Tesla CEO Elon Musk announced on Wednesday that the leading automaker offered to buy SolarCity, where he is currently chairman of the board. In a recent conference call with investors, Musk justified the nearly $2.86 billion purchase. "When we’re selling someone the Powerwall very often, if not almost always, they are curious about solar," Musk stated. "So then not being able to sell them solar directly at Tesla stores is quite inefficient. As you look ahead to selling the Model 3, a $35,000 car, well that same person at the same moment we could sell them roughly an equivalent value of solar panels and a Powerwall, effectively doubling the sale at that time, and then putting it all in at the same time."
Musk believes that the purchase of SolarCity is blindingly obvious as the customer bases of both companies overlap. Buyers who want Tesla’s first mass-market electric vehicle Model 3 would probably want to equip their homes with solar panels to charge the car’s battery, thus making a totally green and sustainable feedback loop of self-righteousness. Customers roaming through the automaker’s showrooms will soon be able to scan the solar options while contemplating whether to get Autopilot installed in the Model 3.
Risks of Tesla’s Deal
According to some analysts, the acquisition is significantly dangerous for Tesla, as well as for Musk. The deal is a long-term investment with no real short-term payoff, and both Tesla and SolarCity will require a great amount of funding to stay operational until the agreement starts to show results.
Musk is the biggest owner of SolarCity’s solar bonds after his other company, SpaceX acquired $90 million of a total $105 million sold last March. SolarCity has over $6 million in liabilities, half of which is debt. A research firm, called it the worst positioned name in the residential solar industry. Musk has utilized both his personal money and Tesla shares to help secure this debt.
In a more optimistic note, other analysts noted that the deal was the best use of the automaker’s capital. "The rationale for this purchase, supposed to create an integrated clean energy company, seems somewhat tenuous to us."
It is significantly risky for Musk and Tesla to purchase SolarCity. Solar installations have climbed up in recent years – the company claims it now has 275,000 customers – but the company has missed its growth targets and its debt is one of the highest in the industry.
On the other hand, Tesla’s efforts might still pay off. "By attempting to produce a full suite of consumer products that produce, store, and consume energy," an analyst stated. "Tesla is demonstrating once again how ambitious its long-term strategy really is."
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