By: Bill Brehm & Matt Champion
Last week, Elon Musk of Tesla Motors, Inc. announced an offer to purchase SolarCity Corporation for an all-stock deal that could be worth as much as $2.8 billion. A lot of people around the industry are asking why an auto manufacturer would be interested in solar panels, but according to Musk, it’s a no-brainer. The merger creates a one-stop shop for customers to purchase their electric car, home battery, and solar energy system. all from one vendor.
Here at JBA, we think it’s brilliant and unprecedented move. I’ll explain why: for the first time we are seeing someone break down the barriers between different traditionally silo’ed industries and repurposing that space, instead, to foster an open and thriving ecosystem—all united under one corporate flag. Tesla Motors, Inc. is one of the leading manufacturers of high-tech, electric-powered cars. SolarCity touts itself as America’s top full-service, solar provider. Typically, these two industries would not have much in common, but Tesla Energy’s Powerwall and battery technologies make it a great combination.
Much of the investment community, however, is on the fence about this deal. They worry that Musk may be spreading himself too thin and should, instead, focus on fewer, more pressing issues—i.e. making Tesla Motors, Inc. profitable, completing the Gigafactory, and devoting more attention to the production ramp and launch of Model 3. It doesn’t help that Tesla just raised $1.4B from an equity issuance in May to finance the accelerated launch of Model 3 while still having a ton of debt on the books. The value of SolarCity, although indisputable, certainly won’t be tipping the books into the positive any time soon.
Musk maintains, however, that the deal aligns with Tesla's mission of sustainable energy and cites SolarCity’s being nearly debt-free and only a few months away from being cash flow positive, as evidence of the deal’s apt timing.
It’s a rationale that’s hard to argue with and which reveals Musk’s foresight. As he has done in the past, Musk has once again gotten ahead of the curve. At this point, it will only be a matter of a time until investors turn a corner and change their tune.