A class action lawsuit by Tesla Inc shareholders against the electric car maker's chief executive, Elon Musk, and the company's board over the SolarCity deal was set to proceed after a Delaware judge refused to dismiss it.

Tesla agreed to buy solar panel installer SolarCity for US$2.6 billion in an all-stock deal in 2016.

Musk was the biggest shareholder in both Tesla (TSLA.O) and SolarCity at that time, and his SolarCity shares were converted to US$500 million of Tesla shares.

It is "conceivable that Musk, as a controlling stockholder, controlled the Tesla board" during the SolarCity deal, the judge commented.

The lawsuit alleged that the board breached its duties to shareholders in approving the SolarCity deal.