Massive Debt Turning Tesla Shareholders Against Musk

A suit against the Tesla CEO stems from conflicts of interest in a $2B acquisition.

About 16 months ago Tesla CEO Elon Musk announced the $2 billion acquisition of Solar City, a provider of commercial and residential solar panels and affiliated services. Musk felt the purchase rounded out Tesla’s ability to capture energy with Solar City panels, manage it will their Powerwall charging stations, and then use this energy for their electric cars.

While this sounds great, the problem is that, according to an article on Fortune.com, Tesla also acquired Solar City’s $2.9 billion in debt. Most of this is still outstanding and brings Tesla’s current amount of total debt up to $10 billion.

The biggest issue with this debt is that it effects Tesla’s credit rating, which is a big deal for a company that is burning through cash as it tries to fix highly publicized production challenges. Some financial analysts say this could add as much as 1.3 percent to the rate at which Tesla could borrow against.

At the time Tesla shareholders overwhelmingly supported the Solar City acquisition, despite the debt and concerns from many that Musk’s interests were more personal than business. Not only was Solar City founded by Musk’s cousins, but he was the company’s chairman and largest financial backer.

At the time, Musk tweeted that he would personally pay off Solar City’s debt if necessary.

Fluctuating stock prices over the last year seems to have quelled many of those positive feelings. Last week a court ruled that Tesla shareholders could pursue a suit against Musk that alleges they were fooled into supporting a deal containing several conflicts of interest.

For their part, Tesla has stated that Solar City generated positive cash flow in 2017, and the lawsuit’s allegations are false.

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