wrapped up two days of grilling over the car maker’s purchase of SolarCity Corp. as lawyers for plaintiffs on Tuesday aimed to show he was heavily involved and helped set the price for the struggling energy company.
Mr. Musk’s testimony, sometimes feisty, marked the opening of a nonjury trial at the Delaware Court of Chancery that is expected to last two weeks. A group of shareholders allege that Mr. Musk controlled the 2016 deal 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 again dueled with the plaintiffs’ lawyer,
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.
This testimony came after a heated first day during which he took aim at opposing counsel, while also arguing he didn’t act improperly during the negotiating process.
The case dates to 2016, when Mr. Musk was chairman of both companies, and Tesla, then still unprofitable, bought money-losing SolarCity for about $2.1 billion to establish a single clean-energy business. 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 himself and bail out a home-solar company on the verge of insolvency.
The group of shareholders allege that Mr. Musk and Tesla didn’t accurately disclose how close SolarCity was to insolvency during the deal process. Mr. Baron asked Mr. Musk about an July 2016 email written by his cousin, SolarCity Chief Executive
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,
—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.
Vice Chancellor Joseph Slights III, the presiding judge, drilled into that logic for the deal 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.”
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, where he called him “reprehensible” for “attacking sustainable energy.”
To explain that behavior, Mr. Musk told the court he didn’t respect Mr. Baron because the lawyer had once worked at a law firm whose partners became engulfed in an ethics scandal and went to prison over their misdeeds. “I think you are a bad human being,” Mr. Musk said to Mr. Baron.
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 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
where founder and CEO
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.
A primary question in the case is whether Mr. Musk, who owned roughly 22% of Tesla at the time, controlled the transaction. Proving the claim is a challenge because Mr. Musk was a minority shareholder of Tesla, and the company’s shareholders approved the acquisition. Lawyers for Mr. Musk have said that SolarCity was worth more than Tesla paid for it and the electric-vehicle maker’s board members, who included Mr. Musk’s brother, Kimbal Musk, acted independently.
Other issues before the judge include whether Tesla board members, some of whom also were SolarCity shareholders personally or through investment funds they managed, were conflicted and whether vital information about the deal was withheld from shareholders. Mr. Musk testified that an independent director handled the negotiation and that Tesla’s directors even overruled his proposal that Tesla provide temporary financing to SolarCity before the deal went through.
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
also are scheduled to be called. A verdict may be months away.
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