Tesla Offers To Buy SolarCity, And Now Its Shares Are Plunging

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IN BRIEF

Tesla has just made a bid to SolarCity, and the investors aren’t exactly thrilled, as stocks take a dive.


SYNERGY

While Tesla’s main focus is electric vehicles, it has not shied away from offering other renewable energy products like the Powerwall. With its focus on sustainable energy, Tesla is now looking to expand into solar energy by making an offer to acquire SolarCity.

Tesla made an all-stock deal worth as much as $2.8bn (£1.9bn).

 

The owner of both companies, Elon Musk, described the deal as a “no-brainer,” and that it comes at a time when both company’s products are increasingly aligned.

If such a deal were to push through, it would mean Tesla could offer an all-in-one home renewable energy set-up. Solar power production courtesy of SolarCity, energy storage for the home in the Powerwall, and solar powered electric cars from Tesla.

BENEFITS

Aside from becoming the world’s only vertically integrated energy company offering end-to-end clean energy products, the merger offers a myriad of  benefits. One is installation, being able to offer one installation process for all related products instead of three separate ones.

“It improves the efficiency of the setup,” Musk said to CNBC, focusing on lowering both cost of sales and cost of implementation.”Instead of having, say, three different trips to a house to put in a car charger and solar power and a battery pack, you can actually integrate that into a single business.”

Such a merger could also help the companies complement each other. Tesla’s experience in design, engineering, and manufacturing should help continue to advance solar panel technology for the home. Similarly, SolarCity’s wide network of sales and distribution channels and expertise in offering customer-friendly financing would significantly benefit Tesla and its customers.

The news of the possible merger has already affected the stock market, with SolarCity trading up after a few weeks of lagging behind. However, this has driven Tesla shares down. Their shares dropping by as much as 10 percent, taking more than $3 billion off its market value (currently estimated to be around $28.7 billion).

Stocks from the company, as some have pointed out, have yet to translate to profits for investors.
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