WILMINGTON, Del.—Elon Musk said Tesla bought SolarCity Corp. for one fundamental reason: to become more than a car company.
The Tesla Inc. chief executive made the argument as he wrapped up two days of sometimes feisty testimony in court, defending the roughly $2.1 billion tie-up completed in 2016 at a time both Tesla and SolarCity were financially struggling.
Vice Chancellor Joseph Slights III, the presiding judge in a shareholder lawsuit, drilled into that deal logic at the end of Mr. Musk’s testimony. “Tesla was facing headwinds, had its own issues,” the judge said. “And so why is it at this moment that Tesla is pursuing this acquisition of a solar company?”
“The goal is not to be a car company. There are plenty of car companies,” Mr. Musk responded. “But an electric car company is part of a sustainable energy future, as is solar and stationary storage.”
A group of shareholders is alleging that Mr. Musk controlled the takeover while having a financial interest in both companies, that many of its directors were conflicted and that Tesla overpaid for SolarCity. Mr. Musk has said he didn’t dictate the deal process or price and recused himself from the shareholder vote.
Mr. Musk on Tuesday again dueled with the plaintiffs’ lawyer, Randall Baron, objecting to the attorney’s suggestions that he “co-opted” Tesla’s executives to work on the deal outside of his board of directors’ oversight. Mr. Musk later said the lawyer “shot himself in the foot” as the two men argued over Solar City’s share price at the time of the deal.
SolarCity was founded by Mr. Musk’s cousins, and Mr. Musk was its chairman and largest shareholder at the time. Plaintiffs, which include pension funds that owned Tesla stock, have characterized the deal as a scheme to benefit Mr. Musk and bail out a home-solar company on the verge of insolvency.
The shareholders allege that Mr. Musk and Tesla didn’t accurately disclose during the deal process how close SolarCity was to running out of money. Mr. Baron asked Mr. Musk about a July 2016 email written by his cousin, SolarCity Chief Executive Lyndon Rive, in which Mr. Rive said his company was “running super low on cash.” Tesla’s offer to buy SolarCity was made public in June 2016.
“You were surprised how bad off SolarCity was?” Mr. Baron asked.
Mr. Musk replied that SolarCity could have raised capital but couldn’t easily tap the markets while Tesla’s offer to buy the company was pending. “It was clear that SolarCity needed to raise capital, which they could do and had done before many times, but they could not do so unless Tesla called off the acquisition,” Mr. Musk said.
Mr. Musk’s defense involves showing that while he wanted the deal to happen, he didn’t dictate its terms and allowed an independent director, Robyn Denholm—now Tesla’s chairman—to negotiate with SolarCity. He also said buying SolarCity was integral to creating a product that would link energy generation with battery packs called Powerwalls.
Mr. Baron pressed Mr. Musk about communications the Tesla CEO had with other executives, directors and advisers about the deal before a price was set. Pointing to a remark Mr. Musk made about offering a 30% premium over SolarCity’s recent share price, Mr. Baron said: “So you were involved in economic discussions.”
Mr. Musk pushed back, as he did in other instances, saying his comments reflected a general approach to merger pricing. “I certainly did not engage in substantive discussions,” he said. “It was done by the board.”
Messrs. Musk and Baron have sparred throughout the proceedings. Mr. Musk berated the lawyer in deposition in 2019, when he called him “reprehensible” for “attacking sustainable energy.”
Though the grilling focused largely on what information Tesla shareholders were given about the financial condition of SolarCity, Mr. Musk at times veered farther afield in answering, particularly when it came to whether he exerted too much control over the purchase, a key question in the trial.
On Monday he said that he didn’t enjoy being the boss of Tesla. “I rather hate it, and I would much prefer to spend my time on design and engineering, which is what intrinsically I like doing,” he said.
When Mr. Baron on Tuesday asked Mr. Musk whether he had lied about when a core SolarCity product would be ready to sell in large volume, he responded, “I have a habit of being optimistic.” Mr. Baron fired back: “This is more than optimistic. This is just plain out false.”
The Tesla chief also took aim at rival companies with dual shareholder classes that can give some stockholders more power. He criticized
Ford Motor Co.
, where the dual-class stock structure affords the family greater control, and
Facebook Inc.,
where founder and CEO
Mark Zuckerberg
has extra voting powers, among others. Mr. Musk’s Tesla shares come with no extra voting rights. Ford declined to comment, and Facebook didn’t respond to a request for comment about Mr. Musk’s remarks.
If Mr. Musk loses, he could be asked to make Tesla whole. That payment could equal the value of the SolarCity transaction if the presiding judge finds that the solar company wasn’t worth anything when Tesla agreed to buy it.
Other Tesla board members at the time of the tie-up agreed to settle last year for a combined $60 million, paid by insurance. The board members, some of whom had interests in both Tesla and SolarCity, denied wrongdoing.
Mr. Musk’s brother, Kimbal Musk, was called to the stand next, with several other current and former Tesla board members expected to follow. Mr. Musk’s cousins and SolarCity co-founders Lyndon and Peter Rive also are scheduled to be called. A verdict may be months away.
Lee Rudy, another attorney for the plaintiffs, pressed Kimbal Musk about whether his financial ties to other Tesla board members affected his independence. Kimbal Musk had sought a $10 million loan from his brother a few months before Mr. Musk first asked Tesla’s board about buying SolarCity. The money, Kimbal Musk testified, was intended to be invested in his restaurant company.
Kimbal Musk sought the loan because his wealth was tied up in stock, some of which was in SolarCity and had recently declined in value, he said. His brother didn’t provide the loan, Kimbal Musk testified.
Kimbal Musk said he represented Tesla shareholders’ interests in supporting the SolarCity deal and believed solar is “going to be the biggest industry in the world.”
Write to Dave Michaels at [email protected] and Rebecca Elliott at [email protected]
Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8