Tesla Buys Solarcity for $2.6 Billion, Wants to Sell You a Whole New Lifestyle

Steph Willems
by Steph Willems

To bastardize an old Dodge slogan, if you’re willing to devote your life to sustainable driving and ditch your electricity provider, you could be Tesla material.

The electric automaker announced a deal with solar company SolarCity today — an all-stock agreement worth $2.6 billion. Acquiring the nation’s largest rooftop solar provider gives Tesla CEO Elon Musk the top-to-bottom green company he always wanted, but it opens the company up to new risks.

In a blog post on its website, Tesla stated, “As one company, Tesla (storage) and SolarCity (solar) can create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.”

Yes, Tesla promises to give you that off-the-grid lifestyle you’ve secretly longed for, or at least a closer-to-being-off-the-grid existence. Model X SUVs are great for carrying around Powerwalls, by the way.

The deal values the solar company’s stock at $25.37 per share, and its shareholders will receive 0.11 Tesla shares for every SolarCity share. Independent members of each company’s board approved the deal, after certain members recused themselves from the decision. That obviously included Musk, who founded both companies, serves as SolarCity’s chairman, and owns 20 percent of each company’s shares.

The deal still needs shareholder approval, and SolarCity is allowed to solicit offers from other buyers until September 14.

When Tesla announced its plans to acquire the solar company, backlash was swift and harsh. Some accused the automaker of propping up a company to avoid financial ruin. Others claimed that taking on a new venture of this size could endanger Tesla’s car building efforts, especially as it ramps up production in advance of the Model 3.

Bloomberg notes that the deal rings in at $300 million less than initially planned, thanks to investor criticism. In an unfortunate display of timing, SolarCity downgraded its installation forecast by one-tenth today, adding more fuel to the rumors. The company expanded rapidly during the past several years, but its growth is now on the wane.

In its blog post, the automaker said the deal would help both companies realize savings:

We expect to achieve cost synergies of $150 million in the first full year after closing. We also expect to save customers money by lowering hardware costs, reducing installation costs, improving our manufacturing efficiency and reducing our customer acquisition costs. We will also be able to leverage Tesla’s 190-store retail network and international presence to extend our combined reach.

Tesla expects the deal to be completed in the fourth quarter of this year.

Steph Willems
Steph Willems

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  • Art Vandelay Art Vandelay on Aug 02, 2016

    The problem with pushing solar panels to the Tesla Clientele is that they are fairly likely to live in neighborhoods with HOA's that prohibit the installation of them on the roof. I'm not endorsing that at all as I'd like to install them one day because Augusta, GA. The one benefit to this from my perspective is that maybe Tesla is a big enough entity to overpower the lobbiest at Georgia Power and have the non solar friendly states move that way.

  • Mchan1 Mchan1 on Aug 02, 2016

    "We expect to achieve "cost synergies"...." Hate when companies use fancy words to sell itself which is a sign that it doesn't know WTF it's doing, considering that I'm in the financial/accounting world! One unprofitable business buying out a similar one?? Good grief. Only the EV lovers would rationalize this and love it. Better for people to just install solar panels onto their house's roof than believe in EV batteries which has a shorter life span and limited use. Would've been better if the company did NOT receive ANY federal/state tax subsidies or buyer's tax incentives which come from other taxpayers' tax dollars! ^ THAT is the reason why Tesla is most hated... using taxpayers' dollars. The worst is when Tesla and EV lovers b$tch about others when they use Other Peoples' money instead of their own!

    • VoGo VoGo on Aug 02, 2016

      I do M&A for a living, so I'll share this perspective: "synergies" are a part of every deal. Cost synergies (i.e., reductions in cost from eliminating redundant activities) and Revenue synergies (selling more by leveraging each others products or sales force) are what drive M&A. So that part is 100% normal. Your observation that combining two money-losing companies is not a recipe for success is creditable and a perspective that TSLA will need to overcome.

  • Zipper69 "At least Lincoln finally learned to do a better job of not appearing to have raided the Ford parts bin"But they differentiate by being bland and unadventurous and lacking a clear brand image.
  • Zipper69 "The worry is that vehicles could collect and share Americans' data with the Chinese government"Presumably, via your cellphone connection? Does the average Joe in the gig economy really have "data" that will change the balance of power?
  • Zipper69 Honda seem to have a comprehensive range of sedans that sell well.
  • Oberkanone How long do I have to stay in this job before I get a golden parachute?I'd lower the price of the V-Series models. Improve the quality of interiors across the entire line. I'd add a sedan larger then CT5. I'd require a financial review of Celestiq. If it's not a profit center it's gone. Styling updates in the vision of the XLR to existing models. 2+2 sports coupe woutd be added. Performance in the class of AMG GT and Porsche 911 at a price just under $100k. EV models would NOT be subsidized by ICE revenue.
  • NJRide Let Cadillac be Cadillac, but in the context of 2024. As a new XT5 owner (the Emerald Green got me to buy an old design) I would have happy preferred a Lyriq hybrid. Some who really like the Lyriq's package but don't want an EV will buy another model. Most will go elsewhere. I love the V6 and good but easy to use infotainment. But I know my next car will probably be more electrified w more tech.I don't think anyone is confusing my car for a Blazer but i agree the XT6 is too derivative. Frankly the Enclave looks more prestigious. The Escalade still has got it, though I would love to see the ESV make a comeback. I still think GM missed the boat by not making a Colorado based mini-Blazer and Escalade. I don't get the 2 sedans. I feel a slightly larger and more distinctly Cadillac sedan would sell better. They also need to advertise beyond the Lyriq. I don't feel other luxury players are exactly hitting it out of the park right now so a strengthened Cadillac could regain share.
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