TradeEdge-Inside Clean Energy: Lawsuit Recalls How Elon Musk Was King of Rooftop Solar and then Lost It

For two days this week,TradeEdge much of the financial media was paying close attention to a Delaware courtroom where Tesla CEO Elon Musk faced intense questioning about the 2016 merger of Tesla with SolarCity.

Because of Musk’s celebrity and tendency to say wild things, much of the coverage treated this as an entertaining performance, but the case touches on a pivotal moment in the U.S. solar market that set the stage for where we are today.

In 2016, SolarCity was the dominant player in the U.S. market but it was running out of money. Musk, who was chairman and a major shareholder of both Tesla and SolarCity, helped to engineer Tesla’s $2.6 billion purchase of the solar company. The deal may have saved SolarCity, but some shareholders are now suing Musk, arguing that the transaction amounted to a bailout of SolarCity that was not in the best interests of Tesla.

Aside from questions of whether this was a bailout, it is now clear that Tesla was not ready to build on what it had with SolarCity. While Tesla’s top executives were focusing on developing their make-or-break product, the Model 3 sedan, the company’s rooftop solar business was withering.

As the trial plays out, I asked Bryan White, an analyst for Wood Mackenzie, to reflect on the significance of the Tesla-SolarCity sale.

“The decline of SolarCity following the Tesla acquisition opened the door for companies like Sunrun, Vivint and Sunnova to be the largest residential solar lease players,” he said. “And it’s hard to say whether Sunrun would have ascended and achieved enough scale to have acquired Vivint without Tesla-SolarCity’s decline.”

White was referring to Sunrun’s 2020 purchase of Vivint, which combined the companies that were then No. 1 and No. 2 in market share, while Tesla was No. 3. Sunrun is now acting like a market leader, with high-profile partnerships like the one with Ford, related to integrating the all-electric F-150 pickup for use as a home battery.

There’s no way to know if SolarCity would have taken a similar path to what Sunrun has done as the leader, but it’s a fascinating “what-if” because Sunrun has done so much. Also, it may be that SolarCity’s problems with its operations and finances were so great that it was going to lose its leading status regardless of the sale to Tesla.

But we can say for sure that Tesla has had a difficult time figuring out how to manage and build its solar business.

“I would describe Tesla’s approach (to rooftop solar) as very in flux,” White said. “They have been playing around with their pricing and product offerings quite a bit in the last year or so. As they try to re-assert their dominance in this space, they are clearly trying to figure out what works best for them to achieve profitable growth.

Among the recent changes, Tesla in April said it was going to only allow customers to buy solar-plus-storage systems, and would not sell solar by itself. This is likely to hurt its solar market share, but could improve profit margins, White said.

Sunrun has also placed a greater emphasis on selling battery systems that can store solar power for later use. Sunrun and Tesla are rivals in some ways but partners in others, as Sunrun sells Tesla’s Powerwall, a battery storage system.

I asked White what he makes of this week’s trial. He said he’s seen little that relates to the businesses he covers, even though the trial is about the sale of a rooftop solar company.

Musk’s strongest argument in defense of the SolarCity purchase, White said, is that he was trying to offer a broad array of sustainable energy products, with customers being able to use Tesla as a one-stop shop for solar and storage.

That’s a potentially compelling argument, but it’s part of a case in which the plaintiffs have presented evidence that the sale was bad for Tesla shareholders and wouldn’t have happened without Musk’s role at the head of both companies. The trial is likely to continue through next week.

Musk could be forced to pay more than $2 billion if he loses the case, which sounds like a lot except that Musk’s net worth is more than $160 billion, according to Forbes, and Tesla has a market value of about $650 billion.

It’s worth noting that Tesla shareholders have had a great few years thanks to the success of the Model 3 and other vehicles. The costs of any alleged mistakes in the SolarCity deal look small compared to the company’s increase in sales and share price.

Even with that caveat, I can’t help but see a lost opportunity in SolarCity’s fall from the top of the market, both in the way the company was managed before the sale to Tesla and after. 

Tesla could have used its status as the leader and the strength of the Tesla name to put its stamp on the way rooftop solar is sold. But that hasn’t happened, at least not yet.

Other stories about the energy transition to take note of this week.

Elon Musk Says He Never Wanted to Be CEO: Of all the coverage of the lawsuit against Musk, I found this column by Matt Levine of Bloomberg to be one of the most enlightening about what’s really at issue and some of the most interesting comments Musk has made while on the stand, including that he doesn’t want to be CEO. “I rather hate being a boss,” he said. “I’m an engineer.”

Energy Department Aims to Cut Energy Storage Costs by 90 percent: U.S. Energy Secretary Jennifer Granholm has announced a goal of cutting the costs of energy storage by 90 percent within a decade, part of a series of cost-cutting goals that her office wants to help make happen through research and development programs. Affordable energy storage is an important part of making wind and solar energy available around the clock, as Rachel Frazin reports for The Hill. “We’re going to bring hundreds of gigawatts of clean energy onto the grid over the next few years, and we need to be able to use that energy wherever and whenever it’s needed,” Granholm said in a statement.

An Oregon Wildfire Hurts the California Grid: California had a tense few days last weekend trying to align the erratic supply of electricity with high demand. Part of the problem was a wildfire in Oregon that knocked out a power line that delivers electricity to California, as Sammy Roth reports for the Los Angeles Times. Wildfires are a complicating factor for a grid that is already dealing with the challenges of managing rapid growth in renewable energy and a decrease in fossil fuel power plants. Resources that would help, like battery storage, are not yet installed at a scale that can make a big difference, which means electricity customers are likely to see some more events like last weekend. 

Why Do Heat Pumps Still Rely on a Potent Greenhouse Gas?: Expanding the use of heat pumps is an important part of reducing emissions from burning fossil fuels in buildings. But heat pumps sold in the United States still use a refrigerant that is a greenhouse gas much more potent than carbon dioxide, as ICN’s Phil McKenna reports. Companies could use an alternative refrigerant with lower emissions which is now approved for the U.S. market thanks to an action in May by the U.S. Environmental Protection Agency. But there are challenges in getting manufacturers to use this new option.

Decline of Fossil Fuels Hurts Wyoming School Funding: The transition away from fossil fuels means that state and local governments need to prepare to fill holes in their budgets because of declining tax receipts from production of the fuels. Wyoming is dealing with this today. The state relies on property taxes for three-quarters of its education funding, and much of that money comes from property taxes assessed tied to coal, natural gas and oil production, as Dustin Bleizeffer reports for WyoFile. Counties that have historically been able to contribute some of their tax proceeds into a statewide fund may no longer be able to do so, which threatens to undermine the state’s whole system of paying for schools.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].