Tesla/SolarCity: controversial solar panel company has to prove its worth
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Tesla is always in the news. This week, US road traffic investigators said they were probing crashes between electric cars driven by its Autopilot system and emergency vehicles. A much slower collision is meanwhile taking place between the US electric car company and a group of shareholders who claim it overpaid for SolarCity, a struggling solar panel company.
Tesla bought the business for $2.6bn in 2016. The all-stock acquisition was supposed to add a growing business. Instead, it landed Tesla with more than $3bn in extra debt, declining sales and awkward questions about why it now owned a company co-created by boss Elon Musk and his cousins.
The deal was justified in part with the claim that solar panels resembling unobtrusive roof tiles would prove popular and naturally mesh with clean-energy automobile production. But the models presented before the deal were not all functional. Under-investment means SolarCity has failed to keep up with innovation by rivals such as Vivint Solar.
Musk had financial interests in both companies. Tesla’s board has already settled for $60m. It denies any wrongdoing, as does Musk.
The case has less to do with SolarCity’s performance than the definition of control. Musk does not have majority voting rights. When Tesla bought SolarCity his voting interest was 22 per cent.
The acquisition was agreed by 85 per cent of the board. Here, Musk’s influence is harder to quantify. His brother Kimbal is a director. Another, Antonio Gracias, was also on the board of SolarCity. All board members also know that without Musk, Tesla would not be a $680bn company.
One defence Tesla has against accusations of a dud buyout is the effort it is now making to sell more solar panels. SolarCity no longer exists as a brand. But the energy generation and storage segment of Tesla deployed 177 megawatts of solar energy systems in the last quarter — almost double the previous quarter. That is enough to power more than 115,000 average homes.
Prices have risen and the business reported a small profit on revenues of $801m. Solar is a tiny part of Tesla. But at least it is starting to grow.
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