Why Elon Musk Is At Risk Of Losing $3.5 Billion In Court

Elon Musk SolarCity Lawsuit

In 2016, Elon Musk was rationalising Tesla’s acquisition of a solar panel installer known as SolarCity to investors. Despite its less-than-ideal financial health, the operation was then the top of its kind within the US.

“I’m pretty optimistic about how it’s going to turn out,” Musk reassured during a November call with analysts.

“It’s pretty transformational. It’s been extremely well received at the consumer level… There are quite a few naysayers on the financial front, some of the big hedge funds, whatnot. I see no chance of SolarCity going bankrupt. Zero.”  

There was just a few issues. According to the lawsuit originally filed in 2017 by a consortium of Tesla shareholders, in the years since, SolarCity has demonstrated virtually no fiscal upside, “consistently [failing] to turn a profit… mounting debt… and burning through cash at an unsustainable rate.” As Forbes explains, the majority of company growth / debt was tied to heavy marketing spend. Even after this part of the budget was reallocated under the guidance of Musk, however, it wasn’t enough to salvage a sinking ship.

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By all accounts, this was nothing more than a conveniently timed bail out for a failing business – a failing business, which was reportedly US$3 billion in the red prior to this ten-figure life raft, founded and and run by Elon Musk’s own cousins, Lyndon and Peter Rive. The cherry on top of this conflict-of-interest sundae? Musk himself was both Executive Chairman and the largest investor with a 22.2% stake at the time of acquisition / bail out.

On July 12th, Elon Musk will head to the Court of Chancery in Delaware as the sole defendant of the SolarCity lawsuit brought forth by Tesla shareholders, where he alone will be on the hook for damages amounting to between US$2.2 billion (AU$2.95 billion) – the total investment from the EV manufacturer – and US$2.6 billion (AU$3.48 billion). Led by Chair Robyn Denholm, every other Tesla board member originally named in the SolarCity lawsuit accused of benefitting from the deal “at the expense of Tesla and its minority stakeholders” have already settled as of January 2020, forfeiting a considerably more lenient US$60 million (AU$80 million).

For a bit of light reading, you can skim through the Elon Musk SolarCity lawsuit filing here.