Elon Musk defends Tesla solar deal in court, calls opposing lawyer ‘a bad human being’

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The Washington Post 12 July, 2021 - 06:13pm 44 views

WILMINGTON, Del. — Tesla founder Elon Musk took to a witness stand Monday to defend his company's 2016 acquisition of a troubled company called SolarCity against a lawsuit that claims he's to blame for a deal that was rife with conflicts of interest and never delivered the profits he'd promised.

And to the surprise of no one, the famously colorful billionaire did so in the most personally combative terms.

"I think you are a bad human being," Musk told Randall Baron, a lawyer for shareholders who was pressing Musk to acknowledge his mistakes in helping engineer the acquisition of SolarCity, a manufacturer of solar panels.

"I have great respect for the court," Musk later added, "but not for you, sir.''

The long-running shareholder lawsuit asserts that Musk, who was SolarCity's largest stakeholder and its chairman, and other Tesla directors breached their fiduciary duties in bowing to Musk's wishes and agreeing to buy the company. In what the plaintiffs call a clear conflict of interest, SolarCity had been founded by Musk and two of his cousins, Lyndon and Peter Rive.

In the Delaware Court of Chancery on Monday, Baron sought to establish that Musk has sought to run Tesla without interference and therefore bears responsibility for any failures. The lawyer showed a video clip in which Musk said he liked running his own companies because he doesn't want anyone to make him do what he doesn't want to do.

As an example of what he characterized as Musk's imperious management style, Baron mentioned that the CEO once declared himself "Technoking of Tesla'' and gave his chief financial officer the title "master of coin'' — a reference to HBO's "Game of Thrones" — in a filing with the Securities and Exchange Commission.

The hostility between the billionaire CEO and the plaintiffs' lawyer dates to at least 2019 and a deposition in which Musk insulted Baron and questioned his professionalism. On Monday, Baron played clips from that deposition to try to portray Musk's stance toward what he might regard as criticism.

Pushing back, Musk insisted that "I don't want to be the boss of anything."

"I prefer to spend my time on design and engineering,'' he said.

Musk, who is well-known for rejecting skepticism of himself or his company, insisted that he welcomes criticism:

"If I'm mistaken," he said on the witness stand, "I view critical feedback as a gift.''

Musk said his off-beat titles and other quips simply reflect his sense of humor.

"I think I'm funny,'' he offered.

What's more, he said, the resulting media attention often plays to Tesla's benefit.

"If we're entertaining, people will write stories about us," and the company can save on advertising."

Regarding Tesla's all-stock acquisition of SolarCity, Musk asserted that he had nothing to gain financially from it because he owned shares of both companies.

Musk also argued that SolarCity's failure to meet aggressive sales forecasts and its loss of market share were only temporary setbacks. He said they reflected his decision to divert Tesla resources toward salvaging production of the Tesla Model 3 electric car — and then running "headlong into a pandemic.''

The effort to salvage Tesla 3 was "all-hands-on-deck'' operation — so desperate that even the company's lawyers were enlisted in the effort, Musk said, drawing laughter in the court.

Musk's defense noted that SolarCity had been in Tesla's plans as early as his 2006 master plan for the electric carmaker. In saying so, he asserted that the joining of the companies 10 years later wasn't an emergency bailout as the plaintiffs have alleged.

But Baron pointed out that the 2006 document mentioned only a potential marketing arrangement, not a full-fledged merger or acquisition, between Tesla and SolarCity.

Baron repeatedly pressed Musk about evidence that SolarCity had been in trouble — short of cash, unable to obtain financing, in danger of violating the terms of an existing loan agreement — before the Tesla buyout.

Musk conceded nothing. He argued that SolarCity could have raised money, if it wanted to, by issuing shares of stock. And he noted that fast-growing young companies, including Amazon and Tesla itself, often bleed cash in their early years before achieving success later.

Why, Baron asked, did another Musk company, Space X, waive its own investment guidelines to buy risky SolarCity bonds? Musk replied that those bonds offered a better payout than did bank accounts that paid little more than zero.

"I had faith," Musk said, "in the future of SolarCity."

Baron tried to pin down whether Musk had recused himself from Tesla-SolarCity negotiations to avoid a conflict of interest.

"I had no material role,'' Musk said.

"What's is a 'material role?' " Baron fired back. "That sounds like a wiggle word to me."

"You're the expert in wiggle words,'' Musk countered.

The trial that began Monday marks the culmination of seven shareholder lawsuits, consolidated into one, that alleged that Tesla directors breached their fiduciary duties in bowing to Musk's wishes and agreeing to buy SolarCity. Last August, a judge approved a $60 million settlement that resolved claims made against all the directors on Tesla's board except Musk without any admission of fault.

