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| Tesla CEO Elon Musk. |
MAXIM - Elon Musk will have to appear in court on July 12 at the suit of Tesla shareholders. They believe he spent the company's money saving troubled company SolarCity, which was founded by the billionaire's cousins and in which he was the largest investor. The defeat could cost him more than $ 2 billion and become one of the most expensive court decisions handed down personally against the head of the company.
Five years ago, Elon Musk F notified investors that Tesla had acquired SolarCity, then the leader in solar panel installations in the United States. “I'm pretty optimistic about what the deal will turn out to be. These will be dramatic changes, ”Musk said during a conference call with analysts in November 2016. “Consumers perceive it extremely well,” he said of the acquired company, which at the time was valued at $ 2.2 billion.
Fears of analysts about the unstable financial situation of SolarCity billionaire allayed. “There are quite a few skeptics on the financial front, including some of the big hedge funds. But I see no prerequisites for the bankruptcy of SolarCity. They are not there, ”the billionaire emphasized.
Last year, members of the council, led by Chairman Robin Denholme, entered into a settlement with the plaintiffs, paying $ 60 million and pleading not guilty. But Musk decided to defend himself in court. The defeat could cost him the full amount of the deal - more than $ 2 billion, which will be one of the most expensive court decisions ever against a single company executive. While corporations like Bank of America and BP have already had to pay billions of dollars in compensation for their role in the US subprime mortgage crisis and the disastrous Gulf of Mexico oil spill, executives themselves are rarely personally liable for such sums.
This is not the first serious legal misadventure for the 50-year-old billionaire. Musk may have idolizing fans and 58 million Twitter followers, but his experience in shielding himself from comments that have already gotten him into trouble is mixed. In 2018, he lost his post as chairman of the board of directors of Tesla and was forced to pay a $ 20 million fine for a tweet about plans to make Tesla a private company, for which there was no reason.
A later case brought by the Securities and Exchange Commission in connection with Musk's Twitter comments about Tesla's manufacturing goals did not punish the entrepreneur. In December 2019, he won a trial with British diver Vernon Unsworth, who consulted Thai rescuers during the rescue of a children's soccer team from a cave. Unsworth filed a libel suit after Musk named him Pedo Guy.
At the heart of the SolarCity case is a serious question: Why did Tesla decide to acquire the company at all? Musk argued that it would be a revolutionary deal to take over the solar energy market with energy-efficient solar panels, Tesla batteries and high-tech roofs. Not only did only a fraction of these plans come to fruition, there was a clear risk of conflict of interest in the deal from the outset. SolarCity was founded in 2006 by Musk's cousins Lyndon and Peter Rive on the advice of the billionaire himself. Their wealthy relative financed the venture and at the time of the Tesla deal owned 22.2% and headed the board of directors.
“After the deal, everyone expected Tesla to recapitalize and modernize their business. However, the company's position has deteriorated significantly since then: it seems to me that they did not pay much attention to it and did other things, ”says Joseph Osha, senior analyst at Guggenheim Securities, who specializes in solar energy but does not follow Tesla.
SolarCity's strategy was to attract customers who did not pay a dime straight away, but signed contracts for 20 years to purchase electricity generated by solar panels. SolarCity managed to become the largest supplier of solar panels for residential real estate: in 2016 it reported a record revenue of $ 730 million.However, in the same year it received a net loss of $ 820 million, and its debts at the time of the acquisition by Musk were $ 1.5 billion.
Much of the company's growth, like its debt, has been in marketing. Under the Rive brothers' management, SolarCity grew by leaps and bounds, relying on high-cost promotions such as aggressive advertising, walk-around sales, and long-term solar system leases at reduced prices. Due to the desire to increase the number of installations, the company suffered losses quarter after quarter.
In the weeks leading up to the closing of the deal, Tesla hosted an extravagant event in the setting of Desperate Housewives at Universal Studios. The company was showcasing solar roofs created using high-tech glass tiles. Musk said this product will transform the industry because roofs will simultaneously produce clean energy and replace traditional photovoltaic panels, whose aesthetic flaws have greatly annoyed one of the world's richest people. “The bottom line is that they have to be beautiful, affordable and flawlessly integrated,” he said.
In closing the deal, Tesla slashed SolarCity's bloated marketing budget by shifting sales directly to the company's website and chain of stores. She terminated a cooperation agreement with the Home Depot chain of stores. By July 2017, a few months after the sale, the Rive brothers had left their own company. “We felt that some of the sales channels were not in line with the Tesla brand. One example is salespeople knocking on doors to walk around houses. So we decided to move sales to Tesla stores. It makes more sense, and I believe we mentioned it as one of the reasons for the acquisition of SolarCity, ”Musk said, testifying in the June 2019 investor lawsuit.
Last year, Tesla's energy division, which includes what remains of SolarCity's business, reported $ 1.99 billion in revenue. Five years ago, in 2016, that figure was only $ 178 million. panels as much as the skyrocketing sales of Powerwall batteries that conserve electricity from solar panels. Tesla began selling this product more than a year before announcing the deal. Solar panels, SolarCity's core business, generated just 205 megawatts of power in 2020, up from 803 megawatts in 2016 when SolarCity was an independent company.
In the first quarter of 2021, Tesla reported that the amount of energy produced by solar panels reached 92 megawatts, but did not clarify whether this figure relates to residential or commercial real estate. The company also said the solar roof business was up nine times from last year, but did not disclose exact numbers. The battery business that Musk had before the deal "is the tail wagging the dog," says Guggenheim's Osh. “Powerwall is such a strong brand that they can sell these batteries all the time,” he said.
Tesla testifying in 2019, Musk said that in 2017, engineers and other SolarCity personnel were transferred to the automotive division to solve the difficulties in the production of the Tesla Model 3 electric car. In response to questions from attorney Randall Baron, who represents investors, Musk was unable to say for sure. how much of SolarCity's workforce was transferred to Model 3 production, and confirmed that this decision was not reflected in Tesla's annual report.
Tesla did not respond requests for comment on the upcoming trial. In its latest annual report, the company said: "We are convinced that doubts about the SolarCity acquisition are unfounded and intend to vigorously defend our position." The plaintiffs' lawyer also declined to comment.
SolarCity has never sold unique solar panels, instead installing standard panels that it sourced from major manufacturers. The company's business was built around installation, receiving rental payments from customers, and monetizing the energy generated by the systems it installed.
The solar roof development program, which Musk hoped would replace SolarCity's business as usual, came about through Tesla's own research. Five years later, the product is still not being released even close to the scale Musk hinted at in 2016. One of the reasons is that the company has found that unlike machines that can be mass-produced, each roof is unique and designed to meet specific requirements. Tesla recently announced that it has decided to focus only on installing solar roofs on buildings under construction and to withdraw from the much larger market for retrofitting existing homes.
As part of the SolarCity deal, Tesla also acquired a large solar panel factory located in Buffalo, New York. The company has pledged to increase production to 1 gigawatt of solar power per year through a partnership with its longtime partner Panasonic, the company's main supplier of lithium-ion batteries. Panasonic scrapped the project last year, and it's unclear exactly how many solar roof panels or tiles Tesla is currently producing at the plant. Tesla does not disclose this information in the reports it provides to regulators.
Despite the fact that all the attention is focused on Musk and Tesla, there are already more significant players in the solar systems market - for example, Sunrun, Sunnova and SunPower.
"For Tesla investors, the SolarCity acquisition was a pass-through deal because it is a competitive market and post-acquisition growth has been minimal," said Wedbush analyst Dan Ives. "Wall Street will keep it to a minimum until they scale up and fulfill their big vision." (Fbs)
