Elon Musk trial: The $2 billion question: Who is Tesla controlled?

Is Tesla controlled by Elon Musk or Tesla? As a trial begins on Monday, more than USD 2Billion is at stake. Shareholders claim that Musk used his control over Tesla to save SolarCity in 2016, saving it and Musk’s investment.

The case is being led by union pension funds and asset management firms who want Musk to pay back Tesla for the USD 2.6 Billion deal and to recoup the SolarCity stock profits. It would be the largest verdict against an individual if they prevail.

The Court of Chancery in Wilmington will decide whether Musk, who held 22 percent of Tesla’s stock at the time of the deal in Delaware, is the rare controlling stockholder that does not own a majority.

Ann Lipton, a Tulane University Law School professor, said that it would be difficult for the court not to recognize the fact that Elon Musk is Elon and his relationship to Tesla.

She stated that the case could be unusual due to Musk’s celebrity status and his financial ties with SolarCity.

She said, “Put all of it together and it might suffice to count as controlling shareholder.”

Elon Musk trial: The $2 billion question: Who is Tesla controlled?

Musk is a leader in the company’s image. He is known for his ability to taunt regulators and fight naysayers, as well as engaging with his 57,000,000 Twitter followers.

Tesla’s 2020 annual reports stated that “We are highly dependent upon the services of Elon Musk Technoking of Tesla, and our Chief Executive Officer.”

Plaintiffs claim that Musk was the one who negotiated and even pushed Tesla’s board for a higher price for SolarCity.

Musk was the largest shareholder in SolarCity with around 22 percent. He also owned four members of Tesla’s board who either directly or indirectly owned SolarCity stock. Court records show that Musk received a higher price.

Last year, the Board settled allegations against them for USD 60 millions and did not admit any fault.

Plaintiffs also claim that the deal was beneficial to two Musk cousins who co-founded SolarCity and saved a company that was quickly running out of cash.

Musk stated that he was “fully removed” from board negotiations. Shareholders voted to approve this deal because it was central in his Master Plan, Part Deux, which aims to combine sustainable solar energy and electric self-driving vehicles.

He stated that plaintiffs only see strong management as evidence of control.

Also Read: Factbox: Branson, Bezos, and Musk were three of the pioneers in space tourism.


Musk’s lawyers filed a court filing that stated, “Taken to it’s natural conclusion. Virtually all ‘hands on’ and inspirational CEOs with minority stock owners would be considered controllers.”

If Joseph Slights, Vice-Chancellor, determines that Musk was a controlling shareholder of SolarCity, it will be up to Musk to prove that the SolarCity deal met all requirements of the “entire fairness standard,” which evaluates price and process.

Musk noted in court papers, that SolarCity was a great success for Tesla shareholders. This shows that the deal was fair and beneficial. It has increased to USD 652 from USD 37 per share in November 2016, when Tesla split its stock.

Larry Hamermesh of Delaware Law School said, “If the vice-chancellor thinks that this deal is awful and was not effectively managed on behalf of the firm, he will strike it down.”