Elon Musk made a move to consolidate his business empire as Tesla announced an offer to buy SolarCity for around $2.8 billion. Musk is the Chairman of SolarCity, CEO of Tesla, and the largest shareholder of both companies.
Musk and Antonio Gracias, who is also on the board of directors at both companies, recused themselves from voting on this proposal.
“This is something that we have been thinking about and debated for many years,” Musk told reporters. “but the timing seemed to be right now,” as Tesla is ramping up production of batteries.
Tesla touted several benefits of the merger, including:
We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible.
We would be able to expand our addressable market further than either company could do separately. Those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well.
Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology, including by making solar panels add to the look of your home.
SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.
As is usually the case when a takeover is announced, shares of the purchased company rose – SCTY was up around 10% in Wednesday morning’s trading – and shares of the purchasing firm dropped – TSLA lost around 8%.
Some stock analysts are skeptical about the deal. SolarCity has been struggling over the last year, as legacy utility companies have started using their clout in state legislatures to put the brakes on distributed solar power. The company has about $6.24 billion in debt and other liabilities.
“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars,” Ivan Feinseth, an analyst at Tigress Financial Partners, told Reuters. “Maybe the feeling is that this takes away focus, and it could financially strain Tesla, which is going to continually need a lot of cash.”
However, Tesla executives pointed out that SolarCity’s predictable cash flow from existing installations allows it to keep its debt current. Lyndon Rive says that SolarCity is on schedule to be cash-flow positive in Q4 2016.
“I don’t think this creates additional financial risk for Tesla,” said Musk, adding that the acquisition will not add significant debt to Tesla’s balance sheet. “I think it actually amplifies the opportunity for both companies.”