SolarCity Lawsuit Reveals Almost All Of Elon Musk's Merger Promises Were "Misleading Or False"

As we dive further into the depositions and discovery documents from the ongoing SolarCity lawsuit, it becomes clearer and clearer that the transaction was simply a bailout of Elon Musk's cousin and SolarCity shareholders, and that much of the hype surrounding the idea in the first place was drummed up solely to create enthusiasm for the deal.  

And now, even the media is starting to notice, with Bloomberg's Dana Hull saying that the thousands of pages of documents released via the lawsuit "show that the CEO’s promises about SolarCity were misleading or false."

"The move was called a catastrophe for Tesla, a $2 billion-plus bailout of a debt-saddled company of which Musk himself was chairman and the largest shareholder," Hull reminds us. 

The merger was pitched a different way to Tesla shareholders. Elon Musk called it "blindingly obvious" and a "no brainer" at the time.

But it seems even Musk has come to terms with what he has done, though. In a deposition, Musk reversed his course on the acquisition, stating: “At the time I thought it made strategic sense for Tesla and SolarCity to combine. Hindsight is 20-20. If I could wind back the clock, you know, I would say [I] probably would have let SolarCity execute by itself.”

And the shareholders that approved the deal to begin with really only had Musk's word to go on. Musk told shareholders that the idea of combining the two companies was always part of his master plan and that it would create the world's first vertically integrated clean energy company. The idea was that Tesla driving consumers would go home to their solar paneled homes to charge their vehicles.

And if you don't support that utopian image, you must hate the environment. 

The SolarCity deal was consummated about 3 years ago this month and now, looking back, it's easy to see that "almost every significant promise Musk pitched publicly [was] either misleading or false."

The situation behind the scenes for SolarCity was called "dire" and Hull says that "the documents in the lawsuit offer an unprecedented look at what happens when Musk’s reality-distortion field comes up against the reality of testifying under oath."

Musk said publicly that SolarCity was on solid financial footing, but then behind the scenes was saying that it needed to solve its "liquidity crisis". SolarCity was, of course, burning cash and in danger of defaulting on its debt.

Tesla's board - and Evercore, who the company hired to evaluate the deal - both thought it wasn't a good idea. But Evercore, like everyone else involved in the public markets, gave way to Elon Musk's decision making. “It’s Elon’s world. We just live in it,” an Evercore banker wrote in one email. 

Even Tesla's CFO spoke out against the idea: “We have Model 3 happening. We have a lot of things going on. We ourselves have a large debt load. Why do we need to do this now, Elon?”

On top of that was the obvious conflicts of interest:

Besides his cousins Lyndon and Peter Rive running SolarCity, its board and Tesla’s had complicated overlaps. Six of Tesla’s seven directors were Musk associates (including his brother, Kimbal) with SolarCity ties. Antonio Gracias was on the board of both companies. What’s more, Musk had used his other entities to raise capital for SolarCity: SpaceX, for example, had purchased $255 million of SolarCity bonds. Musk bought $65 million worth. Tesla’s directors had to grapple with this apparent self-dealing as Musk pushed them to reconsider the acquisition in May 2016. Musk said he recused himself from these deliberations, but court filings indicate he remained actively involved, even advocating for the move directly with bankers and investors.

But this didn't stop Musk from coming up with the idea of the Solar Roof (debunked by one solar expert in a podcast here and here) to try and win over shareholders. Musk showed off the product in 2016 to an impressed audience but it was later revealed the demos weren't functional. Regardless, the acquisition received approval several weeks later. 

The roof was supposed to be central to the merger, but Tesla has still failed to develop a mass market version of the product and high volume manufacturing has been delayed several times over the last few years. Tesla and SolarCity Director Antonio Gracias said there were only “50 to 100 of these things operating today in tests on people’s roofs.”

Meanwhile, last year, the company's head of energy, Sanjay Shah, said he had "high confidence" they were on track to ramp up solar roof production in 2019. He said if more delays came up, “we will be more transparent than ever before to make sure you guys hear from us why.”

We can't wait for that explanation. 

Musk claimed in his deposition that Shah was actually focused on Model 3 development during his time at Tesla. 

Tesla executives also knew that the SolarCity acquisition would be risky. In a 2017 memo, Tesla's top brass exchanged talking points in a memo, saying the acquisition "wasn't a bailout" and that "family-run businesses can lead to long-term success".

“The collaboration has been great,” the memo says, stating that development was "going extremely well". 

But SolarCity was falling apart behind the scenes. In Q4 2017, solar deployments fell by 56% YOY and Tesla had gutted the company's sales team. The Rive brothers left the company after the merger and Musk admitted that despite "synergies", he had redeployed much of the SolarCity staff to work on the Model 3 launch. 

"We’re turning our attention to solar, and we’re going to fix it,” Musk said in a deposition, when asked.

When the plaintiff's lawyer asked for more details, Musk called him "shameful" and a "very, very bad person". 

Musk seems ready to go to trial. “I can’t wait. It will be great. You’re going to lose,” he told the plaintiff's counsel.

We can only hope this trial is nationally televised.