Elon Musk is defending Tesla’s acquisition of SolarCity against angry shareholders. This is the story of how it was transformed into Tesla Energy.

EM   Photo by Christophe Gateau:picture alliance via Getty Images
Tesla CEO Elon Musk.

  • Elon Musk is defending Tesla’s 2016 acquisition of SolarCity in court.
  • SolarCity was founded by Musk’s cousins, and some shareholders say the acquisition was a bailout.
  • Once the top installer of solar panels in the US, SolarCity was turned into Tesla Energy.
  • See more stories on Insider’s business page.

Five years ago Tesla bought SolarCity, the biggest installer of residential solar panels in the US. Tesla CEO Elon is now having to defend that decision against shareholders, who claim the acquisition amounted to a bailout.

If Musk loses, he’ll be liable to pay up to $2.6 billion back to Tesla. Although this would make up only a fraction of Musk’s fortune – at time of writing his net worth stands at $179 billion per the Bloomberg Billionaires Index – Wedbush analyst Dan Ives said the case is a “black eye” for Tesla and could do serious reputational damage.

The case hinges on whether Musk exerted undue influence over Tesla’s board, and whether he misrepresented SolarCity’s financial health. Originally, the suit targeted the whole Tesla board as well as Musk, but the other board members agreed to an out-of-court settlement for $60 million in January 2020.

Musk’s appearances in the witness box this week were characteristically bombastic, with the Tesla CEO throwing personal insults at the plaintiffs’ lawyer and claiming his sense of humor drives sales. As part of his defense, Musk said the acquisition of SolarCity was part of a master plan.

“The goal is not to be a car company. There are plenty of car companies, but an electric car company is part of a sustainable energy future, as is solar and stationary storage,” Musk said, per the Wall Street Journal.

After the 2016 acquisition SolarCity was transformed into Tesla Energy, which has had to contend with multiple lawsuits, solar panel fires, and production problems.

How SolarCity became Tesla Energy:

SolarCity was founded in 2006 by Elon Musk’s cousins Lyndon and Peter Rive.

Lyndon Rive.JPG
SolarCity cofounder and former CEO Lyndon Rive.

Musk’s cousins founded SolarCity at his suggestion, and Musk injected $10 million into the project himself.

The company initially enjoyed success, and in 2013 became the top residential installer for solar panels in the US, according to solar panel comparison site Energy Sage.

Its stock peaked in February 2014 at $88.35 a share — but then it began to go downhill.

SolarCity ran into major problems in 2015.

solarcity
Home installation.

In October 2015, a quarter of SolarCity’s value got wiped out, meaning it lost its “unicorn” status (a unicorn is a company valued at more than $1 billion).

The sudden drop in its value came after Lyndon Rive said the company would have to focus on cutting costs, as its rapid growth meant it had sunk a lot of money into infrastructure that wouldn’t make it any cash in the near future.

“The downside of growing at 80% or 90% is you have to make investments into the infrastructure today, but you only recognize the benefit of that investment two quarters to three quarters later,” Rive said.

Documents obtained by shareholder lawsuits revealed executives thought the company was facing a cash crisis as early as September 2015.

SolarCity announced Tesla had offered to buy it for $2.6 billion in August 2016.

elon musk
Tesla CEO Elon Musk.

SolarCity said in an official blog post on August 1, 2016, that Tesla had made an all-stock offer on June 21.

“Now is the right time to bring our two companies together: Tesla is getting ready to scale our Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-generation differentiated solar solutions,” SolarCity’s blog said.

The deal was approved by Tesla’s shareholders in November 2016. At the time of the acquisition, Elon Musk owned a 22% stake in SolarCity.

When Tesla bought SolarCity, it took on $3 billion in debt.

As Insider’s Matthew DeBord wrote at the time, SolarCity had $3.2 billion in debt when Tesla acquired it. Its market cap had also fallen by 50% in the year leading up to the acquisition.

Although Elon Musk argued in court this week he didn’t think SolarCity was “financially troubled” when Tesla acquired it, court documents unsealed in 2019 show Musk emailed former SolarCity finance chief Brad Buss, saying SolarCity would need to solve its “liquidity crisis” to win over investors.

A regulatory filing showed SolarCity had started 2016 with 15,273 staff but by the end of 2016, it had 12,243.

