Tesla moves to acquire SolarCity, but investors balk

Tesla and Solar City are already closely linked, as Tesla CEO Elon Musk is also Chairman of SolarCity. Analysts have questioned Tesla’s reasoning in acquiring SolarCity, a company which like Tesla is losing money and has substantial debts.

Francois Mori/AP/File
Tesla Motors Inc. CEO Elon Musk delivers a conference at the Paris Pantheon Sorbonne University as part of the United Nations Climate Change Conference in Paris. Electric car maker Tesla Motors is offering to buy solar panel maker SolarCity for up to $2.8 billion in an attempt to create a one-stop shop for cleaner energy as consumers become more concerned about fossil fuels hurting the environment. The all-stock announced Tuesday, June 21, 2016, values SolarCity Corp. at $26.50 to $28.50 per share, depending on a review of the company's books.

Tesla Motors [NSDQ:TSLA] on Tuesday made the surprise announcement  it is seeking to acquire solar panel installation firm SolarCity via a share swap deal.

The two companies are already closely linked with Tesla CEO and Chairman Elon Musk also Chairman of SolarCity. Musk is also SolarCity’s biggest investor and a cousin of SolarCity CEO and co-founder Lyndon Rive.

At the current market price, Tesla’s offer values SolarCity shares at between $26.50 and $28.50, which represents a 21-30 percent premium. Tesla shareholders still need to approve the deal and because of his links with SolarCity Musk won’t take part in the vote.

Analysts have questioned Tesla’s reasoning in acquiring SolarCity, a company which like Tesla is losing money and has substantial debts. And in after-hours trading Tesla’s share price dropped as much as 10 percent, slipping below $200 for the first time since March.

Speaking to investors, Musk said the move was a “no brainer” as Tesla could then provide direct to its customers not only an electric car but also the solar panels to generate the electricity the car runs on and a home energy storage system to keep any excess electricity.

Tesla in May 2015 revealed its home energy storage system, dubbed a Powerwall, which eventually will use batteries sourced from the company’s own “Gigafactory” under construction in Nevada.

In its statement about the acquisition of SolarCity, Tesla said the deal, if approved, would make it the “world’s only vertically integrated energy company offering end-to-end clean energy products to our customers.”

It’s this statement that highlights the potential for Tesla to disrupt the energy industry, which is right up there with food and health when it comes to the world’s biggest. In Musk’s view, the energy would be free but Tesla would be providing the panels to capture it, the batteries to store it, and the products to utilize it.

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