The finance and technology markets have been buzzing over the last 24 hours after Elon Musk announced Tesla Motors offered to purchase solar-panel installation company SolarCity in a stock deal for approximately $2.8 billion. While the deal would be a boon for the ailing SolarCity, Tesla shareholders are not happy, noting the deal is fraught with financial risk and is a huge conflict of interest for the largest stockholder of both companies – Elon Musk himself.
After the announcement yesterday, rumors and speculation that the acquisition was really a bailout of SolarCity, which is run by Musk's cousins, led stocks prices of Tesla to plummet. In order to ease investors' fears and hopefully stop Tesla's stock price from hemorrhaging further, Musk held a conference call on the deal early this morning before the stock markets opened for trading. During the conference call, Musk defended the deal, noting the combination of electric car company Tesla and solar panel firm SolarCity "is common sense," a "no brainer," and is "quite obviously the right move" for both companies. Shareholders were not impressed with his reasoning however, as the stock price for the electric car company continued to remain down after the conference call.
Why does Musk want to buy out the troubled solar panel company using Tesla stock? According to Musk, a combined Tesla-SolarCity would result in a clean energy one-stop-shopping empire, with the company selling everything from the electric car and car charger to the home battery and solar panel system. The combined company would also result in operational synergies and reduced costs.
Shareholders and market analysts aren't so sure, however, noting that both companies have struggled financially over the past few years. According to Reuters, SolarCity regularly posts quarterly losses, maintains AC massive amount of debt, and the stock price has fallen almost 60% this year alone. Tesla shares have declined, as well, and the company is struggling to keep up with demand for its new "affordable" Model 3 electric vehicle priced at $35,000, which it will begin to deliver in 2017. Overall, Tesla shareholders agree that Tesla should continue to focus on Tesla – not trying to save SolarCity with an undoubted eventual cash infusion.
Shareholders are also concerned about the giant conflict of interest concerning Musk's ownership of each company. Musk and his cousins Lyndon and Peter Rive started SolarCity a few years after Musk founded Tesla, with Musk providing financial backing in exchange for a majority shareholder position. In addition to being the chief executive officer of Tesla, Musk is also the chairman of SolarCity. In order to placate investor worries, Musk noted he would not vote on the acquisition and neither he nor his cousins (who hold the titles of chief executive officer and chief technology officer of SolarCity) would participate in top-level management discussions regarding the acquisition, according to MarketWatch.
While Musk is completely confident about the deal, noting in the conference call "this [deal] is what the world needs … this is earth's solution," analysts and shareholders remain skeptical. According to MarketWatch, many market analysts believe Tesla would not benefit from the deal, and that there is an extremely slim chance shareholders will approve the acquisition at all.