Is Acquiring SolarCity a Smart Choice for Tesla and Elon Musk?

One month ago, Tesla Motors Inc. announced its intention to purchase SolarCity (the biggest rooftop solar installer in the states) it made an offer of nearly $2.9 billion for SolarCity’s acquisition. And recent news indicates that these two companies are very close to signing. But nothing can be guaranteed thus far.

When Elon Musk, Chief Executive Officer of Tesla and Chairman of SoalrCity, first announced the offer in Tuesday, the stock of SolarCity rose 16% the next day, while Tesla fell 10 %. Taking a short term view, it cost Tesla an enormous amount of money to potentially seal this this deal. It seemed that investors were not looking favorably at this merger of two new-tech-energy companies.

Analysts were saying Tesla was not making the best use of its capital. Elon Musk, however, argued that this offer was a “no-brainer” and there was no doubt these two companies could successfully merge into one. Musk’s vision is to combine the battery storage, solar panel and electric car technologies together in one coherent service, making it a one-stop clean energy shopping experience for all Tesla’s customers.

“We can’t do this well if Tesla and SolarCity are different companies, which is why we need to combine and break down the barriers inherent to being separate companies.”, said Musk.

Tesla Motor, Inc. is a well-known electric car producer. In the meantime, it also produces battery’s and provides energy storage solutions. Tesla’s name came from Nikola Tesla, who is an electrical engineer and physicist. It came into public’s view with its new electric sports car the Tesla Roadster in 2006. In 2009, its Tesla Model S lead the world into an electric car era. The Public then became fanatic about Tesla, which can manufacture a car that does not need any fossil fuel to run. With Tesla’s own technology in battery, its electric cars can run up to 400 miles with one charge, which is very similar to fuel burning cars.

While Tesla made its environmental-friendly appearance to the public, SolarCity has dominated the solar installation industry across the US. Founded in 2008, SolarCity is now one of the biggest solar installer companies in the U.S. SolarCity provide energy services such as design, financing and installation of solar systems. The company has its headquarter in San Mateo, California, and it operates in 20 states through its distributed service model. Now SolarCity has its hands on solar leasing, commercial solar, electric vehicle chargers, energy efficiency evaluations and retrofits, SolarStrong project, energy storage and installation technology.

Owning 21% of Tesla and 22% of SolarCity, Elon Musk is the biggest shareholder of both companies. As Musk stated, the reason of the purchase is to “Create a seamlessly integrated Tesla battery and solar power product that looks beautiful”. Both being the clean-energy sector, Tesla and SolarCity enjoys the same mission to make the world a greener and cleaner place. Futurist would look forward of the integration of solar power and home energy storage. Excessive generation of solar electricity needs to be stored in the day and to be use at night. And wind power is dependent on the wind blowing so has similar constraints in the regularity of generation. Renewables has long suffered from storage problems and this has historically been a stumbling block to investors. By combining solar with advance energy storage, it will be a game changer of the energy industry as a whole.

According to the master plan of integrate energy generation and storage for Tesla, it is being said:

“Create a smoothly integrated and beautiful solar-roof-with-battery product that just works, empowering the individual as their own utility, and then scale that throughout the world. One ordering experience, one installation, one service contact, one phone app.

We can’t do this well if Tesla and SolarCity are different companies, which is why we need to combine and break down the barriers inherent to being separate companies. That they are separate at all, despite similar origins and pursuit of the same overarching goal of sustainable energy, is largely an accident of history. Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together.”

And the electric car company also said they want to provide clean energy in the home as well as on the road. This merge would allow customers:

“To deploy and consume energy in the most efficient and sustainable way possible, lowing the cost and minimizing the dependence on fossil fuels and the grid”.

Questions like “Is this offer made to solve SolarCity’s recent struggle?” are asked due to the fact that SolarCity had lost $283 million at the first quarter of 2016, and its stocks shrunk more than 16%. The merge would also create $3.2 billion of debt. It is definitely a very expensive deal for Tesla.

The project has seen some criticism with some saying that energy storage for the residential market is not ready at this time, and largely speaking it isn’t, owing to the high cost of battery storage at the moment. Renewable energy plus energy storage can be evolved into off-grid systems, which are also known as mini-grids. These systems, if implemented correctly and rolled out in large numbers, will leave utility companies and the entire energy industry reeling from reduced demand. So they will do all they can to delay this evolution as best they can.

Investors worries that Tesla should focus on the boost in production of Tesla Model 3 rather than purchasing another big company at this time. Since the Model 3 is a more affordable car and it already has half a million orders for it, Tesla have to put it as the priority problem to tackle.

Another investor said the solar installer company needs a new business model to adapt to the new formation.

Taking a long term view, combining energy storage, renewable energy and electric vehicles is an organic and well thought-out business plan. Once the oil runs out, renewable energy and nuclear will take its place. Companies with such technology will dominate the entire market.

However, this is still an offer, the acquisition cannot be made without the agreement of shareholders from both sides. If the merger is successful, Tesla and SolarCity still have a long way to go, and will have to solve the potential conflicts of interest with utility companies and create a new path to a more sustainable and renewable energy powered world.

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