Back in 2016, Tesla acquired solar panel manufacturer SolarCity, billing the US$2.6 billion deal as an opportunity to create “the world’s only vertically integrated sustainable energy company.” From a SolarCity solar panel to a Tesla battery, the company promised, the in-house supply chain would scale up clean energy for all and provide cost synergies to the businesses and shareholders.
But SolarCity, of which Tesla CEO Elon Musk was chairman, was deeply in debt at the time. Now, newly unsealed documents in an investor lawsuit show the situation was far worse than that. They allege that SolarCity wasn’t just carrying a heavy debt load: it was completely insolvent.
“Almost immediately after the acquisition closed, SolarCity’s auditors [Ernst & Young] confirmed that SolarCity was, in fact, insolvent,” attorneys for the investors argue in their latest filing. E&Y’s year-end audit, conducted in January 2017, determined that SolarCity did not have sufficient cash to meet its obligations and could not operate on its own as a going concern.
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