Tesla's bid for Solar City


Tesla Motors Inc. (TSLA) shares plunged over 12% in after-market trading today after the automaker announced its offer, via a blog post, to acquire beleaguered solar panel manufacturer SolarCity Corp. (SCTY). Subject to SolarCity shareholder approval, Tesla’s proposal involves a straightforward stock swap of .122x to .131x shares of Tesla common for each share of SolarCity common, valuing the deal at around $2.8 billion, or $26.50-$28.50 per SCTY share.
Moreover, Elon Musk, who is the CEO of Tesla and Chairman of Solarcity, will “net” roughly $587 million to $632 million from his 22% stake in SolarCity along with a sizable increase in his Tesla position following the transaction. In a conference call Tuesday evening, Musk hailed the offer as a “blindingly obvious” step towards Tesla--what is in his own words, becoming “the best manufacturer on the planet”. Indeed, as per Tesla’s official blog, the synergies inherent within the merger are tremendous.
Based on shared ideals between the two companies, Tesla and Solarcity will be able to expand their addressable market more efficiently together, than they would otherwise separately. Furthermore, the union between the companies would enable Tesla to become the world’s first vertically integrated energy company, offering end-to-end renewable energy products to its customers; from the Tesla car you drive, to the SolarCity manufactured and installed panel coupled with Tesla’s Powerwall, powering your entire house.
However, the market was less than enthused, with some commentators quickly decrying the merger as a “distraction” from Tesla’s own struggle to meet production targets and attain profitability. And there was also the question of SolarCity itself: a stock that has been slammed by analysts and short sellers who lambasted its convoluted business model, unattainable installation goals, negative cash flow and dangerously high levels of debt.
And to Elon Musk, none of these things matter.
Instead of figures on a balance sheet, the Solarcity merger represents a continuation of a dream that began when he was just a sophomore at the University of Pennsylvania. There, when one of his professors asked the class to come up with a business proposal, Musk submitted a paper titled “The Importance of Being Solar”. In the essay, Musk wrote in detail how solar cells worked, then goes on to predict a rise in solar power, concluding with a futuristic design of an orbital power station, beaming solar energy down to earth. In other words, when it comes to Elon Musk, Tesla, SpaceX, Hyperloop, OpenAI and now SolarCity should not be considered in isolation,but as tesserae from a mosaic representing a grander vision. And as long as the sun continues to rise, you can bet that Musk will continue towards this vision; the market will just have to make peace with that.
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