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Musk claimed no wrongdoing in the $2.6 billion SolarCity transaction and claimed that was not the only chief decision-maker in that case.
On Monday, July 12, Tesla Inc (NASDAQ: TSLA) stock surged 4.38% closing at $685 levels. The price surge comes as CEO Elon Musk strongly defended the class-action lawsuit from shareholders concerning the SolarCity acquisition.
The lawsuit alleged that Musk has pressured the shareholders to approve the $2.6 billion SolarCity deal back in 2016. The plaintiffs also cited several conflicts of interest and failed to produce the profits as Musk had promised. They also accused Musk of making the deal to his own benefit and bailing out SolarCity which was on the verge of insolvency.
In his defense on Monday, July 12, Musk spoke at the Delaware court while claiming no wrongdoing. He said that the SolarCity buyout was crucial to Tesla’s sustainable energy strategy. Musk said:
“I don’t think SolarCity was financially troubled. In order to have a compelling product, you really needed to have a tightly integrated solar and battery solution. And we could not create a well-integrated product if SolarCity was a separate company.”
Back then in 2016, Musk had a 22% share in Tesla. Thus, the primary question and doubt are whether if he entirely controlled the SolarCity transaction. In the testimony, Musk admitted that one of Tesla’s independent directors handled the entire deal. However, Musk said that he received no financial gains from the transaction.
“Since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both there was no financial gain,” Musk said. Musk being Musk, the Tesla chief even called out his opposing attorneys for asking “really tricky and deceptive” questions.
Some Details of the SolarCity Acquisition
Back in 2016, SolarCity posted revenue of $730 million. However, it declared a net loss of $820 million the same year. at the time of SolarCity’s all-stock purchase, the company had racked up more than $1.5 billion in debt.
Plaintiff lawyer Randall Baron also questioned Elon Musk on why the company’s performance came significantly below the projections given to shareholders. Musk cited Tesla’s need to develop the Model 3 vehicle in 2017 and 2018. Besides, he also spoke about how the COVID-19 pandemic blocked Tesla’s recent efforts to get residential solar installation permits.
Last year, Tesla reported $1.9 billion revenue for its energy generation and storage business. This was 24% more than what it attained the previous year. Much of this revenue came through selling battery storage units.
Elon Musk shall be appearing for more hearings in the coming month. If he happens to lose the SolarCity case, he will have to pay damages equal to value of the 2016 transaction i.e. $2.6 billion.