- Tesla shareholders filed lawsuits against the company in 2016 alleging that CEO Elon Musk pushed the company to buy SolarCity to enrich. They say it was a breach of the duty of trust.
- Last Thursday, a pile of depositions (including one by Musk) and documents included in the suit were published on the PlainSite website, an organization focused on transparency in the US judicial system. Think Computer Foundation originally obtained the documents.
- Some documents show that SolarCity had a liquidity crisis when Tesla bought it, and that some Tesla board members had a lot to lose personally if the deal did not go through. The documents also show that the Tesla roof tile product that was unveiled to the public just prior to procurement was approved by the board did not work.
- An email from Musk included in the lawsuit shows that he pushed to advance the presentation of the solar tile to convince the board to approve the acquisition of SolarCity.
- "Latest feedback from major investors is very negative on SolarCity," Musk said in an email to Peter Rive, co-founder of SolarCity, September 1
- Musk's attorneys have claimed he did not really control the process of buying SolarCity since he did not vote of the agreement, and that the shareholders who voted on the agreement were fully informed of what was going on at the two companies.
- Tesla did not respond to several requests for comment on this story.
In 2016, the empire that Elon Musk built to conquer Earth and space was in danger, but Musk went in with a potentially illegal plot to save it all and hold Tesla shareholders with the bill, the shareholders in a case filed against Tesla.
The lawsuit, originally filed in 2016, alleges Tesla's acquisition of SolarCity in 2016 – which saddled Tesla with billions of dollars in debt and liabilities – was a breach of the trust duty of Tesla CEO Elon Musk and the company's board of directors. The plaintiffs also claim that Musk and other board members did all this to enrich and save SolarCity while concealing the company's desperate financial condition. They were big shareholders, and SolarCity was helped by Musk's cousin Lyndon Rive.
Musk's attorneys have argued that he did not really control the process of purchasing SolarCity since he did not vote on the agreement, and that the shareholders who voted on the agreement were fully informed of what was going on at the two companies. Tesla did not respond to several requests for comment on this matter.
Thursday, a gang of lawsuit filings went public, including depositing with Musk, Tesla's then CFO Jason Wheeler and several players in the deal. The data dump also includes things like minutes from Tesla's board meetings, internal emails and presentations that the bankers who provided advice on the deal provided clear problems with SolarCity and the potential for synergy between the two companies.
According to these documents, the merger that Musk called a "no-brainer" appeared to be anything but. No other company asked to buy SolarCity – which was then helped by Musk's cousin, Lyndon Rive – and according to internal emails, it also struggled to find funding for a $ 200 million bridge loan it needed immediately.
"They claim other banks want to enter the SolarCity Bridge," Bank of America's Ray Wood said in an internal email in July 2016, "but we have no visibility … the reality of the problem goes toward Elon. "(Tesla announced its intention to make the SolarCity deal in June).
Here's why things looked so bad for SolarCity: To maintain the terms of the revolver, the company had to have $ 116 million in cash available at the end of the month each month. But as early as September 2015, there was an awareness that the company was going through a cash crisis, and the balance fell to as low as $ 35 million in November, according to internal emails. At the same time, SolarCity also had a ton of capital expenditure, most critical of the Buffalo plant where it had to spend a certain amount or pay the state of New York over $ 600 million.
In July 2016, after the agreement was announced, the situation seemed more desperate. In an email to an unnamed person July 9, Rive describes the company as "super low on cash" and said he was worried about the "domino effect" if the company didn't get the money it needs.
Musk was also very aware of the cash situation before the acquisition. In an email dated September 18, 2016, Musk sent a message to Brad Buss, the former CFO of SolarCity, stating that one of the things SolarCity needs to do to persuade investors about a merger with Tesla was to solve the solar company's liquidity crisis.
SolarCity's problems not only mattered to Musk because he was a shareholder and board member of SolarCity, it meant that the company's fate was linked to SpaceX, a piece of his empire, according to the lawsuit.
Space X, Musk's rocket company, had given SolarCity $ 165 million at the beginning of 2015, according to internal SolarCity emails sent as part of the lawsuit, and it had 77% of SolarCity's bonds. In short, if SolarCity went down, it could take SpaceX with it. Tesla did not respond to a request for comment on the state of SolarCity's economy at the time.
None of SolarCity's problems had anything to do with Tesla shareholders. Apart from Musk, his brother Kimball and a few board members who owned SolarCity shares, Tesla shareholders only had to worry about making cars. That's why the Tesla board and c-suite knew it could be an uphill battle to get shareholders to approve the deal. Board members were given the task of personally reaching out to individuals from major players such as Fidelity to swing them, according to emails.
But it did not seem to work in the fall of 2016, according to documents included in the lawsuit. Big investors like T-Rowe Price still did not support the deal.
