Tesla stock opens down after Musk debuts new model
FOX Business’ Stuart Varney and Susan Li break down Friday’s market open.
Tesla shares have shrugged off concerns surrounding a class-action shareholder lawsuit against CEO Elon Musk, rising nearly 4% in Monday's trading session.
The suit alleges the billionaire pressured Tesla's board to approve the $2.6 billion acquisition of Solar City in 2016, which plaintiffs argue was rife with conflicts of interest and failed to produce the profits Musk had promised.
Founded in 2006 by Musk's cousins, Lyndon and Peter Rive, Solar City became the largest residential solar installer.
According to records from Delaware's Court of Chancery, Solar City posted revenue of $730 million in 2016 but a $820 million net loss that same year. At the time of the all-stock purchase, Solar City had racked up more than $1.5 billion of debt and Musk was the company's largest stakeholder and its chairman. He also held an approximately 22% stake in Tesla.
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Musk took the stand in Delaware court on Monday to defend the acquisition, denying any conflict of interest. At times, Musk became testy in his exchanges with opposing attorneys, including one where he accused them of asking "really tricky and deceptive" questions.
While explaining that the acquisition was part of his "master plan" dating back to 2006, Musk argued in his testimony that the deal was handled by an independent director and that he received no financial gain from the acquisition.
"Since it was a stock-for-stock transaction and I owned almost exactly the same percentage of both there was no financial gain," Musk said.
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Musk also emphasized that he had no influence over the appointment of board members, their removal, or their compensation and claimed he was overruled by Tesla's directors on a proposal in which the company would provide temporary financing to Solar City prior to completion of the deal.
When asked by plaintiff lawyer Randall Baron why Solar City’s performance came in significantly below projections given to shareholders by Tesla in 2016, Musk cited the company's need to develop its Model 3 vehicle in 2017 and 2018. He also cited the COVID-19 pandemic for impacting Tesla's recent efforts to acquire residential solar installation permits.
Tesla's energy generation and storage business generated $1.9 billion in revenue last year — 24% more than it did the previous year. Much of that revenue came from selling battery storage units. Tesla doesn't specify whether the business made a profit, and it also has debt and expenses.
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Musk's court fight comes after a judge approved a $60 million settlement in August resolving claims made against all the directors on Tesla's board except Musk without any admission of fault.
Musk, who is known for his taunting of regulators and naysayers, is no stranger to court appearances. The executive was previously forced to pay a $20 million fine to the Securities and Exchange Commission for making statements on Twitter about having the money to take the company private when he didn't. He also won a defamation lawsuit filed by a British diver involved in the rescue of a Thai soccer team that was trapped in a flooded cave. Musk had called the man "pedo guy" on Twitter.
If Musk loses the Solar City case, he could be required to pay damages equal to the value of the Solar City transaction. A ruling on the case is expected to take months.
The Associated Press contributed to this report
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