Tesla’s board of directors formally offered to purchase SolarCity’s outstanding shares and create the first vertically integrated solar power, energy storage and electric transport company.
Elon Musk, the founder and chairman of both companies, said the deal is “a no-brainer.”
In addition to selling electric cars, Tesla developed the Powerwall and Powerpack battery technologies. These products will allow consumers to store enough energy to operate business-as-usual when solar panels aren’t generating electricity. They will also increase independent energy security, the company claims.
“The Powerwall and Powerpack need to be designed together with the solar system so it’s a one-piece thing,” Tesla’s founder explained.
“As we look to, say, [a Tesla] Model 3 — a $35,000 car — that same person at the same moment we can sell them roughly an equivalent amount of solar panels and Powerwalls, effectively almost doubling the sale at that time and then putting it all in at the same time. The word ‘synergy’ is banned like it’s some sort of dirty word, but I think these synergies are really more common sense. Obviously it’s more efficient to do this as an integrated system at the sale and at the installation and in terms of just general maintenance and managing the customer relationship.”
Musk added that working with SolarCity at arm’s length is “increasingly unwieldy” and that “from my standpoint, this makes Tesla’s future execution easier.”
Musk’s automobile company offered to buy his clean energy company for the equivalent of up to $2.8 billion in a stock for stock exchange. SolarCity’s shareholders would gain roughly 30 percent in value via Tesla stock.
Although he created and holds the most shares in both Tesla and SolarCity, Musk will refrain from voting on the proposed merger and leave it to other stockholders in both businesses to decide.
After the announcement, SolarCity’s stock price increased by roughly 15 percent. However, Tesla stockholders weren’t convinced of the benefits, causing that stock to drop more than 10 percent.
Some financial experts are skeptical of the move. “We believe Tesla shareholders are likely to be opposed to the deal as the synergies are limited, any investor could obtain exposure to [Solar City]…directly today, and the capital intensity of the [Solar City] business…will increase the risk profile of [Tesla’s] business,” argued a Credit Suisse analyst. Some argue that the merger is a ploy to stabilize the solar company’s debt dilemma.
Other naysayers point out that both companies are in debt and aren’t turning a profit. Musk often has to raise capital to continue development for both ventures. In addition to selling cars, batteries and solar panels, the innovator is trying to revolutionize space travel with his company SpaceX and holistically advance artificial intelligence with his non-profit OpenAI. Is Musk biting off more than he can chew?
“We remain fans not just of Tesla products, but of the concept and potential future partnerships behind the company. We see fruitful synergies between say Tesla and SolarCity – or any company that can benefit from superior battery technology,” said Gavin Baker of Fidelity OTC, which is one of the largest institution investors in both ventures.
Tesla’s largest institutional mutual fund supporter, Fidelity Contrafund, owns 3.5 percent of the company and also supports the proposition, reported Reuters. The news source also estimates that roughly “45 percent of Tesla shareholders also hold SolarCity stock,” which could mean they view the proposal in the context of the bigger picture rather than strictly short-term financial considerations.
There is no denying that Musk is revolutionizing transportation and energy; however, whether his businesses will make the money his supporters hope is yet to be seen.
“I think the way to think about this is to not look in the rearview mirror but to look through the windshield,” said the entrepreneur.