Which Side Are You On?
Recent news has surfaced that Tesla Motors will acquire SolarCity which is a solar energy service company. This acquisition has some up at arms wondering not only why Elon Musk, CEO of Tesla Motors and chairman of SolarCity, is allowed to perform this acquisition, but what financial sense it can make. In order to discuss this properly we need to look at both sides of this particular coin and see which one comes to the top as the right way for this to be handled. Let’s take a look at what’s going on here.
How is this acquisition a bad idea?
Currently Tesla faces four lawsuits regarding this buyout. These four lawsuits come from the City of Riviera Beach Pension Fund, the Arkansas Teacher Retirement System, and two individual shareholders, P. Evan Stephens and Ellen Prasinos. These four parties are concerned about the closeness of Musk to both companies and feel he doesn’t’ have an objective approach to the situation to make this buyout a smart move on his part. To them this appears to be more of a bailout for SolarCity using a company that has more revenue to cover the financial woes of the solar energy company.
Currently shares of Tesla are down ten percent since the announcement of this buyout. The cost to buyout SolarCity will be $2.6 billion to Tesla. The companies together have a full $5.2 billion in debt which means Tesla would have to raise money by the end of the year. Not only is this debt a problem, but Tesla already shows a net loss of $575.5 million on the $2.42 billion in revenue they’ve had through June of this year. SolarCity actually looks worse with a net loss of $533.4 million and revenue of only $308.4 million, making this company one that’s upside down financially right now.
What makes this acquisition a great idea?
Tesla is looking for a way to provide renewable energy and power to its new Gigafactory and to create home charging systems for Tesla models that can be powered by the sun. Imagine having a solar powered charging station at your home for your vehicle, you wouldn’t be paying for the energy to charge your vehicle as it would be renewable solar power that would power your ride. This could be a huge cost savings for those who own a Tesla vehicle in the future and could be packaged with the Tesla vehicle as an additional cost.
As for the Gigafactory, Tesla has been looking for ways to make this a massive emissions free plant once they begin to build it. As a company that’s working to be more environmentally friendly, using the solar energy that’s already present and going to waste as a way of powering the factory seems to make perfect sense.
Which side of the fence are you on with this argument? Should Tesla be allowed to acquire SolarCity and begin a partnership that will give us solar chargers and power their factory or should this be denied because of the financial concerns and lack of objectivity of Elon Musk.