SolarCity Is Being Sued for Intellectual Property Theft

In a lawsuit filed in San Francisco on Monday, the parties accused SolarCity of gaining undue advantage of Cogenra’s Shingling technology that helps in manufacturing high-efficiency commercially viable solarpanels.

SolarCity and its subsidiary Silevo misappropriated Cogenra’s trade secrets, manufacturing processes, and other intellectual property to give themselves a competitive advantage and head start in developing shingled-cell solar modules, Cogenra said in the lawsuit.

WHY TESLA’S SOLARCITY BID WILL FAIL

Gigafactory, Model 3 Implications

Tesla’s blog notes its Gigafactory-produced Powerwall home battery system dovetails with SolarCity-produced solar panels. But Goldfarb objects to “the hypothetical connection in that solar can charge a home battery during the day, and this then can be used by the electric vehicle at night — or both batteries could be used to sell back to the grid.” But solar generally doesn’t produce enough to power a home, he says. “And you can’t store power in your car battery during the day because the car is usually not there.”

Goldfarb also says the $4 billion Gigafactory in Nevada has been “a huge bet” and has experienced delays. “It is hard to see how its battery model will be profitable,” he says.

Musk says, according to Vox, that a SolarCity deal will not affect Tesla’s plan to sell its $35,000 Model 3 starting in 2017. But Goldfarb says the margins in this part of the market will be very tight. “General Motors has been promising a late-2016 launch of a 200-mile range Chevrolet Bolt EV, electric car,” he says. “Moreover, the electric car market is crowded in the midprice range. Nissan, Ford, BMW, VW, Fiat, Mercedes, Kia, Mitsubishi and Smart all produce cars in the segment.”

Not Mass-Market Suited

Given the above-noted factors, Goldfarb says Tesla’s mass-market and SolarCity-takeover ambitions appear out of line with Musk’s track record as a master and visionary. For example he’s been out in front of the self-driving revolution (though the self-driving car “is really just a toy right now, and this market is very crowded, too,” Goldfarb says). Tesla can and should focus on what it does best: high-end electric cars, Goldfarb says. “Tesla owners love their cars,” he says. “They should. These are wonderful automobiles.”

Shareholders Go After Elon Musk’s SolarCity Bailout Plan

Tesla shareholders are suing the company because of its proposed merger with SolarCity, thus creating a challenge for Elon Musk to save the troubled solar energy company.

Tesla Motors Inc. (TSLA:NASDAQ) announced on Sept. 19 four shareholders filed lawsuits alleging that the Tesla board members “breached their fiduciary duties in connection with the proposed merger.” The shareholders also accuse both companies of unjustly enriching certain individuals through the deal.

“The lawsuits could prevent or delay completion of the merger and result in substantial costs to Tesla and SolarCity,” stated Tesla in a regulatory filing.

The lawsuits were filed by two pension funds (City of Riviera Beach Police Pension Fund and Arkansas Teacher Retirement System) and two individual shareholders (Ellen Prasinos and P. Evan Stephens), according to the filing.

“Other potential plaintiffs may also file additional lawsuits challenging the proposed merger. The outcome of any such litigation is uncertain,” Tesla stated.

In June, Tesla announced its plan to acquire SolarCity Corp. (SCTY:NASDAQ) in an all-stock deal, which valued SolarCity at $2.6 billion as of Aug 1. The merger is controversial, as Elon Musk is the chairman and largest shareholder of both companies and Lyndon Rive, the CEO of SolarCity, is a cousin of Elon Musk.

According to some analysts, the merger doesn’t make financial sense.

“Investors are likely to view this transaction as a bailout for SolarCity and a distraction to Tesla’s production hurdles,” stated Oppenheimer’s analyst Colin Rusch in his report after the merger announcement.

Based in San Mateo, California, SolarCity designs and installs solar panels at residences across the United States. The company sells long-term contracts and it is the market leader.

The company has frequently fallen short of its installation goals. Its operating expenses increased by 55 percent, causing the company to lose $533 million in the first half of 2016.

Even Musk can’t make SolarCity, Tesla deal make sense

Why should Musk be allowed to issue billions of dollars of Tesla stock, diluting existing shareholders and putting his whole enterprise at undue risk when he could so easily acquire what he wants merely by waiting for SolarCity’s bankruptcy, which will be along shortly? So Musk’s personal brand remains unsullied?

Tesla appointed two “independent” directors to make the go/no-go decision on recommending that Tesla complete its offer to acquire SolarCity. But how independent were they? One, Nancy Pfund, had been quoted saying Elon Musk “has always been a master of the universe in my mind.” Hardly a neutral appraisal. But 80% of Tesla’s stock isn’t held by Musk, and perhaps those investors will be the ones who collectively shout, “C’mon, man. Really?”

