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Elon Musk Says Shifting SolarCity Workers Helped Tesla Stay Afloat

Oct. 30, 2019
The Tesla executive said that he used workers from the solar panel business to help Tesla's Model 3 program.

Tesla Inc. chief executive officer Elon Musk said he shifted resources from the solar company he bought three years ago to save his electric-car company from bankruptcy while it was ramping up production of the Model 3.

Musk made the admission as part of a lawsuit filed by Tesla investors over the company’s 2016 buyout of SolarCity, a solar-panel installer. Disgruntled shareholders contend Tesla directors rolled over when Musk pushed to buy the renewable-energy company. Musk was SolarCity’s chairman and largest shareholder at the time and his cousin was the chief executive officer.

“If I did not take everyone off of solar and focus them on the Model 3 program to the detriment of solar, then Tesla would have gone bankrupt,’’ Musk said in a June pre-trial deposition made public in state court in Delaware. “So I 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.’’

Pension funds opposing the SolarCity buyout say in court papers Musk should have told them Tesla was in no condition in 2016 to buy a $2 billion company and that it would be forced to rely on that firm’s manpower to keep Tesla afloat.

Tesla now has roughly 400,000 solar customers, one of the U.S.’s biggest renewable-energy portfolios. But Walmart Inc. sued Tesla in August, saying the company’s rooftop panel systems caused fires at their stores and warehouses. Tesla has also reached out to homeowners across the U.S. to tell them their solar systems need preventative maintenance.

Tesla’s rooftop solar business increased for the first time in a year, the company said during its most recent earnings report Oct. 23. Tesla deployed 43 megawatts of solar in the third quarter, a 48% jump from the previous three months.

In its earnings report last week, the electric-car maker said it earned $1.86 a share, surprising Wall Street. Musk delivered several positive updates: the company’s new factory in China is on track and the Model Y crossover SUV will launch earlier than expected. Tesla shares, which had languished for much of 2019, closed Tuesday at $316.22 and are down just 3.5% for the year.

Musk acknowledged in the June 1 deposition -- unsealed Oct. 25 -- that he probably wouldn’t support the SolarCity acquisition again given the stress Tesla faced from the Model 3 push.

“At the time I thought it made strategic sense for Tesla and SolarCity to combine. Hindsight is 20/20,’’ he said. “And if I could wind back the clock, you know, I would say probably would have let SolarCity execute by itself; would have let Tesla execute by itself.’’

“But I just didn’t realize how difficult it would be to do the Model 3 program,’’ Musk added. “And so that was just a big distraction and sort of offset a lot of things by more than a year, year and a half maybe.’’

To deal with that internal stress, Musk said scores of SolarCity employees -- from engineering, management, sales and service -- were transferred to the Model 3, the first electric car Tesla sought to produce in high volume. Some of the SolarCity workers were deployed to Tesla’s retail stores and delivered cars to customers, according to Musk’s deposition.

Tesla delivered a record 97,000 vehicles in the third quarter and the company’s surprise profit gives the company some breathing room. Executives have begun talking up the energy side of its business again.

Last Friday, Musk held a conference call focused on “Version 3” of the company’s solar roof product, which was first revealed three years ago. “It’s been quite hard,” Musk said. “Roofs need to last a long time. When you add electrification to the roof, it’s a fair bit of complexity.”

The 48-year-old Musk, who has had his share of run-ins with lawyers over the years, got particularly combative with Randy Baron, a California-based lawyer for Tesla shareholders challenging the wisdom of the SolarCity acquisition. They’ve sued the company’s board in Delaware Chancery Court.

At one point, Musk calls Baron “reprehensible’’ because the lawyer -- according to the Tesla CEO -- questioned whether SolarCity was a viable entity and the validity of sustainable energy as a whole.

“You seem like a very, very bad person. Just a bad human being,’’ Musk said in the deposition. “And I hope you come to regret your actions in the future, but you probably won’t. And that’s sad.”

When Baron questioned whether Musk’s push for the SolarCity deal amounted to a bailout, the executive snapped again and told he lawyer he was “a shameful person.’’

“To bail out SolarCity was good for the world you’re telling us?’’ Baron asked. “Advancing solar is absolutely good for the world,’’ Musk shot back. “Do you just think about money? What is your purpose in life?’’

At another point in the deposition, Musk defended the SolarCity acquisition and accused Baron and other investors’ lawyers of “barking up the wrong tree.’’

“SolarCity would have done just fine by itself and Tesla would have done just fine by itself, but in the long-term, they are better together. And that is what the future will show. That is why I think you should stop wasting your time now.’’

The case is set for trial before Delaware Chancery Judge Joseph Slights III in March 2020, according to Tesla’s securities filings. Slights will hear the case without a jury.

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Licensed content from Bloomberg, copyright 2016.

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