Tesla and SpaceX funds saved SolarCity

Court filings have claimed SolarCity was insolvent when major shareholder Elon Musk convinced Tesla and SpaceX investors to absorb the solar-power operation.

The filings claim Musk forced Tesla shareholders to pay $US2.6 billion in November 2016 to swallow another insolvent company he owned, knowing full well it was insolvent.

Filed in 2016, the lawsuit names Musk, his brother Kimbral and his cousin, SolarCity boss Lyndon Rive, as defendants, among others.

The filings insist Musk and his co-defendants ignored their conflicts of interest and intentionally hid millions of dollars of SolarCity financial commitments from auditors Ernst & Young prior to the Tesla takeover.

The majority of the Tesla board members that approved the SolarCity takeover had financial interests on both sides of the deal, the brief claimed, and they failed to recuse themselves.

The documents, part of a large pension fund’s opening lawsuit brief, have been recently unredacted after pressure from the PlainSite.org, accusing Musk of falsely valuing SolarCity and misleading Tesla investors.

In a statement issued on Monday, Tesla accused the plaintiffs of not believing in the Tesla mission and looking to cash in for a quick profit.

“These allegations are based on the claims of plaintiff’s lawyers looking for a payday, and are not representative of our shareholders who support our mission and ultimately voted in favor of the acquisition,” the statement read.

“The accusations made in the plaintiff’s brief are false and misleading, as Tesla and SolarCity published all material information in its proxy and other public filings for all shareholders to consider before deciding on the transaction.

“Providing clean, renewable energy generation through solar has been a critical part of our mission ever since 2006, and our acquisition of SolarCity has enabled and continues to enable a significantly faster path to achieve our goals.”

Yet, far from continuing to enable a faster path to their goals, SolarCity panel deployment has crumbled since Tesla took it over.

Then SolarCity CEO Lyndon Rive projected SolarCity would deploy 1100 megaWatts of panels a year under Tesla management, but it deployed just 326mW last year and just 76mW in the first half of this year.

It’s not Musk’s only troublesome lawsuit at the moment, with the Tesla boss also under court scrutiny over a libel suit after calling Thai cave-rescue hero Vernon Unsworth a “pedo guy”.

He is facing another lawsuit from US retail giant Walmart after at least seven solar-installation roof fires, while there are two outstanding wrongful death lawsuits related to autopilot crashes in Tesla cars.

SolarCity, majority owned by Musk and two of his cousins, had run out of money in 2015 and was kept afloat by Musk’s other two major companies until Tesla absorbed it on Musk’s recommendation.

In the Summary Judgment of the ongoing SolarCity court case in Delaware, filed by the City of Riviera Beach Police Pension Fund, auditors Ernst & Young determined that SolarCity could “not operate as a going concern” when Musk pitched its absorption into Tesla.

The court filings, posted on the plainsite.org website, confirmed that SolarCity was insolvent.

As part of the end-of-year audit in January 2017, Ernst & Young found the 2017 financial projections failed to include “two payments related to solar bonds – SpaceX as they were expecting a re-investment”. It also found that it did not have “sufficient cash to meet its obligations”.

Musk had been propping up the unprofitable SolarCity for at least a year, mainly through SpaceX.

Court filings found that as majority shareholder, chairman, CEO and CTO, Musk forced SpaceX to buy $US90 million in SolarCity bonds in March 2015, another $US75 million in June 2015 and another $US90 million in March 2016.

The purchases were in breach of SpaceX internal policy, and Ernst & Young reported that “other investors [in SpaceX] have put pressure on SpaceX to get the money back from SCTY [SolarCity]”.

Musk pitched hard to have Tesla take over SolarCity two years ago, insisting it would add $US500 million to the electric car company’s bottom line within three years.

Prior to rolling SolarCity into Tesla, Musk described the three companies as a “’pyramid’ atop which he sat”, the court filings stated.

It also said that it was important to Musk that “there not be some sort of house of cards that crumbles if one element of the pyramid... falters”.