Why people love or loathe the Tesla/SolarCity deal
Posted June 30, 2016
Tesla Motors Inc. announced recently on its website its plan to acquire residential solar energy installer SolarCity as part of an effort to make the ultimate sustainable energy company.
The automaker stated that the combined companies would provide benefits such as a marriage between Tesla’s design, engineering and manufacturing experience and SolarCity’s sales and distribution network; an expansion of Tesla’s customer’s base, and complete clean energy coverage for all its customers’ needs.
“Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun,” according to the website.
Time valued the deal at $2.5 billion to $3 billion and noted that the two companies were closely tied even before the acquisition was proposed, with Tesla’s billionaire CEO, Elon Musk, serving as the chair of SolarCity’s board.
For the most part, the deal has not been received well.
While SolarCity is the United States’ largest residential solar installer, according to Time, the market for solar power may soon meet with adverse new regulations, as homeowners who have solar power fear tax credits and rebates for the energy may be eliminated.
But those fears may not materialize. Jenny Chase, a solar-industry analyst at Bloomberg New Energy Finance, was quoted by Time as saying that "most of the time the regulators will be under pressure to resist."
SolarCity’s shares have also dropped by more than 50 percent this year, Reuters noted.
“Up until now, Tesla is a company that's been loved by investors — for the most part — while SolarCity has been loathed,” wrote Portia Crowe for Business Insider.
CNN noted that analysts have criticized the deal as detrimental to Tesla when it is trying to increase production to make its first mass-market car, the Model 3, available at the end of 2017.
Before the deal’s announcement, Time noted, Tesla’s stock was doing well in the wake of more than 400,000 people ordering the new Model 3.
“SolarCity needs cash to fund its business, and Tesla needs cash to build its cars,” Crowe wrote.
Still, the deal has its supporters, which include some of Tesla’s biggest investors, Reuters reported.
“It’s a natural evolution of their mission to transform transportation into a sustainable business,” said Joe Dennison, a portfolio manager at an investment managing company that holds about 600,000 Tesla shares, to Reuters.
The deal is also not a sudden and new idea. Reuters reports that in a call with investors and Wall Street analysts Wednesday, Musk said it had been discussed “with some of our largest shareholders, institutional shareholders,” for years.
And the two companies have been moving closer together over the years, The New York Times noted, with SolarCity using Tesla batteries in its preliminary studies, while Tesla has plans for battery blocks large enough to serve in utility-size installations that will help with grid fluctuations.
“This is an effort to build the Apple of clean energy,” said Daniel M. Kammen, director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, to The Times.
If the two companies can pull off this merger, then the combined company could be in a position to dominate the market, according to The Times. It’s just right now a very big "if."
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