That left Musk, who refused to settle, as the sole remaining defendant. The trial that began Monday had been scheduled for March of last year but was postponed because of the viral pandemic.

Daniel Ives, an analyst at Wedbush Securities, has called the acquisition a "clear black eye" for Musk and Tesla, in large part because SolarCity has failed to turn a profit.

"It basically was putting good money after bad," Ives said. "For all the successes and all of the unimaginable heights Musk has achieved, this is one of the lowlights."

Even if the trial ends with Musk having to pay personally for the whole SolarCity deal, $2.5 billion won't much hurt the world's third-wealthiest person. Forbes magazine has estimated that Musk is worth roughly $163 billion.

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Elon Musk to testify in a lawsuit that alleges conflict of interest in $2.5B Tesla deal

USA TODAY 12 July, 2021 - 07:02pm

After a failure to produce the profits promised in a $2.5 billion deal, Musk will now testify to defend what he calls a justifiable acquisition.

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Tesla's CEO Elon Musk has told The Wall Street Journal he's moved to Texas because California has 'taken innovators for granted.' USA TODAY

In the runup to Tesla Inc.’s 2016 acquisition of a company called SolarCity, Elon Musk hailed the deal as a “no brainer” — a purchase that would combine the leading maker of electric vehicles with a manufacturer of solar panels that can recharge EVs.

It didn’t exactly work out that way.

On Monday in the Delaware Court of Chancery, the Tesla CEO will testify about the $2.5 billion deal in a shareholder lawsuit that alleges that Tesla’s acquisition was rife with conflicts of interest, overlooked SolarCity’s fundamental weaknesses and unsurprisingly failed to produce the profits Musk had promised.

Questioned under oath, Musk plans to defend the purchase as a justifiable acquisition.

At the time of the all-stock purchase, Musk was SolarCity’s largest stakeholder and its chairman. Seven shareholder lawsuits, consolidated into one, alleged that Tesla directors breached their fiduciary duties in bowing to Musk’s wishes and agreeing to buy the struggling company. In what the plaintiffs call a clear conflict of interest, SolarCity had been founded by Musk and two of his cousins, Lyndon and Peter Rive.

Last August, a judge approved a $60 million settlement that resolved claims made against all the directors on Tesla’s board except Musk without any admission of fault. That left Musk, who refused to settle, as the sole remaining defendant. The trial that begins Monday had been scheduled for March of last year but was postponed because of the viral pandemic.

Daniel Ives, an analyst at Wedbush Securities, called the acquisition a “clear black eye” for Musk and Tesla, in large part because SolarCity has failed to turn a profit.

“It basically was putting good money after bad,” Ives said. “For all the successes and all of the unimaginable heights Musk has achieved, this is one of the lowlights.”

Most investors, Ives said, place no value on the company’s solar business.

“I just think Musk and Tesla underestimated the challenges and the hurdles that the business brings,” he said.

That said, Ives said he thought Tesla’s energy business could still become “modestly successful.”

Tesla, which has disbanded its media relations department, did not answer a message Friday seeking comment about the lawsuit. In its 2020 annual report, the company argued that the lawsuit was without merit and that Tesla would vigorously defend itself.

“We are unable to estimate the possible loss or range of loss, if any, associated with these claims,” the company report said.

Tesla’s energy generation and storage business generated $1.9 billion in revenue last year — 24% more than it did the previous year. Much of that revenue came from selling battery storage units. Tesla doesn’t specify whether the business made a profit, and it also has debt and expenses.

The lawsuit filed by the plaintiffs contends that Musk drove the decision to acquire SolarCity despite his clear-cut conflict of interest.

Musk has a history of fighting government agencies and lawsuits. He was forced to pay a $20 million fine to the Securities and Exchange Commission for making statements on Twitter about having the money to take the company private when he didn’t. But he won a defamation lawsuit that was filed by a British diver involved in the rescue of a Thai soccer team that was trapped in a flooded cave. Musk had called the man “pedo guy” on Twitter.

Even if the trial ends with Musk having to pay personally for the whole SolarCity deal, $2.5 billion won’t much hurt the world’s third-wealthiest person. Forbes magazine has estimated that Musk is worth roughly $163 billion.

Ives suggested that while any such payment wouldn’t seriously affect Musk’s wealth, it would damage his reputation for choosing acquisitions.

Musk is fighting the lawsuit after others have settled “because that’s what Musk does,” Ives said. “I think Elon believes this was the right deal and still does.”

