Tesla Completes Deal For SolarCity
Tesla Motors’ (NASDAQ:TSLA) deal to acquire SolarCity Corp. (NASDAQ:SCTY) closed Monday. The all-stock deal valued SolarCity at $2 billion based on Tesla’s closing stock price Friday. When Tesla and SolarCity announced the agreement in August, it was worth $2.6 billion. However, both of their share prices have dropped since then.
Tesla CEO Elon Musk is also chairman of SolarCity and owns 22 percent of the company. The solar energy company was founded by his cousins Lyndon and Peter Rive. The acquisition was first proposed earlier this year. Since then, Musk has been vocally and frequently advocating for the union of the two companies. While deal garnered widespread criticism from business ethics and corporate governance experts, shareholders of both companies approved the deal last week
The companies’ first joint product will be solar roof tiles that look like traditional tiles and transform light into power for your home and your electric car. The rooftop tiles were unveiled just a few weeks ago. The new tiles are made of textured glass and resemble high-end roofing products. The new roof tiles will be engineered in Tesla’s new automotive and solar glass division and be sold through Tesla’s stores.
In his first big announcement as head of the new enterprise, Musk said that the roof tiles will cost less to manufacture and install than a traditional roof. While traditional roofing materials are heavy and bulky, leading to high shipping costs, the new tiles weigh about a fifth of current products, making them easier and less costly to ship. Buyers will also benefit from savings on their power bills. Musk says that the new tiles should be ready for installation by next summer.
Musk believes that solar is the new frontier in sustainable energy. In June, Musk said, “To solve the sustainable energy question, we need sustainable energy production, which is going to come primarily in the form of solar.”
Some investors believe that the SolarCity deal just adds more risk to Tesla. SolarCity lost $758.7 million in the first nine months of 2016. Tesla has been losing money for a long time and its shares are set to have their first down year since its initial public offering in 2010. Tesla spent nearly $2.2 billion last year in costs to launch the mid-priced Model 3 sedan next year and open its $5 billion Gigafactory to make batteries.
There are high hopes that the Model 3 launch will turn around the company’s fortunes. The company now has roughly 400,000 Model 3 reservations paid for, compared with the 17,350 cars and trucks it has sold in the United States this year. However, there is skepticism that the company will be able to get the Model 3 to market at full scale before 2018, as Tesla has a checkered track record of delivering on short-term promises.