Musk Shifts Gears at Tesla With SolarCity Offer

The entrepreneur says the $2.8 billion deal will turn Tesla into the world’s only vertically-integrated energy company.
Katie Kuehner-HebertJune 22, 2016

Elon Musk is planning to drive his electric car maker Tesla Motors toward diversification by combining it with the solar installation company he also controls.

Tesla on Tuesday offered to acquire SolarCity in an all-stock deal valued at up to $2.8 billion. Musk is the chairman and largest shareholder of both companies.

Tesla said the merger would create the world’s only vertically-integrated energy company offering end-to-end green technology products. Customers would be able to generate solar power from Tesla rooftop installations, store the energy in Tesla batteries and transfer the energy into Tesla cars.

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“The world does not look for another car company, the world looks for sustainable energy companies,” Musk told reporters and analysts.

SolarCity is one of the largest rooftop solar companies in the U.S., selling or leasing its panels to homeowners, the military and big businesses including Intel, Walgreens, and Wal-Mart.

“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,” the company said in a blog post.

But The Wall Street Journal warned that the merger of the two companies would also “add to the growing complexity and vertical integration of Tesla and add an unprofitable operation to its already-strained finances.”

SolarCity’s stock has plunged about 63% over the past year as the solar industry battles increasing headwinds. Analyst Robert McCullough of McCullough Research said solar has become so cheap that it’s becoming difficult to make money.

“These guys are victims of their own success,” he told the Los Angeles Times.

Under the proposed offer, Tesla would acquire outstanding shares of SolarCity in exchange for Tesla common shares at a value of $26.50 to $28.50 per share, a 21% to 30% premium over SolarCity’s Tuesday closing price.

In trading Wednesday, SolarCity shares were up 3.1% at $21.85 while Tesla fell 10.6% to $196.36.

“Both companies are driven by a mission of sustainability, innovation, and overcoming any challenges that stand in the way of progress,” Tesla said in its blog post.