This joint venture of the clean energy auto maker with the solar panel installer is a key part of billionaire Elon Musk’s plan, who recently this month disclosed his master plan “part deux” that calls for the mutual company to present consumers a single source of hardware to power a low-carbon lifestyle.
Advertisement
To those who see the positive side of the acquisition, the tie-up between Tesla and SolarCity “is really all part of solving the sustainable energy solution”, as Musk put it Monday morning, during a conference call with financial analysts. Elon Musk is the chairman of both companies and remains the largest shareholder of both.
Tesla shares also dipped, as Musk repeated that if the deal is consummated, the combined Tesla-SolarCity could require a “small equity capital raise” next year.
The company cut its forecast for full-year installations by 10% on Monday from prior guidance. It managed to inject a sense of calm and resilience into TSLA stock, which is why Tesla’s share price is level this week. Michael Morosi, an analyst at Avondale Partners LLC shared ‘Tesla provides an immediate source of differentiation. In addition, it could benefit from the carmaker’s expertise in manufacturing, just as SolarCity prepares to produce its own solar panels at a heavily subsidized factory in Buffalo, New York. They gain immediate knowledge when they need it most‘. By acquiring the solar-energy company, Tesla would bring into its fold the solar-energy systems to feed its Powerwall and Powerpack battery units and its fast-growing fleet of electric cars. ‘Combined with a more aggressive approach to reduce operating expenses, we believe the business could turn profitable, potentially in the next 12 to 24 months’.
In addition to shareholder approval, both companies must receive regulatory approval.
Tesla’s stock exchange offer valued SolarCity at $200 million less than the initial proposal outlined in June, or at $25.37 a share, before the company’s advisers, had done due diligence.
While there is some strategic logic over the long-term, the deal likely dims the chances of Tesla turning a profit in the near term, he said. About 1 percent of the 17 million cars sold in the USA are electric and only 1.4 percent of single family homes have solar power.
“We’re like, ‘If we’re going to do dozens and then hundreds and maybe thousands of these deals, there’s no way we can have such an unwieldy process, ‘” Musk said.
Musk, eight major institutional investors and the two Fidelity funds control 45.7 percent of Tesla.
However, some analyst thought that the automotive company was being smart in this deal. It will have to pay Tesla a $78.2 million termination fee unless it ends the deal with Tesla in order to enter an agreement with a third party that initially made an alternative offer before the “go-shop” period ended.
“There are tremendous synergies between these two companies”, SolarCity CEO Lyndon Rive said in a letter to employees after the deal was proposed.
Advertisement
“If we weren’t in such a kind of insane rapid growth mode”, he told analysts during a conference call, “we would be producing significant free positive cash flow”.
