On July 12, Tesla and Elon Musk will face one of their significant challenges so far. It has nothing to do with autonomous technology or quality control issues. Instead, both will have to prove that Musk did not personally benefit from Tesla buying Solar City in 2016. More than that, they will have to prove the CEO did not force Tesla into the business. Union pension funds and asset managers accuse Musk of being the controlling shareholder of the company.
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According to Reuters, Musk had about 22% of the company’s shares when Tesla bought Solar City. That was not a majority stake. Despite that, the plaintiffs accuse him of ordering the purchase of Solar City for a price that was much higher than what it was really worth. To make things worse, they also claim that Solar City was losing money and that Musk only made Tesla buy it to save it.

Musk’s lawyers said that Musk does not control the company as he pleases. He would just have a strong management style. The board would have approved the purchase without his influence because it was a crucial part of the “Master Plan, Part Deux” to integrate solar energy with electric cars. Ironically, no Tesla to date has V2G (vehicle-to-grid) capabilities.

To make matters harder for Tesla and Musk, the Tesla CEO had 22% of Solar City’s shares when the business was sealed. Four members of the board also directly or indirectly owned stocks from the solar power business.

Proving that Musk pushed the deal into Tesla is crucial for the case to be judged under the “entire fairness standard.” This legal doctrine establishes that if a company decision were taken without the necessary independence and hurt fiduciary duties toward other shareholders, it has to prove the business was in its best interests.

If Musk is not considered the controlling shareholder, his lawyers can try to frame the case under the “business judgment rule.” According to that principle, the executives involved with the decision just took it because they thought it would benefit the company. In this situation, it is up to the plaintiffs to prove that it was a wrong business decision.

In January, five directors involved with the decision made a settlement and paid $60 million to be cleared of any accusations. Among them is Kimball Musk, Elon Musk’s brother.

If the Tesla CEO loses the lawsuit, he may have to pay $2.6 billion back to Tesla’s shareholders. That’s how much Tesla paid for Solar City in 2016. It is not clear if the deal can be reversed, and Solar City may become an independent company again.

If that is the case, Solar City will struggle to survive. It is not deploying nearly as many solar roofs as Musk said it could install, and its costs are higher than previously expected. Many clients also complained about leaks and other problems with these solar roofs. Business Insider brought up a long article about them. That’s probably one of the reasons Musk has all his attentions on Solar City, as Bloomberg recently reported.

On June 30, we wrote about a Rich Benoit tweet. The Rich Rebuilds YouTube channel owner talked about damages in a brand new Model 3 that Tesla would charge $16,000 to repair. Our guess was that the story would end up in a video, and we were right. The video is now out, and we learned how much the repair eventually cost to that owner: $700. Above all, the video shows how important it is for Tesla to rethink its services policy.

A Repair Would Cost $16,000 at Tesla: the Electrified Garage Did It for $700

Donald Bone drove over some debris on the road, and something broke in his Model 3. The coolant leaked, and he was worried. Tesla told him Bone could drive to a Service Center. He took the car to one, and they detected the vehicle had a broken port. When Bone thought the repair would cost $800, he received news that he would have to pay $16,000 to replace the entire battery pack.

His car did not have comprehensive coverage because he just switched his former car with the Model 3, and his insurance company did not want to pay for the repair. Without options, Bone asked for help in Tesla forums, and someone told him about the Electrified Garage.

The engineer lives three states away from the garage, but he shipped his car there anyway. When it got there, Chad Hrencecin could show what was wrong with that Model 3. The shop’s service manager removed the belly pan below the front axle and presented how simple the issue was.

When Bone hit debris on the road, something pierced the nipple of the coolant port and cracked it. The repair consisted of cutting that nipple, using a pipe thread forming tap both on the cut nipple and the base from where it was extracted, and joining them back with a brass nipple.

Hrencecin explained that this sort of repair is easy and effective because the battery coolant system does not work under high pressures (2 psi tops) and high temperatures. It is nothing like the cooling system of combustion-engined vehicles. That said, this sort of repair has already been done multiple times, and the cars are still running. In short, plumbing techniques saved the day.

Pete, the owner of another Model 3 that had the same issue, showed up at the Electrified Garage to talk about his experience 27,000 miles after the repair was done. At this point, Benoit states that the problem is not with the belly pan and that these things happen. Despite that, Tesla could work to reinforce the protection there, perhaps with a steel belly pan instead of the one it employs nowadays.


The bottom line is that Tesla Service Centers do not perform part replacements, just assembly replacements. In other words, if something small breaks or has to be replaced, they replace the whole module that includes it.

Jennifer Sensiba talked about that in an article for CleanTechnica on May 2. She did a test drive in a Model Y with her family and their dog puked on the seatbelt mechanism on the second row. The Tesla Service Center said it would try to clean that. If it were not possible, Sensiba would have to pay for replacing the entire second-row seat assembly. The Service Center would not replace only the seatbelt mechanism.

