Tesla Offers $2.8B for SolarCity

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Photo courtesy Flickr via Wikimedia Commons.

 

In a move he described during a call with reporters as a “no brainer”, Elon Musk announced Tuesday that Tesla Motors has made an offer to buy SolarCity Corp. in an all-stock deal valued at $2.8 billion. The resulting company would serve as a one-stop shop for environmentally-conscious consumers who wish to both drive electric vehicles and charge them via residential solar power, all using hardware provided by Tesla.

If the deal is completed, SolarCity will adopt Tesla’s name, allowing the merged companies to sell electric cars, residential PV solar cells, and the new Powerwall battery products under a single brand. Musk said he envisions an operation that dispatches a single team to install solar infrastructure, electric car chargers, and energy storage batteries in one visit.

Situated less than 20 miles from one another in Silicon Valley, both Tesla and SolarCity have lost in excess of $1 billion dollars each in the last two years, though each company has done well in the stock market. Musk is the chairman of both companies and the largest individual shareholder in each. He also serves as CEO of Tesla, while his first cousin Lyndon Rive serves as CEO of SolarCity.

Though Musk was confident about the deal, saying, “This is something that should happen,” not everyone is so bullish about the proposed merger. Following the announcement, Tesla’s stock dropped 11 percent, costing the company $4.3 billion in value, and personally costing Musk about $925 million in paper assets.

In the wake of the announcement, The Wall Street Journal asserted that the deal “defies common sense”, “has no industrial logic”, and “shows weak governance”. Likewise, commentary from Forbes claimed the deal “doesn’t make financial sense”, since Tesla would assume debt instruments from SolarCity that equaled the company’s equity valuation.

Bucking this sentiment, SolarCity’s stock rose 16 percent in after-hours trading following the announcement.

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