Harvard Business Review case studies are famous for their anodyne prose and non-judgmental tone. But if HBR ever publishes the facts and analysis of this proposed deal, in my opinion, it will be hard not to point out the sheer ridiculousness of the whole thing.

Musk’s vision at stake in Tesla shareholders’ vote on SolarCity merger

SolarCity’s fate now lies squarely in the hands of Tesla Motors and its shareholders.

A 45-day window in which SolarCity could consider other offers beyond Tesla’s $2.3 billion merger bid closed on Wednesday night, and no other investor or company put a proposal on the table.

That wasn’t entirely surprising. After all, 15 potential buyers or investors looked at SolarCity earlier this summer, while the solar energy company was hammering out the terms of Tesla’s merger offer and trying to see if anyone else would top the electric vehicle maker’s bid.

None did.

Now the big question is whether Tesla’s shareholders buy into CEO Elon Musk’s vision for creating a renewable energy juggernaut that combines electric vehicles with solar energy and battery storage.

Shareholders from both companies still have to vote on the proposed merger. The date of the votes haven’t been set, but it could be as early as October.

Most analysts think the deal will go through. They say many Tesla investors support Musk’s renewable energy vision and are likely to go along with his strategy.

They also tend to downplay the concerns that arose from the regulatory filing about the cash crunch that both companies are facing. Tesla needs to pay $422 million to some of its bond holders by the end of the month, and both companies need to raise billions in new funding to finance their ambitious plans.

The news recently has been better on the financing front. Tesla, which had $3.25 billion in cash on its books at the end of June, reached an agreement this month to borrow up to $300 million from Deutsche Bank to fund its vehicle leasing program.

SolarCity earlier this week raised $305 million in a deal with five institutional investors and an investment fund advised by George Soros.

That fundraising will cover only a portion of the companies’ financing needs, but it shows that their ability to raise funds remains viable.

Still, the worries persist on Wall Street. Since the deal was finalized on Aug. 1, Tesla’s stock is down by 13 percent. SolarCity shares have tumbled by 34 percent.

As a result, a deal that was worth $2.6 billion when it was announced now is worth about $350 million less.

In the deal, SolarCity shareholders will receive Tesla stock worth $22.59 at today’s prices. But because of the liquidity concerns and uncertainty over shareholder approval, SolarCity’s shares are trading at $17.50 – a steep 23 percent discount to the value the Tesla offer places on the shares.

Normally, the discount would be just a few percentage points.

One of the more skeptical analysts following the deal, Gordon Johnson of investment firm Axiom, pegs the odds of the merger passing at 50-50. Johnson, who has a sell rating on SolarCity’s stock and thinks it could fall as low as $7, said Tesla “failed to consider whether another solar company was a better fit,” and noted that none of the three potential suitors who had more extensive contact with SolarCity were willing to make a counter offer, according to a regulatory filing by the companies late last month.

“With a number of solar vendors available currently, at arguably depressed prices … Tesla failed to consider if any other solar companies offered more favorable synergies,” Johnson said in a research note.

Musk, who owns more than 20 percent of the stock in both companies and is SolarCity’s chairman, has argued that no company is a better fit for Tesla than SolarCity. With a commanding market share in the rooftop residential market, Musk has said that SolarCity, run by his cousin, Lyndon Rive, offers the best opportunity to link Tesla’s battery storage capabilities with a leading solar energy installer.

Some analysts wonder if Musk is taking on too much at one time.

“We see a lot more that can go wrong than can go right,” said Jeffrey Osborne, an analyst at Cowen & Co. “The company, while fundamentally well positioned for the long term, has a material amount of execution risk over the next 12 to 18 months.”

Tesla is developing its Model 3 sedan, which will sell for as little as $35,000 and will be its most affordable model, by far. As it moves to ramp up production of the Model 3, Tesla also is opening its battery gigafactory in Nevada.

SolarCity, for its part, is pushing to open its solar panel factory in South Buffalo, which will be the biggest in the Western Hemisphere, with production scheduled to start by the end of June as the company rolls out a new solar roofing product.

“The SolarCity acquisition only adds an additional layer of complexity at a crucial time when the company should be focused on the gigafactory ramp and Model 3 launch,” Osborne said. “We see the potential for delays in the introduction of the Model 3, ramp of the Gigafactory and integration of SolarCity, leading to increased cash burn levels.”