According to Benoit and Hrencecin, Tesla adopts that strategy because it is cost-effective for the company. Too bad it is not cost-effective for customers, which reminds us of the video in which Sandy Munro attacked Volkswagen for lazily designing the ID.4. The engineer said Volkswagen should have placed the components under the hood behind the instrument panel to give its electric crossover a frunk because that would benefit the clients.



The same applies to Tesla: if it has to invest in training and buying equipment to perform more repairs in Service Centers, it should just do it. Not replace a perfectly fine battery pack, ship it back to the factory, fix it there, and sell it. As Bone said, he had the right to keep his old battery pack if he had paid $16,000 for a new one, something that the Service Center was not very willing to accept.

Steven Salowsky, the Rich Rebuilds channel manager, told autoevolution this:

“The important thing is: right to repair certainly is showing up more and more. Tesla has really taken the Apple business model, and it’s a damn shame they don’t just have even a regional master tech. This would alleviate the issues that can, in fact, be done at Tesla Service Centers but require a bit more technical skill to do so.”


Although Bone managed to bring his Model 3 back to life, he still faces a danger down the road. Tesla may go after him and disable supercharging in his car because it did not perform the repair. That’s something we have seen happen before on salvaged vehicles. Although this Model 3 was not written-off, that is a risk. Benoit asked him about that, but he is apparently cool with it – mainly because the repair helped him keep his race car. He would have had to sell it to pay for the fix Tesla proposed.

As we said in our article about Benoit’s tweet, this case shows Tesla has a list of improvements to do. It has to have a more resistant belly pan or whatever helps protect the battery pack better. Owners have to have cheaper repair options – such as the one the Electrified Garage offers. Finally, Tesla Service Centers need to address this assembly replacement strategy. Tesla customers deserve better.

WILMINGTON, Del. — Testifying for a second day, CEO Elon Musk pushed back again Tuesday against a lawsuit that blames him for engineering Tesla’s 2016 acquisition of a financially precarious company called SolarCity that was marred by conflicts of interest and never generated the profits Musk insisted it would.

And for a second day, a pugnacious Musk sparred with Randall Baron, the plaintiffs’ attorney who has been grilling him about his role in orchestrating the SolarCity deal.

“Your questions," the billionaire CEO complained from the witness stand, "are so deceptive.”

Witness and lawyer clashed down to the meaning of the word “cabal,” which Baron invoked to characterize the Tesla team that was updating Musk daily in July 2016 in the progress toward a SolarCity deal. When Musk objected that “cabal” sounded sinister, Baron countered that it typically meant a group of people working together toward a common purpose.

“Usually not in a good way,” Musk muttered.

Rejecting any notion that he pressed Tesla's board to pursue a takeover of SolarCity, Musk, who is well-known for his commanding management style, insisted he had “no material role’’ in Tesla's board discussions about the deal.

Under questioning by Baron, Musk acknowledged that he had recommended an acquisition price of $28.50 a share. But he said this figure merely reflected what he called a standard practice of offering a 30% premium on a target company's average stock price over the previous four weeks.

The board ultimately decided to offer $26.50 to $28.50 a share. Musk observed that his suggestion was “discarded by the board in favor of a lower price’’ and quipped, “They don’t listen to me, obviously.''

The long-running shareholder lawsuit asserts that Musk, who was SolarCity’s largest stakeholder and its chairman, and other Tesla directors breached their fiduciary duties in bowing to Musk’s wishes and agreeing to buy the company. In what the plaintiffs call a clear conflict of interest, SolarCity had been founded by Musk and two of his cousins, Lyndon and Peter Rive.

Baron has sought to establish that Musk wanted to run Tesla without interference and therefore bears responsibility for any failures. When he asserted that Musk had expressed excessive optimism over SolarCity's prospects before the acquisition, the CEO countered that he was a natural optimist. Otherwise, he said, he never would have risked establishing both an electric-car manufacturer and a rocket company, SpaceX.

In defending the SolarCity acquisition, Musk argued that cash flow from the company's previous solar installations alone justified the decision.

“This was a no-brainer,'' he insisted.

The trial, which began Monday, marks the culmination of seven shareholder lawsuits, consolidated into one, that alleged that Tesla directors breached their fiduciary duties in bowing to Musk’s wishes and agreeing to buy SolarCity. Last August, a judge approved a $60 million settlement that resolved claims made against all the directors on Tesla's board except Musk without any admission of fault.

That left Musk, who refused to settle, as the sole remaining defendant. The trial is expected to last about two weeks, after which the Delaware chancery court judge, Joseph Slights III, will issue a verdict.

Even if the trial ends with Musk having to pay personally for the whole SolarCity deal, $2.5 billion won't much hurt the world's third-wealthiest person. Forbes magazine has estimated that Musk is worth roughly $163 billion.

Before lunch, the trial, which is the first being held in a the courthouse’s largest and newly completed showpiece courtroom, had to take an impromptu recess because a spectator, who appeared to be on one of the litigants’ legal teams, threw up where he was seated in the juror’s box as Musk testified.

The man denied offers of medical assistance and left the courthouse under his own power. Trial resumed after about an hour break.