th 2024, 10:30 AM

    Schools should be made pick colour of slacks/skirt and a colour of jumper/ polo shirt, all plain. Make uniforms actually affordable and let Pennys or Dunnes go for the market. Having to buy a crested jumper is just another way for a school to get more money from parents. Schools shouldn’t need to do this.

    79
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:08 AM

    @marklars81: no schools should be making us pay for crested but they are . And are advertising for certain school uniform shops to buy them from but there are some options to go cheaper like getting crests done yourself or schools could go with iron on crests either but still.at and of day. Dunnes is not cheap when you have to buy polo’s shirts and the likes it still adds up .

    15
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 1:02 PM

    @Karen Marten: should NOT

    2
    See 2 more replies ▾
    Install the app to use these features.
    Mute marklars81
    Favourite marklars81
    Report
    Jul 8th 2024, 1:54 PM

    @Karen Marten: Dunnes is cheap for school wear, you can get a pack of 3 polos from 5.50. Compare this to the school crested top and you’ll realise it is cheap.
    Can’t really tell if you were agreeing or disagreeing with me to be fair :/

    6
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 3:13 PM

    @marklars81: dunes is NOT CHEAP and polo s shirts blouses skirts trousers track bottoms all go up in price depending on age. So I am disagreeing with you that they are not cheap

    3
    Install the app to use these features.
    Mute Terence Smith
    Favourite Terence Smith
    Report
    Jul 8th 2024, 11:45 AM

    So back to school allowance, paid meals in school, meals during summer holidays, Christmas bonus, is there anything these ‘parents’ actually get for their own children without relying on the state to raise their children?

    78
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 12:28 PM

    @Terence Smith: the school meals is in ALL primary schools now. .

    8
    Install the app to use these features.
    Mute liam mc meel
    Favourite liam mc meel
    Report
    Jul 8th 2024, 8:27 AM

    Happy days this is wonderful news

    31
    Install the app to use these features.
    Mute Mark R
    Favourite Mark R
    Report
    Jul 8th 2024, 9:58 AM

    I could never understand the qualifications for the Back to School allowance. I know of well qualified professionals working for large multinationals who get it. It is supposed to be biased on household income, yet the only way they would qualify is if the main breadwinners earnings are left out of the application…

    25
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 10:03 AM

    @Mark R: I have heard from parents who applied but was over the means by €50 combined. Two parent working families struggling to get by with the costs of uniforms getting so expensive and schools making wear crested this and only black shoes and that’s just primary schools .

    39
    Install the app to use these features.
    Mute Gearoid MacEachaidh
    Favourite Gearoid MacEachaidh
    Report
    Jul 8th 2024, 12:26 PM

    @Mark R: I can tell you with 100% certainty that no one who is in a well paid job is getting it unless they’re lying in their application, and if they are they will be found out because Revenue and the DSP share info.

    20
    See 2 more replies ▾
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 12:37 PM

    @Gearoid MacEachaidh: yes I thought that too if a 2 parent working family struggling can’t get it earning too much ,but then again. There are some people who can work the system. Like the child allowance when not I’m the the country most of the year

    7
    Install the app to use these features.
    Mute Gearoid MacEachaidh
    Favourite Gearoid MacEachaidh
    Report
    Jul 8th 2024, 12:53 PM

    @Karen Marten: the only way for these people to “work the system” would be to lie. There was a time where different government departments didn’t talk to each other but those days are gone. Only way to scam is to be getting paid under the table. But if you’re working for a multinational and claiming benefits you’re not entitled to you’ll be caught, and almost certainly wouldn’t get them to begin with since bank statements are required as part of the application

    5
    Install the app to use these features.
    Mute john kenny
    Favourite john kenny
    Report
    Jul 8th 2024, 8:35 AM

    Good news story.

    23
    Install the app to use these features.
    Mute Sun Rise
    Favourite Sun Rise
    Report
    Jul 8th 2024, 10:51 AM

    Stunned that a comment is mocking this payment as a means of garnering votes. I assume that if an alternative government is elected they expect the new government to remove all benefits to everybody. Some people are just ignorant in their need to protest against everything.

    21
    Install the app to use these features.
    Mute Karen Marten
    Favourite Karen Marten
    Report
    Jul 8th 2024, 11:10 AM

    @Sun Rise: there are genuine hard working families who are over the means to get this payment and there are those who will always get it and not spend it on the uniforms let’s not sugar coat it !

    54
Submit a report
Please help us understand how this comment violates our community guidelines.
Thank you for the feedback
Your feedback has been sent to our team for review.

Leave a commentcancel

 
JournalTv
News in 60 seconds