© 2021 USA TODAY, a division of Gannett Satellite Information Network, LLC.

Elon Musk arrives in court to testify in lawsuit over SolarCity deal

Daily Mail 12 July, 2021 - 09:42am

By Keith Griffith For Dailymail.com and Wires

Elon Musk insisted in court on Monday that Tesla's board controls the company but said the electric vehicle maker would 'die' if he wasn't the chief executive, as he testified in defense of Tesla's 2016 acquisition of SolarCity. 

Kicking off a two-week trial in Wilmington, Delaware on Monday, Musk, wearing a dark suit, white shirt and a slightly askew dark tie, testified that he has tried 'very hard not to be the CEO of Tesla, but I have to or frankly Tesla is going to die.' 

The lawsuit by union pension funds and asset managers alleges the celebrity CEO strong-armed Tesla's board of directors into depleting the company´s assets with the $2.6 billion all-stock deal for SolarCity, which was running out of cash.

Musk at the time owned a 22 percent stake in both Tesla and SolarCity, which was founded by his cousins, and some Tesla shareholders alleged the deal was aimed at bailing out Musk's investment in the solar panel company.

His testimony devolved into a tense back-and-forth with shareholder attorney Randy Baron, whom Musk called 'reprehensible' at a testy 2019 deposition, according to a transcript.

When Baron pressed Musk in court on why he didn't like him, the CEO testily responded, 'I think you are a bad human being,' according to USA Today reporter Isabel Hughes

'Some of your questions,' he told the opposing attorney, 'are really tricky and deceptive.' 

Musk responded to Baron's yes-or-no questions with lengthy dissertations that seemed intended to frustrate the attorney, and at one point he accused Baron of being 'mentored by criminals.' 

Tesla CEO Elon Musk departs after taking the stand to defend Tesla Inc's 2016 deal for SolarCity in a case before the Delaware Court of Chancery in Wilmington, Delaware on Monday

Kicking off a two-week trial in Wilmington, Delaware on Monday, Musk, wearing a dark suit, white shirt and a slightly askew dark tie, testified that would 'die' if he wasn't the CEO

Tesla CEO Elon Musk gestures as he departs the Williams Justice Center on Monday

Musk departed court in a Tesla, naturally, after taking the stand for lengthy cross-examination

'I think you are a bad human being,' Elon Musk told shareholders' attorney Randy Baron in court on Monday. The cross-examination is depicted in the court sketch above

Musk (center) is seen with his cousins, SolarCity founders Peter Rive (left) and Lyndon Rive (right). Tesla faces a lawsuit claiming the acquisition of SolarCity was irresponsible

The lawsuit filed by union pension funds and asset managers alleges Musk strong-armed Tesla's board to buy SolarCity for $2.6 billion in 2016, just as it was about to run out of cash. 

Musk owned a 22 percent stake in SolarCity, which was founded by his cousins Peter and Lyndon Rive.

Central to the case will be allegations that Musk, who also had a 22 percent stake in Tesla at the time of the deal, was nonetheless a controlling shareholder. 

Shareholders asked the court to order Musk, one of world's richest people, to repay to Telsa what it spent on the deal, which would represent one of the largest judgments ever against an individual. 

Baron asked if the board vetted his Technoking title, which he gave himself in March.

'It generated a whole bunch of free press and Tesla doesn't advertise and it's helpful to general sales,' he said. He called the title a joke, adding: 'I think I'm funny.'

In his testimony on Monday, Musk denied the deal was a bailout of SolarCity as Tesla shareholders have alleged.

'Since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both there was no financial gain,' he said, responding to questions from his attorney. 

Musk told the court that the Tesla board handled the SolarCity deal and he was not part of the board committee that negotiated the terms.

'I don't even know what happened,' he testified.

Musk testified that for years before the SolarCity deal he saw the solar panel company as a natural part of the transition to sustainable energy.

He touted the deal at the time as central to his 'Master Plan, Part Deux,' which aims to reshape transportation by using sustainable energy to power fleets of self-driving electric vehicles.

Musk was initially questioned for about an hour by his attorney, Evan Chesler, who asked him to describe his relationship with the board.

'I´d say good,' Musk replied. 'They work hard and are competent. They provide good advice and are rigorous in acting on behalf of shareholders.'

He said he did not set pay for directors or have the ability to fire or hire them, and that they negotiated the SolarCity deal and its economic terms without his influence.

On cross-examination, shareholder attorney, Randall Baron warned Musk that 'we plan to spend a lot of time with you. It's going to be a grind.'

Musk grimaced, poked at the six-inch thick binder exhibit and replied 'I can tell by the binder.'

