According to Elon Musk, the deal is a “no brainer” since it fits very well into Tesla’s broad strategy. SolarCity has liabilities of $6.24 billion, including debt.
Tesla Motor Inc’s pioneering CEO, Elon Musk has sought to acquire SolarCity Corp for $2.8 billion with the intention of building a clean energy powerhouse for its electric cars.
With the news hitting the market, SolarCity’s shares surged by 18% to $25.02 while Tesla’s shares plunged by 13% to $189.99 in extended trading.
Incidentally, Musk is the chairman of SolarCity. He has described the deal as a “no brainer” in a call with reporters. He has stated if the deal were to go through it would help Tesla Motors as the company will be in a position to sell a solar system along with batteries for its electric vehicles.
“Instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit,” said Musk to reporters. “It’s an obvious thing to do.”
Tesla’s shareholders clearly aren’t convinced, yet.
“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars. 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,” said Ivan Feinseth, an analyst at Tigress Financial Partners.
Incidentally, SolarCity has nearly $6.24 billion in liabilities, including debt.
As per executives from Tesla, its cash flow is predictable in the form of payments for its solar systems, which could substantially reduce its debt.
Although SolarCity is the market leader in the U.S. for residential rooftop solar system, going by its quarterly reports its results are not very encouraging: it has consistently posted quarterly losses and has seen its share prices plunge by 60% this year. Investors see its business model as too complex in a market that has increasingly become competitive.
Although Musk has admitted that he does not yet know how many of SolarCity’s customers have solar panels, but he estimates that they are interested in solar, especially with climate change at our doorstep. He has explained the deal through a blogpost saying it should be seen as a vehicle through which both companies can expand their respective markets.
Under the proposed deal , the solar systems will now go at a premium under the Tesla brand. Musk, who owns 22% in SolarCity, said he would recuse himself from voting on the deal. No timeline on the voting has been fixed yet as due diligence has yet to take place on the deal.
Lyndon Rive, SolarCity’s CEO who happens to be Musk’s first cousin, said he is supportive of the deal but would recuse himself from voting.
In a statement issued late yesterday, Tesla disclosed that its management will host a conference call to discuss the ‘rationale’ surrounding the deal. This is scheduled to take place sometime early in the morning today, before the opening of the U.S. markets.
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