Cash is such a concern because neither Tesla nor SolarCity is profitable, although Musk, in a memo to employees this month obtained by Bloomberg News, urged them to cut costs and deliver “every car we possibly can” to push the vehicle maker closer toward generating more cash than it uses. Hitting that milestone would put Tesla in “a far better position to convince potential investors to bet on us.”

Together, the two companies will have about $5 billion in debt between them. And because neither one has a positive cash flow, they will have to raise billions in new capital to meet their ambitious plans, from opening the battery gigafactory and the Buffalo solar panel factory, to ramping up production of the Model 3.

The big question now, though, is how much interest Tesla shareholders have in approving the deal.

Why The Real Money Isn’t In Rooftop Solar

Summary

The third party owned rooftop solar business model was based on invalid economic assumptions, and cannot work.
The misguided investment tax credit is largely to blame for the mess.
Like the Carter renewable energy aftermath, the Obama aftermath will produce many a hangover, if not lawsuits.

Tesla-SolarCity deal confronting four hurdles

It has been anything but smooth sailing for Tesla Motors and its $2.3 billion bid to buy SolarCity.

The merger, intended to advance Tesla co-founder and CEO Elon Musk’s vision of creating a renewable-energy powerhouse, has received a lukewarm reception on Wall Street and is facing legal challenges that could delay the deal. And unlike most corporate mergers, it’s not a certainty that the deal will win shareholder approval, especially at Tesla.

Here’s a look at four hurdles that the deal is facing:

1. Shareholder lawsuits

The deal is being challenged by four separate lawsuits. While shareholder lawsuits over mergers are common and usually don’t hold up deals, the litigation surrounding the SolarCity acquisition could be different.

Tesla warned that the lawsuits, alleging that the electric vehicle maker’s directors breached their fiduciary duty in approving the deal, could delay the acquisition in a regulatory filing Monday, contending that the cases do not have merit.

Even so, the lawsuits are likely to delay important shareholder votes on the deal until mid-October at the earliest. A hearing on the lawsuits, including one that is seeking an injunction to block the deal, won’t be held until Oct. 18, likely delaying those votes until the Delaware court takes action. Analysts had expected the shareholder votes to take place as early as next month.

2. SolarCity’s cash needs

SolarCity already has said that its lenders held back on providing essential financing after Tesla’s interest in buying the solar energy company was first disclosed in late June.

When SolarCity tried to raise $124 million from investors in late August, it offered an unusually high 6.5 percent interest rate on its 18-month debt offering. Even then, Musk and his cousins, SolarCity executives Lyndon and Peter Rive, ended up buying $100 million of the debt.

Its financing picture brightened last week when SolarCity raised $305 million by selling future cash flows from some of its solar projects to a hedge fund advised by billionaire George Soros and secured an 18-year loan from a syndicate of five lenders. Credit Suisse analyst Patrick Jobin estimated that the latest deal reduced SolarCity’s financing costs by almost a full percentage point, compared with a similar offering earlier this year.

SolarCity constantly needs to raise more money from investors to fund a business model that relies on selling rooftop solar energy systems to homeowners at no upfront costs.

“There is a bit more urgency for the Tesla-SolarCity deal to go through sooner so that SolarCity can get the access to capital that it needs,” Barclays analyst Brian A. Johnson said in an Aug. 31 research note, written before the latest fundraising.

3. Investor confidence

Stock in SolarCity, which is building a solar panel factory at RiverBend in South Buffalo, now trades for $4 a share less, or 19 percent less, than what Tesla is offering – a gap indicating that investors are uncertain the deal will be completed. If investors are confident that an acquisition will go through, the shares of both companies typically trade within a few percentage points of the price being offered.

4. Shareholder support

Analysts generally think Tesla shareholders will back the merger, largely because many of them believe in Musk’s long-term vision for building a company that combines solar power with electric vehicles and battery storage.

And given the gap between Tesla’s offer and SolarCity’s current stock price – $18.35 at Tuesday’s close – SolarCity shareholders are expected to approve the merger.

But approval by Tesla shareholders isn’t considered a sure thing. Some investors and analysts have raised concerns that the deal would give Tesla a company that is losing money and faces major financing needs at a time when it is in the midst of its own costly initiatives, including the rollout of its more affordable Model 3 sedan and the launch of its battery gigafactory in Nevada.

“Recent disclosures highlight SolarCity’s cash needs, which we think may cause pause among Telsa shareholders,” Morningstar analyst Andrew Bischof said.

Stop Elon From Failing Again

THE ONE STOP DATABASE ON STOPPING ELON MUSK