Tesla Motors has announced a plan to buy the leading installer of rooftop solar in the US, its sister company Solar City, to create a one-stop shop for rooftop solar, battery storage and electric vehicles, and becoming the first company to cater for both household and transport energy needs.
The proposed merger between Tesla and SolarCity was announced after the close of trade in the online Tesla blog, where founder and CEO Elon Musk said it was time to “complete the picture” and become the world’s first vertically integrated company specialising in end-to-end customer products.
“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,” Musk wrote.
“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.”
Later, in a phone hook-up with media and analysts, Musk described the deal as a “no-brainer”, and said it made sense that customers could walk into a store and “with a few clicks” buy an electric vehicle, a solar system and an energy storage system.
“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,” Musk told reporters. “It’s an obvious thing to do.”
But analysts say the proposed merger may be as much about addressing Musk’s own financing issues, and warned about the potential conflict of interest and dangers of expansion. Musk is the largest shareholder in both companies (about 21 and 22 per cent in each), and will be using Tesla’s strong price to mop up shares in a struggling SolarCity.
“Ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars,” said 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.”
Tesla has become the darling of investors, consumers and the clean energy industry since the release of its high-performance Model S electric vehicle in 2014, and then the Tesla Powerwall battery storage unit in 2015.
The launch of its Model 3 EV – a cheaper and smaller version of the Model S – has attracted deposits from nearly half a million customers.
“It’s now time to complete the picture,” Musk said. “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.”
It will offer its own stock to complete the merger, proposing 0.122 to 0.131 of its shares for each share of SolarCity common stock. It says this equates to a value of $US26.50 to $US28.50 per share, or a premium of about 21 per cent to 30 per cent over the closing price of SolarCity’s shares.
That values the company at around $US2.8 billion, at least it did before Tesla stock came tumbling down in after-market trade by more than 11 per cent as the market reacted to the news.
SolarCity, on the other hand, has become the industry leader in the residential, commercial and industrial markets, although it usually reports losses. It is headed by Lyndon Rive, Musk’s cousin, and Musk already owns 22 million shares in SolarCity himself and chairs the board.
Its stock, however, has fallen sharply from its highs, losing nearly one third of its value in the last three months due to concerns about its profit outlook. Its shares have fallen nearly 60 per cent since the start of the year.
It’s not entirely clear that SolarCity shareholders will be happy with the offer, and analysts said the biggest challenge will be getting shareholders to agree. Musk and Rive will not be able to vote their shares.
Reuters noted that Musk and Rive hatched the idea for SolarCity during a trip to the Burning Man desert festival in 2004.
Over a decade later, SolarCity has become the top U.S. residential solar installer thanks to a no-money-down financing scheme that allows homeowners to pay for their solar panels through a monthly fee that is less than what they would pay their local utility. That model was widely adopted elsewhere, although enthusiasm appears to be waning.
Tesla said that cCustomers 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,” it said.
“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.”