In an internal email dated September 14, 2016, Todd Maron, Tesla's former attorney general, described a conversation he had with T-Rowe Price about their doubts about the deal.
"They (T-Rowe) said what Tesla is trying to achieve in the automotive industry is very complex and adding SolarCity to the mix raises the company's operational and financial risk profile, especially given SolarCity's financial challenges as a company," Maron said in the email.
Musk gave them and other questionable shareholders a reason to come on board.
At the end of October 2016, Musk hosted a massive show on a Hollywood television set, unveiling a product that did not yet exist – Tesla's sunroof roof.
"Latest feedback from major investors is very negative on SolarCity," he said in an email to Peter Rive on September 16, 2016. "We need to show them what the integrated product looks like. They just don't have to happen before the vote, so maybe aim for October 28 for a joint solar roof and Powerwall 2 unveiling. "
Tesla's then-technical chief JB Straubel was also included in this email. Tesla did not respond to Business Insider's request for comment on the content.
After watching the solar tile, Tesla shareholders approved the deal in November.
Lots to lose, lots to earn
Inside of SolarCity as already in the fall of 2015, it was a recognition that 2016 would not be good with the company's business model. In an email to the company's c-suite Tanguy Serra, SolarCity's then-president then made it quite clear.
"Next year we will face Silveo [SolarCity’s manufacturing plant] more commercial mix – so similarly it will not get any better," he wrote.
That's part of why Wall Street in June 2016, at the time of the announcement of this deal, was scratching its head trying to understand exactly how it would do Tesla any good.
"… we struggle to see brand, customer, channel, product or technology synergies," JP Morgan analysts wrote at the time. "We recognize that the acquirer's easy access to capital markets can provide a low cost for capital alternative … but we do not see other cost synergies that were not already available to SolarCity through the close partnership. "
This quote was included in a presentation Evercore gave Tesla's board in July.
The board had not yet been sold then partially because there were still many questions about how much SolarCity would cost. According to emails between Evercore bankers and Tesla, filed as part of the lawsuit, Evercore founder Roger Altman said that Tesla priced too generously, and in a The July 2 email said directly: "Tesla shareholders may not like this." Meanwhile, Tesla's board wanted to see if there would be any other bidders for SolarCity. But there were none.
I October 2016, however, sang the board of Tesla another tune. In an October presentation from Tesla to proxy companies that were involved in the lawsuit, it argued that the deal would create $ 150 million of direct cost-saving synergies during the first year of the acquisition.
Five Tesla board members had a clear financial interest in getting this agreement past the finish line, the lawsuit claims. Not only did they stand to lose a lot if SolarCity went down, but they had a lot to gain if it was saved for a premium (which it was), the suit claims.
From the submissions:
In 2015 and 2016, Kimball Musk used his SolarCity shares as collateral for his personal loans, according to his landfill. If SolarCity had been replaced, this would be a problem for him. But he testified that his personal loan had nothing to do with his support for the agreement to get Tesla to acquire SolarCity.
Lawyers for the defendants claimed, according to the filing, that personal issues such as this did not constitute any form of conflict of interest because the defendants are so rich.
Raise the roof
According to several instances, the solar roof stack that Musk presented to wow Tesla's shareholders was not a working product when it was unveiled. In Wheeler's deposition he was asked about it directly, and something went like this:
Q: So I get a sense of timing – I know you knew that [solar roof tile] was a future starting product when it was incorporated. Were you of that view before the merger agreement was signed, that … there was no real project to model.
A: Yes, I think before [the acquisition deal] was signed, that's what I was thinking.
In his deposition, SolarCity's president of global sales, Tobey Corey, said that the roof Tesla unveiled in the presentation was not connected to a grid of any kind while it was being presented. He also said he couldn't remember if Tesla ever sold a roof.
"I don't remember selling any," he said, though he said he remembered some roof tiles were installed after the presentation.  "More than five," the lawyer asked, asking him.
"I honestly couldn't tell you that," Corey replied. "It wasn't much, but I remember hearing about installations that happened. I know Elon had his system installed … I think there were others I don't remember the exact number."
Tesla did not respond to Business Insider's request for comment on Corey's deposition, on how many sunroof roofs have been sold, or on how many have been installed since the presentation.
You can place an order on version three from Tesla's website if you like, but as Bethanny McLean reported in Vanity Fair last month, someone has done it before just to have her deposits sit on Tesla when their roofs was never realized.
Last Friday, a day after the documents related to this lawsuit went public, Tesla held a phone call announcing that it had developed a version three of the product that would work beautifully. However, the conversation was light on detail, and it was not a live event like the unveiling of the first sunroof stack. No Hollywood set. Tesla did not respond to Business Insider's request for comment on whether the product was ready for use or not.