On Tuesday, the board of directors of Tesla Motors offered to purchase SolarCity for $2.8 billion in an all stock transaction. The two companies share many common features. Both are deeply committed to helping the world find ways to wean itself from its fossil fuel addiction. Tesla Motors makes automobiles that run on electrons rather than molecules. SolarCity specializes in harvesting electrons from sunlight to power residential and commercial properties. Elon Musk is the largest shareholder of both companies. His cousins, Lyndon and Peter Rive, are the CEO and CTO respectively of SolarCity.
The synergies between the companies could be substantial. Tesla Motors not only makes automobiles, it also manufacturers storage batteries for private and grid level use. Combining all three enterprises would allow customers to enjoy one stop shopping for the electricity based products that Musk believes will power civilization in the future. All would carry the now valuable Tesla brand with all that implies for exemplary customer service.
In its letter to the board of SolarCity, Tesla listed several advantages that combining the two companies would offer.
“We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. 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, lowering your costs and minimizing your dependence on fossil fuels and the grid.
“We would be able to expand our addressable market further than either company could do separately. Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well. When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.
“We would be able to maximize and build on the core competencies of each company. 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. Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing products would significantly benefit Tesla and its customers.
“We would be able to provide the best possible installation service for all of our clean energy products. SolarCity is the best at installing solar panel systems, and that expertise translates seamlessly to the installation of Powerwalls and charging systems for Tesla vehicles.
The letter concludes, “Culturally, this is a great fit. Both companies are driven by a mission of sustainability, innovation, and overcoming any challenges that stand in the way of progress.”
What seems like a bold move by Elon Musk was greeted with skepticism and hoots of derision on Wall Street. Tesla stock closed down 12% on Tuesday. Ary Levi of CNBC reported that this was a “potential deal in which one of the country’s best-known tech billionaires will effectively transfer cash from one of his pockets to another – sounds nuts.”
The Wall Street Journal reported that “the acquisition aims to create a company employing nearly 30,000 people with all products renamed “Tesla” that will package electric cars, batteries and solar panels for customers.” It warned that “it would also add to the growing complexity and vertical integration of Tesla and add an unprofitable operation to its already strained finances.”
Several analysts predict strong resistance to the move from Tesla shareholders, many of whom are not thrilled to see their investment diluted by what some are calling a bailout for Musk’s two cousins. SolarCity has seen it share price gyrate wildly over the past 12 months. Solar energy is a wonderful idea in theory, but many solar panel companies have yet to demonstrate to the investment community that the industry can be profitable.
Such matters are mere trifles to a man whose self confidence level goes all the way to 11. After all, he is the one who pioneered rockets that can be reused and who plans to build space colonies on Mars, after he warms up that atmosphere with a few well placed fusion bombs to simulate suns. No one has ever accused Musk of being afraid to dream big. The final chapter of this story has yet to be written.
Source and image credit: Teslarati