Tesla’s proposed buyout of SolarCity is a “continuation of questionable behavior” by the electric vehicle company that could lead to its downfall, according to an analyst with a tech company research group.
“When a company’s executives misunderstand modern corporate finance and technology strategy, they can make profound miscalculations and errors of judgment; this will not be the last mistake Tesla’s management makes,” Salome Gvaramia, COO of Devonshire Research Group (DRG), told The Daily Caller News Foundation about Tesla’s decision to meld with solar panel company SolarCity.
Gvaramia, whose group has researched Tesla’s sketchy financial instruments as well as its impact on the environment, went on to say that her group has cautioned Tesla’s investors in the past about the negative consequences of the company’s “aggressive delivery schedules, and atypical financing methods in an established and thriving auto industry.”
The offer to purchase SolarCity, Gvaramia added, is just another example of “questionable behavior continuously exhibited by Tesla’s management” and CEO Elon Musk. She said DRG has received massive amounts of support over the past 24 hours thanks in part to the news of the proposed buyout.
Musk proposed fusing the two companies Wednesday, telling reporters the melding was “something that we have been thinking about and debated for many years.” He recused himself from the voting process.
The proposition prompted critics to ponder the ethical nature of the move, as Musk has family members on the boards of both companies.
Kimbal Musk, Elon Musk’s brother, a director on the Tesla Motors Board of Directors, has yet to recuse himself from the voting, despite the long history he and his brother have building Internet-based companies.
Musk’s cousin, Lyndon Rive, is SolarCity’s chief executive officer – Rive, who told reporters he would also be recusing himself from the “decision-making process,” said the offer represented a value of between $26.50 and $28.50 a share. “Ultimately, the shareholders will decide,” he added.
Tesla shares fell 12 percent in after-hours trading Thursday following the announcement, while SolarCity shares predictably surged 15 percent.
Gvaramia’s investment firm shorted Tesla’s stock in May after issuing a report stating the company’s financial model is a kind of “Ponzi scheme” strikingly similar to the one created by “Enron.”
The company’s “financing model is fragile,” DRG said about the company’s increasingly complex business model. “It is attempting to manage multiple financial instrument models under the same accounting umbrella — to our knowledge, one of the last companies to attempt this level of financial innovation was Enron.”
One minor “misstep in the next two years,” the group added at the time, “risks entering a death spiral.”
The company accepted $1,000 deposits in 2016 for 400,000 pre-orders of the Model 3, a vehicle that has yet to be produced. In return for the deposits, the group’s report states, the company was able to use “high pre-orders to boost share price” as well as issue new shares.
Devonshire’s research warns that Tesla, because of the exotic tools it uses to hide its financial stability, is “operationally vulnerable to setbacks.” The group calculates that there is an 80 percent probability that Tesla’s Model 3, and the company’s future financial strength, will tumble as a result of what Devonshire says is its Ponzi scheme-like business operation.
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