The Rive brothers left less than a year after the acquisition closed.

SolarCity cofounder Lyndon Rive standing by a Tesla Powerwall battery.
SolarCity cofounder Lyndon Rive standing by a Tesla Powerwall battery.

Lyndon Rive announced in May 2017 he would be leaving Tesla in June.

He told employees in a letter he was an “entrepreneur at heart,” and wanted to leave to build a new startup. Rive told Reuters at the time SolarCity was “healthier than it’s ever been.” 

Peter Rive, Lyndon’s co-founder and CTO, left the company in July 2017. In an internal letter published by Green Tech Media, Rive said he had decided to “take a break and focus on some other projects.”

“I plan to spend more time exploring the outdoors, more time with my family, and helping non-profit solar projects in the developing world,” Rive added.

In 2018, Tesla Energy had to deal with a major PR crisis when Tesla solar panels on top of seven Walmarts caught fire.

Walmart filed a lawsuit against Tesla in August 2019 claiming the fires were the result of “widespread negligence” on Tesla’s part.

After Walmart filed the case Amazon came forward to say solar panels on top of its Redlands, California warehouse had caught fire in June 2018. The retail giant said it would not be installing any more solar panels.

Walmart dropped the lawsuit three months later after reaching an out-of-court settlement with Tesla, a Walmart spokesperson said. The details of the settlement were not disclosed.

In August 2019 Insider’s Linette Lopez reported Tesla had rolled out a stealth replacement program for faulty solar panels in summer 2018, codenamed “Project Titan.”

Since SolarCity became Tesla Energy it’s brought out two big flagship products: the Powerwall and the Solar Roof.

tesla solar roof
A Tesla Solar Roof.

While Tesla Energy has continued to sell the traditional solar panels SolarCity used to install — which are made by third-party manufacturers such as Trina Solar — it has brought two new products to market since the acquisition.

The first was its Powerwall storage battery, designed to store energy generated by a customer’s solar system so even if the power goes down in their neighbourhood they’ll have access to power.

It’s not entirely clear whether development on the Powerwall began before or after the acquisition. Tesla gave a preview of the storage battery at an event in May 2015, but in testimony on Tuesday Musk said development of the Powerwall was “beginning” when the acquisition happened in 2016.

“We were beginning development of the Tesla Powerwall battery. And 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,” Musk told the court.

The second is the Solar Roof, which instead of bolting panels on top of a customer’s roof replaces the entire roof with photovoltaic shingles.

Musk debuted the Solar Roof in October 2016 during a glitzy event on a house from the show “Desperate Housewives.”

“It needs to be beautiful, affordable and seamlessly integrated,” Musk said at the unveiling event, adding: “You’ll want to call your neighbors over and say, ‘check out this sweet roof.'”

Depositions from Tesla executives later revealed the tiles Musk had shown off at the event hadn’t been operational.

Tesla did not start actually installing Solar Roof until 2019. In a deposition, Musk said this was because Tesla had to divert resources away from Tesla Energy to focus on the Model 3 production ramp.

Tesla raised the price of the Solar Roof in April 2021. Musk said this was because the company had made “significant mistakes.”

Customers who had already signed contracts for a Solar Roof but had not yet had one installed reported in April the company had jacked up the prices on their roofs. One customer who had his contract raised from $71,000 to $146,000 filed a class-action lawsuit against Tesla.

Musk addressed the price hike in Tesla’s 2021 Q1 earnings call, saying “we did find that we basically made some significant mistakes in assessment of difficulty of certain roofs.” 

Musk said roof complexity made it hard to price them accurately. “If a roof has a lot of protuberances, or if the roof — sort of the core structure of the roof is rotted out or is not strong enough to hold the Solar Roof, then the cost can be double, sometimes three times what our initial quotes were,” he said.

Tesla also made buying a Powerwall a compulsory package deal when buying a solar system in April.

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Three Tesla Powerwall batteries.

Elon Musk announced the policy change via a tweet. “Solar power will feed exclusively to Powerwall. Powerwall will interface only between utility meter & house main breaker panel, enabling super simple install & seamless whole house backup during utility dropouts,” Musk said.

The tweet appeared to be in response to a customer who complained on Twitter their system hadn’t generated a “single watt-hour.” 