Musk's testimony devolved into a tense back-and-forth with shareholder attorney Randy Baron (above), whom Musk called 'reprehensible' at a testy 2019 deposition

Tesla CEO Elon Musk departs after taking the stand to defend Tesla Inc's 2016 deal for SolarCity in a case before the Delaware Court of Chancery

Musk testified that he has tried 'very hard not to be the CEO of Tesla, but I have to or frankly Tesla is going to die'

Musk told the court that the Tesla board handled the SolarCity deal and he was not part of the board committee that negotiated the terms

The chancery court trial, which does not a have a jury or opening arguments, is being held under strict orders forbidding any cameras or cell phones from the courtroom. 

Shareholders asked the court to order Musk, one of world's richest people, to repay to Telsa what it spent on the deal, which would represent one of the largest judgments ever against an individual. 

However, even if the judge finds the deal was unfair, he could award a much lower amount of damages.

Musk has argued the deal was fair and that it was negotiated by the Tesla board free of his influence and approved by fully informed stockholders.

He touted the deal at the time as central to his 'Master Plan, Part Deux,' which aims to reshape transportation by using sustainable energy to power fleets of self-driving electric vehicles.

Legal experts said the judge will be looking for evidence that Musk threatened board members or that directors felt they could not stand up to him.

The shareholders' lawsuit accuses Musk of dominating deal discussions, pushing Tesla to pay more for SolarCity and misleading shareholders about the deteriorating financial health of the solar panel maker.

Central to the case will be allegations that Musk, who had a 22 percent stake in Tesla at the time of the deal, was nonetheless a controlling shareholder. 

If he was, it would impose a tougher legal standard and increase the likelihood the deal was unfair to shareholders.

'It would be a surprise to most people if the court were to come out and say that he doesn't control here,' said Brian Quinn, a professor at Boston College Law School. 'Because he certainly acts like he does.'

Tesla CEO Elon Musk defends Tesla Inc's 2016 deal for SolarCity at the Williams Justice Center in a case before the Delaware Court of Chancery in this courtroom sketch

The Williams Justice Center, where Tesla CEO Elon Musk is testifying, is seen in Wilmington, Delaware on Monday

Musk owned a 22 percent stake in SolarCity, which was founded by his cousins Peter Rive (right) and Lyndon Rive (left)

When Baron asked if Musk bailed out SolarCity, Musk replied: 'You are a shameful person.'

Tesla's directors settled allegations from the same lawsuit last year for $60 million, paid by insurance, without admitting fault.

Vice Chancellor Slights will likely take months before he issues a ruling.

Daniel Ives, an analyst at Wedbush Securities, called the SolarCity acquisition a 'clear black eye' for Musk and Tesla, in large part because the solar panel company has failed to turn a profit.

'It basically was putting good money after bad,' Ives said. 'For all the successes and all of the unimaginable heights Musk has achieved, this is one of the lowlights.'

Most investors, Ives said, place no value on the company's solar business.

'I just think Musk and Tesla underestimated the challenges and the hurdles that the business brings,' he said.

That said, Ives said he thought Tesla's energy business could still become 'modestly successful.'

Tesla, which has disbanded its media relations department, did not answer a message Friday seeking comment about the lawsuit. In its 2020 annual report, the company argued that the lawsuit was without merit and that Tesla would vigorously defend itself.

'We are unable to estimate the possible loss or range of loss, if any, associated with these claims,' the company report said.

Members of the media gather outside the justice center where Elon Musk will testify in Wilmington, Delaware on Monday. Musk snuck into the building and was not spotted

A SolarCity vehicle is seen on the road in San Diego in a file photo. The company failed to turn a profit and analysts question the wisdom of Tesla's acquisition

Tesla's energy generation and storage business generated $1.9 billion in revenue last year - 24% more than it did the previous year. Much of that revenue came from selling battery storage units. Tesla doesn't specify whether the business made a profit, and it also has debt and expenses.

The lawsuit filed by the plaintiffs contends that Musk drove the decision to acquire SolarCity despite his clear-cut conflict of interest.

Musk has a history of fighting government agencies and lawsuits. He was forced to pay a $20 million fine to the Securities and Exchange Commission for making statements on Twitter about having the money to take the company private when he didn't. But he won a defamation lawsuit that was filed by a British diver involved in the rescue of a Thai soccer team that was trapped in a flooded cave. Musk had called the man 'pedo guy' on Twitter.

Even if the trial ends with Musk having to pay personally for the whole SolarCity deal, $2.5 billion won't much hurt the world's third-wealthiest person. Forbes magazine has estimated that Musk is worth roughly $163 billion.

