# Musk trial asks the $2 billion question: Who controls Tesla? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-07-09 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Elon Musk's Control Over Tesla: A $2 Billion Question Meta Description: Discover the high-stakes trial as shareholders allege Musk used Tesla to save SolarCity, with potential implications for the tech billionaire's control. URL: https://financedigest.com/musk-trial-asks-the-2-billion-question-who-controls-teslahtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2021-07-09t101641z2lynxnpeh680fnrtroptp4tesla-solarcity-trial-preview-1736838202256-compressed.jpg) By Tom Hals and Sierra Jackson (Reuters) – Does [Elon](https://www.financedigest.com/elon-musk-named-times-2021-person-of-the-year.html) Musk control [Tesla](https://www.financedigest.com/tesla-earnings-investors-watching-margins-deliveries-self-driving.html) Inc or does Tesla control Elon Musk? More than $2 billion hinges on that question as a trial kicks off on Monday. Shareholders allege that [Musk used his control of Tesla](https://www.financedigest.com/musk-says-tesla-price-cuts-triggered-demand-2023-sales-could-hit-2-million-vehicles.html "Musk says Tesla price cuts triggered demand, 2023 sales could hit 2 million vehicles") to force the company in 2016 to rescue SolarCity, saving the solar panel maker – and Musk’s investment in the company – from bankruptcy. The union pension funds and asset managers leading the case want Musk to repay to [Tesla the cost of the $2.6 billion deal](https://www.financedigest.com/us-house-committee-chair-concerned-by-tesla-deals-in-china.html "US House committee chair ‘concerned’ by Tesla deals in China") and to disgorge the profits on his SolarCity stock. If they win, it would be one of the largest judgments against an individual. The two-week trial in the Court of Chancery in Wilmington, Delaware, will boil down to whether Musk, who owned about 22% of Tesla at the time of the deal, is that rare controlling stockholder who does not hold a [majority stake](https://www.financedigest.com/deutsche-telekom-reaches-majority-stake-in-t-mobile-u-s-ceo.html "Deutsche Telekom reaches majority stake in T-Mobile U.S. – CEO"). I think it’s going to be very hard for the court to ignore the reality that [Elon](https://www.financedigest.com/elon-musk-named-times-2021-person-of-the-year.html) [Musk](https://www.financedigest.com/elon-musk-and-others-urge-ai-pause-citing-risks-to-society.html "Elon Musk and others urge AI pause, citing ‘risks to society’") is Elon Musk and his relationship with Tesla,” said Ann Lipton, a professor at Tulane University Law School. She said the case might present an unusual situation given Musk’s celebrity status, his personal ties to [Tesla](https://www.financedigest.com/tesla-earnings-investors-watching-margins-deliveries-self-driving.html) board members and those board members’ [financial](https://www.financedigest.com/board-report-highlights-complex-decision-making-process-across-banking-and-finance-sector.html "Board Report Highlights Complex Decision-Making Process Across Banking and Finance sector") ties to SolarCity. “Put it all together, and it might be enough to count as a controlling shareholder,” she said. Few executives dominate their [company’s image](https://www.financedigest.com/surgical-imaging-market-2021-global-leading-companies-analysis-revenue-trends-and-forecasts-2027.html "Surgical Imaging Market 2021 Global Leading Companies Analysis, Revenue, Trends and Forecasts 2027") as much Musk, known for taunting regulators, battling naysayers and personally engaging with his 57 million Twitter followers. We are highly dependent on the services of Elon Musk, Technoking of Tesla and our [Chief Executive Officer,”](https://www.financedigest.com/host-analytics-appoints-chris-labruna-as-chief-revenue-officer.html "Host Analytics Appoints Chris LaBruna as Chief Revenue Officer") said Tesla’s 2020 annual report. Plaintiffs allege that [Musk drove the negotiations and even pushed Tesla’s](https://www.financedigest.com/with-big-bets-on-musk-these-funds-may-have-a-tesla-problem-in-23.html "With big bets on Musk, these funds may have a Tesla problem in ’23") board to raise, not lower, the price for SolarCity. A [higher price](https://www.financedigest.com/wall-street-seen-opening-higher-but-u-s-recession-priced-in.html "Wall Street seen opening higher but U.S. recession priced in") benefited Musk, who was the largest shareholder of SolarCity, with a stake of about 22%, as well as four members of [Tesla’s](https://www.financedigest.com/tesla-earnings-investors-watching-margins-deliveries-self-driving.html) board, who directly or indirectly owned SolarCity stock, according to court records. [Board members settled allegations against them last year for $60 million](https://www.financedigest.com/board-of-russias-avtovaz-approves-585-million-in-2023-investment-programme-ria-agency.html "Board of Russia’s AvtoVAZ approves 5 million in 2023 investment programme – RIA agency") and did not admit to any fault. Plaintiffs also allege the deal benefited two of Musk’s cousins who founded SolarCity, saving a company that was rapidly running [low on cash](https://www.financedigest.com/monte-dei-paschis-cash-call-93-covered-so-far-despite-low-shareholder-take-up.html "Monte dei Paschi’s cash call 93% covered so far despite low shareholder take-up"). Musk has said he was “fully recused” from [board negotiations and that shareholders voted](https://www.financedigest.com/hsbc-board-recommends-shareholders-vote-against-spin-off-resolution.html "HSBC board recommends shareholders vote against spin-off resolution") to approve the deal because it was central to his “Master Plan, Part Deux” that aims to integrate sustainable solar energy with electric self-driving cars. He has said that what plaintiffs [see as evidence of control is little more than strong](https://www.financedigest.com/italys-mps-sees-safe-habour-ahead-after-strong-quarter.html "Italy’s MPS sees ‘safe habour’ ahead after strong quarter") management. Taken to its natural conclusion, virtually all ‘hands-on’ and [‘inspirational’ CEOs with minority stock](https://www.financedigest.com/dataartrecognised-as-one-of-1000-companies-to-inspire-britain2018-by-london-stock-exchange-group.html "DataArtrecognised as one of 1,000 Companies to Inspire Britain2018 by London Stock Exchange Group") ownership would be deemed controllers,” Musk’s lawyers wrote in a court filing. If Vice Chancellor Joseph Slights determines Musk was a controlling shareholder, it will fall to Musk to prove the SolarCity deal met the high bar of the “entire fairness” standard, which examines process and price, said legal experts. Musk has noted in court papers that the SolarCity [deal has been a huge success for Tesla](https://www.financedigest.com/musks-twitter-deal-could-test-tesla-executive-bench.html "Musk’s Twitter deal could test Tesla executive bench") shareholders, demonstrating the deal was not only fair, but a boon. After Tesla split its stock 5-1 in 2020, it has risen to $652 on Thursday from [near $37 a share when the deal](https://www.financedigest.com/endeavor-nears-deal-to-buy-vince-mcmahons-wwe-sources.html "Endeavor nears deal to buy Vince McMahon’s WWE -sources") closed in November 2016. If the vice chancellor [thinks this deal was awful and was not effectively negotiated on behalf of the company](https://www.financedigest.com/why-its-essential-banks-start-thinking-like-tech-companies-not-just-fintechs.html "Why it’s essential banks start thinking like tech companies – not just fintechs"), he’ll strike it down,” said Larry Hamermesh, a professor at Delaware Law School. (Reporting by Tom Hals in Wilmington, Delaware, and Sierra Jackson in New York; Editing by Noeleen Walder and Dan Grebler) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---