Tesla Energy has fallen behind competitors since SolarCity’s heyday. Musk blames the Model 3, the pandemic, and the global chip shortage.

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Elon Musk.

While SolarCity was once number one in the US for residential solar installs, in Q1 of 2019 it slipped to number three below rivals Sunrun and Vivint Solar. Sunrun acquired Vivint in October 2020, consolidating its market share.

During his testimony before the Delaware Court of Chancery on July 12, Musk said Tesla Energy’s progress was hampered by the notoriously difficult production ramp on the Model 3 car. Musk said in his testimony and in depositions the company had to pour all its resources into getting the Model 3 to market — meaning its energy operation suffered.

After that, Musk said, the company ran “headlong into a pandemic.”

Musk continued his testimony on July 13, and added the global semiconductor chip shortage had impacted production of the Powerwall. He said while demand was around 80,000 units, the company would only be able to make a maximum of 35,000 in the next quarter.

Do you work at Tesla Energy or are you a Tesla Energy customer? Contact this reporter at ihamilton@insider.com or iahamilton@protonmail.com. If you are an employee always use a non-work email.

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Tesla loses key energy executive amid hiccups in its Solar Roof rollout

Tesla Powerwall
Tesla recently hiked the price of its Solar Roof by tens of thousands of dollars.

  • Tesla’s head of energy operations, RJ Johnson, has left the company.
  • He worked at Tesla since early 2020, according to his LinkedIn profile and past earnings calls.
  • The exit comes as Tesla hits speedbumps in the rollout of its Solar Roof product.
  • See more stories on Insider’s business page.

Tesla lost a key energy executive as it faces speed bumps in growing its consumer energy business.

RJ Johnson, who led the company’s energy operations since August, left Tesla this month for a renewable energy startup in stealth mode, electric-car website Electrek first reported.

Johnson also served as Tesla’s global head of commercial energy from March to August of 2020, according to his LinkedIn profile. Before that, he held various management positions at NextEra Energy Resources for nine years.

Johnson and Tesla did not immediately return requests for comment.

Tesla’s energy division sells various solar and energy storage products for consumer and business use. Homeowners can purchase a Powerwall, a large battery pack that stores electricity produced by solar panels for later use. Tesla also sells larger battery systems called Powerpack and Megapack for commercial customers.

Read more: Americans still aren’t sold on EVs for rural living and road trips. Experts say solving these 2 issues could win them over.

Tesla also has a product called Solar Roof, a system of roofing tiles with integrated solar energy generation capabilities. However, its rollout has hit some snags as of late.

In April, Tesla told some Solar Roof customers that their roofs would cost tens of thousands more than they were initially quoted. Many would-be buyers have also reported nightmarish experiences with the company’s customer service. Solar Roof customers from several states have sued Tesla over the sudden price hikes.

On a conference call that month, Tesla CEO Elon Musk acknowledged that the company incorrectly estimated how much Solar Roof installations would cost and said customers would be refunded their deposits if they cancel their orders.

“Despite raising the price, the demand is still significantly in excess of our ability to meet the demand to install the Solar Roofs,” Musk said. “We did find that we basically made some significant mistakes in assessing the difficulty of certain roofs, but the complexity of roofs varies dramatically. Some roofs are to be literally two times or three times easier than other roofs. So you just can’t have a one-size-fits-all situation.”

Going forward, Musk said Tesla will only sell its solar-panel products combined with Powerwall.

In the first quarter of 2020, Tesla installed 92 megawatts of solar generation capabilities, a 162% increase from the prior year, and 445 megawatt-hours of storage capacity.

Are you a Tesla customer or employee with a story to share? Contact this reporter at tlevin@insider.com.

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Elon Musk trumpeted self-driving cars, joked about vampires, and recalled a USB-cable hunt on Tesla’s earnings call. Here are the 11 best quotes.

elon musk
Elon Musk.

  • Elon Musk discussed AI, clean energy, and production headaches on Tesla’s earnings call.
  • The Tesla CEO also mentioned fossil-fuel taxes, vampires, and USB cables.
  • Scroll down for Musk’s 11 best quotes from the call.
  • See more stories on Insider’s business page.

Tesla CEO Elon Musk made several bold predictions, trumpeted the power of clean energy, and bemoaned the difficulty of mass production during the electric-vehicle company’s first-quarter earnings call on Monday.