Ives suggested that while any such payment wouldn't seriously affect Musk's wealth, it would damage his reputation for choosing acquisitions.

Musk is fighting the lawsuit after others have settled 'because that´s what Musk does,' Ives said. 'I think Elon believes this was the right deal and still does.'

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Elon Musk Defends SolarCity Deal, Says of Being Tesla Boss: ‘I Rather Hate It’

The Wall Street Journal 12 July, 2021 - 09:09am

The case dates to 2016, when Mr. Musk was chairman of both companies, both of them unprofitable at the time. His solution: Combine them in a roughly $2.1 billion tie-up to establish a single clean-energy business. 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.

Mr. Musk, the opening and only witness in the first day in a nonjury trial in the Delaware Chancery Court, is scheduled to return to the stand Tuesday. He defended his actions in roughly five hours of testimony, saying the SolarCity purchase was crucial to the sustainable-energy strategy he had envisioned for Tesla for a decade.

“I don’t think SolarCity was financially troubled,” Mr. Musk said. “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.”

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.

The billionaire CEO, who has a record of sometimes blunt and surprising statements, said Monday 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.

Mr. Musk made the comment after opposing counsel tried to show how his “force of will” and faith in his view of Tesla’s future illustrated his ability to control the SolarCity transaction.

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.

Mr. Musk spoke in a calm and sometimes quiet tone as he answered his lawyer’s questions. He became more energetic when he fielded questions from Randall Baron, a lawyer for the plaintiffs. Mr. Baron pressed Mr. Musk on whether he dominated Tesla, handpicked its board members and made decisions without directors’ involvement.

Mr. Musk has already displayed flashes of his sometimes combative nature in the case, making for a confrontational witness in a 2019 deposition, calling Mr. Baron “reprehensible” for “attacking sustainable energy.”

To explain the 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.

Mr. Baron asked Mr. Musk why SolarCity’s performance varied significantly from the projections that Tesla gave to shareholders in 2016. Mr. Musk blamed the decline in solar-panel installation and market share to Tesla’s pressing need to focus on developing its Model 3 car in 2017 and 2018. Tesla at the time was struggling to bring the car to market.

“Those were the three hardest years of my entire career,” he said, later calling the period excruciating. “The company was in dire straits. Many of the times I thought we were out of the woods, we were not.”

More recently, Mr. Musk said, the coronavirus pandemic hurt Tesla’s ability to get permits for residential solar installations.

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 firm wasn’t worth anything when Tesla agreed to buy it.

The trial has been delayed for more than a year because of the pandemic and is expected to last two weeks.

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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 brought the proposed deal to Tesla’s board in early 2016, court records show. The plaintiffs describe SolarCity as having been in severe financial distress leading up to the deal, at risk of tripping a debt covenant and without other fundraising options. Shareholders weren’t fully informed of the company’s condition, they say.

Mr. Baron pressed that point Monday, asking Mr. Musk about internal emails and meetings that discussed efforts to save money by delaying payments to vendors and other moves. The attorney also asked whether he was aware that Lazard Ltd. bankers had tried to raise money for SolarCity in 2016 and found most of the private investors they surveyed to be unreceptive.

Mr. Musk said Tesla also occasionally took such steps to conserve cash. He said SolarCity could have raised money from private investors if it had more time to do so, and ultimately could have sold stock to public investors.

If chancery court Vice Chancellor Joseph Slights III, the presiding judge, finds Mr. Musk didn’t control the deal, the case is likely over for the plaintiffs, said Lawrence Hamermesh, executive director of the Institute for Law and Economics at the University of Pennsylvania’s Carey Law School.

Case law in Delaware generally defers to the business judgment of independent and properly motivated directors. On the other hand, if the evidence points to control, the court would assess whether the deal process and price were fair and, if not, whether Mr. Musk should be ordered to pay money back to Tesla, Mr. Hamermesh said.

For Mr. Musk, who now ranks among the world’s wealthiest people, the optics of a loss likely would be more meaningful than any court-ordered financial judgment, said Seth Goldstein, an analyst for Morningstar Research Services LLC.

“You could see the board become extra diligent with regard to acquisitions that aren’t in Tesla’s current, existing industries,” Mr. Goldstein said.

Tesla investors also have enjoyed a change in fortunes since the takeover first surfaced. The vehicle maker posted its first full-year of profit in 2020. The stock, which traded at around $44 when Tesla proposed buying SolarCity, closed Monday at around $686, up 4.38% on the day.

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Appeared in the July 13, 2021, print edition as 'Musk Defends Purchase of SolarCity.'

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