Elon Musk said this week that it would have been a conflict of interest had Tesla Motors not merged with flailing solar panel producer SolarCity, despite several analysts saying the exact opposite.
If shareholders approve, the fusion of the two companies would dramatically increase the size of Tesla’s workforce to 30,000 employees. It’ll help create a unique combination of solar, storage and transportation.
The announcement drew criticisms from analysts, and tech investors, many who suggest the fusion of the two Musk-aligned companies represents a conflict of interest. Musk has deep family and professional ties with Solar City’s board. He’s also got a vested interest in preventing Solar City’s collapse. Jen Wieczner of Fortune went so far as to call the conflicts “blindingly obvious,” yet Musk apparently disagrees.
Investor group CtW Investor Group, which owns 200,000 shares in Tesla, said the market’s “hostile reaction” to the SolarCity deal was induced, in part, by the group’s recognition that Donald Kendall, chief executive of investment management firm Kenmont, is the only person on the SolarCity board without deep-rooted ties to Musk.
Prior to the coupling, it was discovered that 6 of the 7 board members on SolarCity had direct family or partnership ties to Musk.
SolarCity’s chief executive officer, for instance, is Lyndon Rive, Musk’s cousin. And even though he assured reporters he would recuse himself from the “decision-making process,” the criticisms continued.
JB Straubel, Tesla’s co-founder and current SolarCity Board of Director, played a big part in designing Tesla’s electric vehicles, focusing on their batteries, motor, power electronics, as well as their software systems.
The tech-entrepreneur insisted his critics are completely off the mark — “The conflicts of interest are if we don’t merge,” Musk told reporters during a walk through of Tesla’s Nevada-based Gigafactory.
“As separate companies, it’s very difficult for us to work together,” Musk said. “It’s a very awkward process,” that can only be solved by combining the two companies “It’s very limited what we can do until we’re one company.”
If Tesla bound itself to SolarCity without merging, Musk said, then it would appear as if the electric vehicle maker was propping up the solar panel maker.
Investment analysts are not buying Musk’s arguments.
Salome Gvaramia, the COO of tech company research group Devonshire Research Group, told the Daily Caller News Foundation that Musk’s justification for the merger is badly flawed.
“If the goal is to facilitate seamless collaboration between the two companies in order to increase production efficiency, reduce carbon footprint, etc.,” Gvaramia said, “it can be achieved on contractual basis between two independent entities.”
The merger itself, she added, makes it look like Tesla is propping up the beleaguered solar panel company.
“If Mr. Musk was not the common denominator between the two entities,” Gvaramia said, “it would merely be a bad business deal. Now it looks much more questionable.
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