The self-proclaimed “Technoking of Tesla” also touched on vampires, USB cables, self-driving cars, energy taxes, and World War II, according to a transcript on Sentieo, a financial-research site.

Here are Musk’s 11 best quotes, lightly edited and condensed for clarity:

1. “More likely than not, Model Y will be the best-selling car or truck of any kind in the world in 2022.”

2. “There’s no question in my mind that with a pure-vision solution, we can make a car that is dramatically safer than the average person.” – asserting that a self-driving car, guided by multiple cameras that process images at superhuman speed, will be safer than a human-controlled car.

3. “Long term, people will think of Tesla as much as an AI robotics company as we are a car company, or an energy company.”

4. “I just love that they call it vampires.” – commenting on “vampire drain,” the term for electric batteries losing charge when not in use.

5. “You can actually power the entire United States with roughly a 100-mile grid of solar. It’s entirely possible to power all of Earth with a small percentage of Earth’s area.”

6. “Why don’t we do it? The energy basis of the earth is gigantic, super-mega-insanely gigantic. So you can’t just go and do 1 zillion terawatts overnight. You’ve got to build the production capacity for the battery cells, for the solar cells. You’ve got to put that into vehicles. You’ve got to put that into storage packs. You’ve got to put that into solar panels and Solarglass Roofs, and you’ve got to deploy all this stuff.”

7. “We should tax energy that we think is probably bad and support energy we think is probably good, just like cigarettes and alcohol, versus fruits and vegetables.”

8. “Prototypes are trivial, they’re child’s play. Production at large scale with higher liability and low cost – insanely difficult. Myself and many others at Tesla had to basically have several aneurysms to get this done.”

9. “What Tesla achieved on the automotive side was not to create an electric car. The truly profound thing on the car side is that Tesla was the first American car company to achieve volume production of a car in 100 years and not go bankrupt.”

10. “We’ve had production stop because of carpet in the trunk. We’ve had production stop because of a USB cable. At one point, for Model S, we literally raided every electronics store in the Bay Area. For a few days there, nobody could buy a USB cable in the Bay Area because we went and bought them all to put them in the car.” – describing how a shortage of one minor component out of 10,000 can halt production entirely.

11. “We’re talking millions of cars, a massive global supply chain, 50 countries, dozens of regulatory regimes. Solving those constraints and logistical problems makes World War II look trivial. I’m not kidding.”

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Elon Musk says Tesla will only sell solar panels together with its Powerwall storage battery from next week

elon musk
Tesla CEO Elon Musk.

  • Elon Musk said Tesla will now only sell its solar panel products together with its Powerwall storage battery.
  • Musk had a Twitter exchange with a solar panel customer who said their panels haven’t generated a “single watt-hour” since January.
  • Musk said in January the company was working on integrating Powerwall with its solar products.
  • See more stories on Insider’s business page.

Tesla CEO Elon Musk is going to shake up the way the company sells its solar panels.

In a tweet late on Wednesday, Musk said from next week, all sales of the company’s solar energy products will come together with its energy storage battery Powerwall.

“Solar power will feed exclusively to Powerwall. Powerwall will interface only between utility meter & house main breaker panel, enabling super simple install & seamless whole house backup during utility dropouts,” he said in a followup tweet.

Bloomberg reported this followed a complaint from Brett Winton, Director of Research at Ark Investment Management that his Tesla solar panels haven’t generated a “single watt-hour” since they were installed in January because he was waiting on his utility to approve the connection.

After Musk asked Winton if he had Powerwall he replied: “Hmm. Yes have powerwall. Everything right now is switched off; just awaiting LADWP [Los Angeles Department of Water and Power].”

Musk’s decision hasn’t come entirely out of the blue. He said during Tesla’s fourth-quarter earnings call in January that the company was focusing on integrating Powerwall with its solar division.

It also comes a week after numerous customers waiting for installations of Tesla’s Solar Roof product reported receiving new contracts increasing the price of installation by as much as 70%. It’s not yet clear whether including Powerwall in all sales of Tesla’s solar products will increase the price. Insider has emailed Tesla for clarification.

Are you a Tesla Solar Panel or Solar Roof customer? Contact this reporter at ihamilton@insider.com or iahamilton@protonmail.com.

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