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$3 billion Tesla-SolarCity merger sets motion to Musk's vision of clean-energy juggernaut

June 22, 2016

(Image: YouTube_Rich Talk)

Nothing gets an engineer harder than a puzzle coming together

I've never been reticent in regards to praising the innovative mind of Elon Musk. In his latest bid for worldly betterment, he seems intent on consolidating his resolve and assets in order to realize his vision of a fully distributed and efficient clean-energy power grid made available under a single Tesla umbrella.  On Tuesday, Musk has set in motion the realization of the world's greatest end-to-end clean energy powerhouse when he orchestrated a merger between electric car-maker Tesla Motors Inc and solar panel installation firm SolarCity Corp. Both companies are game-changing mavericks that stand in the forefront of commercializing and expanding clean energy. They both happen to have been co-founded by Musk. 

Tesla bids for SolarCity/Image: Reuters_Rick Wilking

 

Tesla Motors, whose CEO and major shareholder is Musk, made an offer to buy out its sister company, SolarCity(whose chairman/major shareholder is also Musk and CEO is Musk's cousin, Lyndon Rive), in a stock deal worth up to $3 billion. Under the terms of the proposed deal, which was released on Tesla Motor's online blog, Tesla would acquire all of SolarCity's outstanding shares of common stock in a swap, offering between $26.50 to $28.50 per share. That's a 34% premium added to how much SolarCity shares were being traded for at Tuesday's market close. With this blockbuster deal announcement, Tesla shares plunged more than 13% in extended trading, a loss in value of about $4.3 billion – roughly $1.5 billion more than the total value of the offer for SolarCity. 

 

 

Ivan Feinseth, an analyst at Tigress Financial Partners(I hear they are 'fierce' with their commissions), explained that the Tesla investors punished the company's shares because "ideally you want to see Tesla focus on Tesla – building Teslas and expanding the cars". He added, in light of the fact that SolarCity has about $6.24 billion in liabilities and debt,  "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". Though SolarCity is the US market leader in residential rooftop solar systems, it regularly posts quarterly losses with stocks falling nearly 60% so far this year. SolarCity's business model is criticized as being too complex beyond perhaps the likes of Musk himself.

Merger leads to Tesla crash/Image: Google Finance

 

Musk was well, Musk, as he scoffed off the stock market responses by describing the deal as a "no brainer". Musk made clear that he envisions a vertically-integrated clean energy company that allows customers to have access to a one-stop solution for clean energy consumption. "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," said Musk. "It's an obvious thing to do". 

 

With Musk owning 22% of SolarCity and 21% of Tesla, initial thoughts might be that it's a simple case of a rich man shuffling around his holdings for some unfathomable accounting ploy that will save him back-end cash in the billions. Maybe, but what's intriguing is that this deal has the potential for some fruitful collaboration between the two companies. As much as Tesla is a mass-market electric motors company with its signature Model S, it is also a solar battery manufacturer. Its newly unveiled lithium-ion battery called the Powerwall, encapsulates Musk's desire to distribute solar-storage batteries to virtually all sectors of life. Commercial industrial, residential and logistical. 

Musk calls merger a 'no-brainer'/Image: Reuters_Rashid Abbasi

 

Musk wants to use SolarCity's position as the market's largest provider of solar cell panels and its wide network of sales and distribution channels to ease the change into a fully solar-maintained energy grid. Musk's prior calls for utilizing stationary energy storage through his Powerwall batteries have been met with criticisms that their popularization was not economical while distribution was questionable.

 

By opting to combine Tesla Motors and SolarCity under the single, parent-brand of Tesla, Musk is flicking off his haters as he stays on track to creating the world's first legitimate clean-energy providing behemoth. SolarCity wants to function as a distributed power plant that connects its networks of panels, while Tesla fills the need of deploying that solar energy to residential utilities and other small sectors via its burgeoning battery business. Together, they have a greater chance of creating a solar-dependent ecosystem. Like perfect bits of a Lego.

The Musk sphere of influence/Image: Twitter_Scott Austin


The merger is not yet a closed deal as it is now up to the investors to decide whether or not Musk's proposal for a clean energy empire will actually be able to transpire. With his conflict of interest(he sort of owns both the involved parties), Musk has decided to sit out the decision-making process, though it seems most likely that Tesla Motors and SolarCity will henceforth be known as just (Empire of) Tesla. So Musk couldn't give a rats ass that his stocks plummeted. Given his repertoire for peculiar financial decision makings, that's not something to be surprised about.


He departed from traditional financing structures of solar panel sales by offering leases to customers for his SolarCity hardware. When SolarCity offered "solar bonds" to investors in 2014, half of them were bought up by SpaceX, the other Musk-owned firmed that seeks to commercialize spaceflight by dressing travelers in ironman suits. Musk's obsession with growth at the expense of profit had led to comparisons to Amazon CEO Jeff Brezos, who had been called Grinch who stole Christmas because he was so bad at making money. Look where both men stand now. A bookseller turned everything-seller, and the other, a legit non-fictional clean energy guru. I think a victory howl is in order. Green is always right after all. .

 

 

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