1/ A thread on the SolarCity trial transcripts. Due to the tireless work of @PlainSite, ten volumes worth of testimony are freely available to the public on his website. Having read them, I can confirm the outstanding in-person reporting of @Teslaq_snark. $TSLAQ
2/ I wrote a thread two weeks ago with some preliminary thoughts. Take a few minutes to read it if you missed it. At its core, SolarCity was a financing company wrapped in a stock promotion scheme. I won’t repeat the key aspects of that thread here.
https://twitter.com/TESLAcharts/status/1420392505846243330?s=20
3/ After reading the entire case, I have little doubt SolarCity would have filed for bankruptcy absent the bailout orchestrated by Elon using Tesla’s equity as currency. SolarCity’s bankruptcy would have been the end of Elon’s empire. When cornered, he cheated, and it worked.
4/ The case can best be summarized by testimony from one of the plaintiff’s expert witnesses - Juergen Moessner, founder of Global Capital Finance. SolarCity grew fast because they gave away money. Full stop. They lent money at rates below which they could borrow. 
5/ The threat of SolarCity’s insolvency went well beyond SolarCity. Elon had earlier forced SpaceX – another cash burning Musk vanity project – to prop up SolarCity using its excess cash to buy their bonds. If SolarCity fell, SpaceX would fall. If either fell, Elon would fall.
6/ At trial, Elon made the absurd claim that SpaceX had excess cash and SolarCity was such a good credit that this was a no-brainer. It was merely a safe and lucrative place to park unneeded money for excess yield. If I testified as such, I’d probably be charged with perjury.
7/ Elon (and his brother Kimbal and cousin Lyndon Rive) had pledged much of their stock holdings in Musk’s pyramid (SolarCity, Tesla, and SpaceX) as collateral for personal loans. When SolarCity was on the brink, they were at risk of facing a cascading series of margin calls.
8/ Something had to be done. With SolarCity’s stock tanking and the Musk family facing margin calls on their pledged collateral, Elon called a special Tesla board meeting on February 29, 2016. He surprised (shocked?) the board with a pitch that Tesla should acquire SolarCity.
9/ The concept was so crazy that even the Tesla board rebuffed it initially (I’ll explain the retroactive rewriting of history Team Elon tried to do at trial on this point later in this thread). He would be back several times to make the case in the coming weeks and months.
10/ Miraculously, the very next day (March 1, 2016), word of Tesla’s interest in acquiring SolarCity began to “leak” to the media, sending SolarCity’s stock soaring – squeezing the shorts and, presumably, beating back a few margin calls.
11/ This leak is key. Once it became apparent that Elon was willing to leverage Tesla to bail out SolarCity, I believe an “Elon put” supported SolarCity’s stock price until the deal closed. It allowed them to avoid the fate of SunEdison, which filed for bankruptcy in April, 2016.
12/ Before diving into Elon’s defense, here is Elon essentially admitting under oath that the solar roof reveal on the set of Desperate Housewives was vaporware. “They had solar cells on them.” This is Elon’s rolling a truck down the hill moment.
13/ At trial, Elon’s defense had four pillars:
A – The motivation to buy SolarCity was product-driven and it was the plan all along
B – Elon recused himself and Robyn Denholm led everything
C – Tesla’s offer effectively caused SolarCity’s liquidity crisis
D – Stock price bro
A – The motivation to buy SolarCity was product-driven and it was the plan all along
B – Elon recused himself and Robyn Denholm led everything
C – Tesla’s offer effectively caused SolarCity’s liquidity crisis
D – Stock price bro
14/ I’ll take them in order. To believe Team Elon, it no longer made sense to have a battery storage company without a corresponding solar company. Batteries need solar. Solar needs batteries. Product synergies, etc.
15/ In a magical coincidence, Elon tweeted this just a few months before trial (five years after the bailout). Team Elon made a big show at trial that if you go to Tesla’s website *today*, you can’t order one without the other. Subtle, bro. Real subtle.
16/ To believe Team Elon, Elon recused himself from consideration of the deal. Aside from pressuring the board to do it, attending every relevant board meeting, participating in price deliberations, fielding daily calls from Evercore on the transaction…
17/ … publishing his Master Plan Part Deux (in which he said Tesla buying SolarCity had to happen) right in the middle of board negotiations, urging the bankers to move faster, having detailed discussions with SolarCity’s CEO in the absence of the board…
18/ … and faking a solar roof reveal to convince skeptical investors to vote for it, Elon totally recused himself.
19/ To believe Team Elon, Robyn Denholm drove the process on behalf of the Tesla board. Only one problem – nowhere in any of Tesla’s board minutes is this critical important decision even recorded. The board didn’t even bother to setup a special committee for the deal.
20/ To believe Team Elon, once Elon called his cousin in February of 2016 to say Tesla was interested in buying SolarCity, SolarCity was effectively shut off from the equity markets. They couldn’t sell stock with this possible transaction hanging over them.
21/ This “inability” to raise equity capital was supposedly the real cause (or at least a major contributor to) SolarCity’s liquidity crisis. The only problem with this argument is that it’s total nonsense.
22/ First, SolarCity could have simply disclosed the discussions and raised capital. Second, they filed a 10Q for Q1 2016 and *didn’t disclose* the discussions! Third, Tesla raised equity capital in May of 2016 and *didn’t disclose* the discussions!
23/ Finally, we come to Team Elon’s strongest argument. Stock price bro. They even paid an expert witness to claim that Tesla’s meteoric rise could be explained by the purchase of SolarCity. Remarkable stuff.
24/ With Elon’s defenses dispatched, here are a few other highlights from the trial. Robyn Denholm was totally destroyed under cross-examination. She was reduced to forgetting everything she ever knew about the deal. The judge seemed unimpressed with her testimony.
25/ The most shocking testimony came from Kimbal Musk. In Kimbal’s mind, the fact that he had pledged his entire SolarCity stock for a personal loan and was receiving multiple margin calls on it – which was impeding his other business – was none of the Tesla board’s business.
26/ Unconflicted Tesla board member Kimbal Musk doesn’t know what a fairness opinion is…
27/ Unconflicted Tesla board member Kimbal Musk doesn’t know what a stock exchange ratio is…
28/ Unconflicted Tesla board member Kimbal Musk doesn’t know what enterprise value means…
29/ So what do I think will happen? The judge ended the case with an encouragement that both sides reconsider settling. I get the feeling he knows he can’t rule for Elon, but doesn’t want to rule against him. My opinion? Elon walks. Stock price bro and whatnot. <fin>
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