Bloomberg Businessweek - USA (2019-11-18)

◼ TECHNOLOGY Bloomberg Businessweek November 18, 2019

24

● Teslastockprice

SolarCityacquired

11/2014 11/2019

$ 350

250

150

Butina stunninglyraremomentofcontri-

tion,Muskexpressedregretoverthedecisionat

hisdeposition,partofa class-actionshareholder

suitthat’sgainedmomentuminrecentmonths.“At

thetimeI thoughtit madestrategicsenseforTesla

andSolarCitytocombine.Hindsightis 20-20,”Musk

said.“IfI couldwindbacktheclock,youknow,

I wouldsay[I]probablywouldhaveletSolarCity

executebyitself.”

The85%ofshareholderswhoapprovedthe

acquisitionhadonlytheirdevoutfaithinMuskto

goonwhentheyvotedthreeyearsagothismonth.

TheCEOsaida combinedTesla-SolarCitywas

alwayspartofhismasterplanandwouldcreate

theworld’sfirstverticallyintegratedcleanenergy

company.Thehopewascustomerswoulddrivea

Teslaelectriccar,harvestenergyfromTeslasolar

panelstochargeit,andtietheecosystemtogether

withTesla’sPowerwallhomebattery.

Ina troveofcourtfilingsunsealedthisfall,thou-

sandsofpagesofinternalemails,boardminutes

andpresentations,andexecutivetestimonyreveal

howtrulydirethesituationwasbehindthescenes

leadinguptotheacquisition,withalmosteverysig-

nificantpromiseMuskpitchedpubliclyeithermis-

leadingorfalse.Thedocumentsinthelawsuitoffer

anunprecedentedlookat whathappenswhenMusk’s

reality-distortionfieldcomesupagainstthereality

oftestifyingunderoath.Tesladidn’trespondtoa

requestforcommentonthesuit.

Fromtheoutset,Musk’squesttobuySolarCity

wasriddledwithquestionmarks.He’dalreadybet

TeslaontheModel3,heraldedasa $35,000electric

sedanforthemasses;wasit reallytherighttimeto

engageina distractingM&Agambit?Muskhassaid

SolarCitywasonsolidfinancialfooting,butinter-

nallyhewrotethatthecompanyneededtosolveits

“liquiditycrisis.”SolarCity,it turnedout,washemor-

rhagingcashandindangerofdefaultingonitsdebt.

Tesla’sboardinitiallybalkedattheproposal.So

didEvercoreInc.,oneofthebanksit broughtinto

evaluatethedeal.(Notthattheyfelttheirguidance

wouldbeheeded:“It’sElon’sworld.Wejustlive

init,”anEvercorebankerjokedinanemail.)Even

Tesla’sthen-ChiefFinancialOfficerJasonWheeler

raisedconcerns.“WehaveModel3 happening.We

havea lotofthingsgoingon.Weourselveshavea

largedebtload,”WheelersaidinhisJune 2019 depo-

sition.“Whydoweneedtodothisnow,Elon?”

Thentherewerethejarringconflictsofinterest.

Besides his cousins Lyndon and Peter Rive run-

ning SolarCity, its board and Tesla’s had compli-

cated overlaps. Six of Tesla’s seven directors were

Musk associates (including his brother, Kimbal) with

SolarCity ties. Antonio Gracias was on the board of

both companies. What’s more, Musk had used his

other entities to raise capital for SolarCity: SpaceX,

for example, had purchased $255 million of SolarCity

bonds. Musk bought $65 million worth. Tesla’s direc-

tors had to grapple with this apparent self-dealing as

Musk pushed them to reconsider the acquisition in

May 2016. Musk said he recused himself from these

deliberations, but court filings indicate he remained

actively involved, even advocating for the move

directly with bankers and investors.

Towinovershareholders,Muskcameupwith

theconceptofa “SolarRoof ”thatresembleda

traditional rooftop shingle but could capture power

from the sun. At a joint Tesla-SolarCity event in

Los Angeles in October 2016, Musk showed off the

product to an impressed audience. The demos he

unveiled weren’t functional, but the acquisition

received approval a few weeks later.

Tesla’s leadership was aware the acquisition risked

damaging the company, particularly if the upside

Musk promised never came. In a previously unre-

ported internal memo from 2017, viewed by Bloomberg

Businessweek, Teslaexecutivessharedpublictalking

points,includingstressingthatthemerger“wasn’ta

bailout”andthatfamily-run businesses can lead to

long-term success (“the Kochs, for example”). They

also discussed framing the Solar Roof ’s technology

development as “going extremely well” and its man-

ufacturing on schedule. “The collaboration has been

great,”theywroteoftheTesla-SolarCitymerger.

Intruth,SolarCitywasbythenfallingapart.Tesla

gutteditssalesarm,andinthefourthquarterof 2017

solardeploymentsdeclined56%froma yearearlier.

TheSolarCitybrandis nowdefunct.TheRivebrothers

leftTeslashortlyafterthemerger.AlthoughMuskhad

longarguedthemergerwasallaboutcorporate “syn-

ergies,” he admitted in the shareholder lawsuit that

he “took everyone from solar and said, ‘Instead of

working on solar, you need to work on the Model 3

program.’ And as a result, solar suffered as you would

expect. ... That would include engineering, manage-

ment, sales, service. Everything that could possibly

be redirected towards the Model 3 program was so

redirected.” Tesla didn’t respond to a request for

comment on the memo.

Perhaps the biggest woe from the acquisition is

the Solar Roof. The product was supposed to be cen-

tral to the merger, but Tesla has failed to develop a

mass-market version and delayed high-volume man-

ufacturing multiple times in recent years. Gracias,

the Tesla director who was also on the board of

SolarCity, said in his April deposition that there

are only “50 to 100 of these things operating today

in tests on people’s roofs.” A year ago, in an inter-

view with Bloomberg Businessweek at Tesla’s solar