SolarCity was insolvent when Tesla paid $2.6 billion to buy it, lawsuit says

Enlarge / A SolarCity employee checks solar panels on the roof during installation at a home in New Jersey on July 28, 2015. (credit: Bloomberg | Getty Images)

Back in 2016, Tesla acquired solar panel manufacturer SolarCity, billing the $2.6 billion deal as an opportunity to create "the world's only vertically integrated sustainable energy company." From a SolarCity solar panel to a Tesla battery, the company promised, the in-house supply chain would scale up clean energy for all and provide cost synergies to the businesses and shareholders.

But SolarCity, of which Tesla CEO Elon Musk was chairman, was deeply in debt at the time. Now, newly unsealed documents in an investor lawsuit say the situation was far worse than that. They allege that SolarCity wasn't just carrying a heavy debt load: it was completely insolvent.

The upshot of reams of law surrounding mergers and acquisitions is that C-suite executives and company boards of directors are supposed to make sure shareholders get the most money possible out of their investment. If they're going to sell the company, they have to make sure they're accepting the most valuable reasonable offer. Companies doing the acquiring, meanwhile, are supposed to do their homework to make sure they're not wasting their resources on a bad deal-and Tesla shareholders say the SolarCity acquisition was exactly that.

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