“He’s Full Of Shit”: How Elon Musk Fooled Investors, Bilked Taxpayers, And Gambled Tesla To Save Solarcity
Last three years have seen Elon Musk’s public perception slide from an iconoclast solving the world’s problems to borderline unhinged as his critics rise in number and intensity. Indeed, there is a common hashtag his critics use on Twitter – #TSLAQ with the first four letters being Tesla’s ticker symbol and the Q at the end which is normally used for companies delisted for bankruptcy, suggesting an eventual end game for Tesla and Musk. So, what changed for the boy wonder bordering genius who could do no wrong – from Paypal, Model S the wonder car, sending rockets to space and back to tweeting price sensitive information, smoking pot on TV, unfair corporate governance practices? Bethany Mclean looks at the events that unfolded at Solarcity which Musk eventually got Tesla to bail out in a controversial deal and suggests that could eventually go down as the beginning of the end for Musk.
“SolarCity was founded by two of Musk’s cousins, Lyndon and Peter Rive, who grew up with him in South Africa. Musk, who put in $10 million, was the largest shareholder and chairman of the board. The initial idea, the Rives explained, was not to be a manufacturer but rather to control the entire consumer experience of going solar, from sale to installation, thereby driving down costs. For a time, SolarCity was a hot stock, growing almost tenfold from its public offering in 2012 to its peak in early 2014.
As is common with Musk’s ventures, SolarCity professed to be focused on changing the world. “Everything was very motivational,” says a former executive. Some workers, taking the ethos to heart, sported SolarCity tattoos.
But the initial success of the company’s stock masked some difficult realities. SolarCity’s business model was to front the costs of installing solar panels and allow homeowners to pay over time, which created a constant need for cash. That required raising money from outside investors, often big banks, who were then entitled to the first chunk of the payments homeowners made—leaving SolarCity in a never-ending scramble to raise more debt. The real engineering that took place at SolarCity, in short, was financial, not environmental.
On the consumer side, SolarCity was plagued by complaints about misleading sales tactics and shoddy installations. As the problems mounted, some workers began to feel manipulated by the company’s talk about being a force for good in the world. “I turned a blind eye to a lot of the silliness because of the idealism,” says one former senior employee. “I don’t know when the Rubicon was crossed, but there were micro-crossings every day.”
…In reality, the situation was even uglier than outsiders knew. As SolarCity struggled to raise money from institutional investors, it began offering individuals a chance to buy what it called Solar Bonds. (“Now you can get paid while driving the solar revolution,” the marketing material said.) But there were few takers—so other parts of the Musk empire took up the slack. According to the shareholder lawsuit, SpaceX acquired $255 million of the bonds. Musk himself bought $75 million of them, and the Rives acquired another $38 million. To raise the cash, Musk borrowed against both Tesla and SolarCity stock, increasing his personal credit lines from $85 million to $475 million. He also used his own reputation to shore up the stock: In February 2016, when SolarCity stock plunged to its lowest level in three years, Musk bought $10 million in shares. A week later, when the news became public, the stock soared by almost 25 percent.
At the same time, according to the shareholder lawsuit against Tesla, the company faced “significant liquidity concerns”—meaning it was running out of money. An accounting inquiry from the SEC noted that SolarCity was burning through cash—$659 million in the first quarter of 2016 alone. That February, at a Tesla board meeting, Musk proposed a solution: Tesla, he said, should acquire SolarCity.
It was a hopelessly conflicted situation. Musk owned more than 20 percent of both SolarCity and Tesla. His brother, Kimbal, served on both boards, as did several investors, including Antonio Gracias, a close friend of Musk’s. As a judge in the shareholder lawsuit ruled, it is “reasonably conceivable” that Musk effectively controlled the Tesla board when he pushed it to acquire SolarCity.
…three years after Tesla bought SolarCity, there are serious doubts as to whether the plant will ever fulfill its promises. The website CleanTechnica, which is mostly supportive of Musk, calls SolarCity “a disaster waiting to happen.” A potentially costly lawsuit alleges that Tesla acquired SolarCity at the expense of its own shareholders. And former employees want to know what happened to the massive subsidy Tesla received. “New York State taxpayers deserved more from a $750 million investment,” a laid-off employee named Dale Witherell wrote to Senator Kirsten Gillibrand. “Tesla has done a tremendous job providing smoke and mirrors and empty promises to the area.”
There are growing questions about SolarCity’s product, too. Last week, Walmart sued Tesla for breach of contract due to “years of gross negligence,” claiming that solar panels installed at seven of its stores went up in flames, causing millions of dollars in damage. The lawsuit, citing Tesla’s “utter incompetence,” seeks to have the company remove rooftop panels it installed at more than 240 Walmart stores.
The controversy over SolarCity, which has dovetailed with questions about Musk’s mountain of debt and profit shortfalls, offers a window into the mind-set of America’s most outlandish and unpredictable CEO. Musk’s believers argue that the details of his ventures don’t matter: It’s the grand vision that counts. “The guy has a will to make stuff happen that is extraordinary,” says someone who worked closely with Musk. “He willed Tesla to happen. And in willing a reality into existence, he might not stick to the facts.” But in the case of SolarCity, Musk’s penchant for making promises he can’t deliver on turned out to matter a great deal—and could even pose a threat to his entire empire.”