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301 Moved Permanently

301 Moved Permanently


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To the bewilderment of many, Tesla, maker of some gorgeous, high-end electric vehicles (EVs), proposed in June to acquire SolarCity, a major rooftop solar player, in an all-stock swap agreement valued at up to $2.8 billion.

The idea - a car manufacturer acquiring a solar company - might sound weird, but it seems to make perfect sense to at least one person: Elon Musk. The billionaire entrepreneur is CEO of Tesla and serves as chairman of SolarCity. He is also the largest shareholder of both firms, so as several articles have already pointed out, an Elon Musk company is essentially trying to buy an Elon Musk company.

Honestly, this deal scares me. It reminds me a bit too much of SunEdison, a large company that bit off more than it could chew and, as a result, ended up in bankruptcy. I’m not saying that would happen to Tesla, and I certainly respect Musk, but there are a few eerie similarities between what led to SunEdison’s fall and this Tesla/SolarCity plan.

For one thing, SunEdison and its yieldcos had conflicts of interest and governance issues because of overlapping leadership. In addition to having the same majority shareholder, Tesla and SolarCity have a family connection - Musk is the cousin of SolarCity co-founders and executives Lyndon Rive and Peter Rive - and the two companies also share some of the same board members. Although Musk, Lyndon Rive and others have recused themselves from the decision-making process as the companies review the acquisition, one still has to wonder if the two parties will make a strictly unbiased choice that’s in the best interest of stockholders.

Also, Musk has called the acquisition a “no brainer,” but is it really? If not for the common denominator of the entrepreneur, himself, this combination wouldn’t quite add up.

SunEdison’s bankruptcy was due to a lot of missteps, but what appeared to put the renewables company over the edge was its planned acquisition of Vivint Solar, namely because the stock market didn’t understand why a large-scale developer would get into the rooftop solar space - a totally different beast - and with such a big leap. The acquisition was an odd one, and SunEdison’s shares got severely punished for it.

Isn’t Tesla’s planned entrance into solar an even odder leap? If another car maker, such as Ford, randomly decided to buy Sunrun, people would be confused. As it turns out, Tesla shareholders were, indeed, wary when the EV company first announced the SolarCity deal; stocks dropped.

One selling point Musk has presented is that Tesla also offers energy storage products, which residential solar companies, like SolarCity, can integrate into a solar system. Musk has suggested that the acquisition would create a vertically integrated company that could serve virtually all of a homeowner’s clean energy needs, and I have to admit the narrative sounds kind of cool: A homeowner gets home after a long day and charges his or her EV using power kept in a storage solution, which was revamped with excess energy generated by rooftop solar panels, and lo and behold, each of those cleantech products was made and provided by a single company.

As Raj Prabhu, CEO and co-founder of Mercom Capital Group, recently told me, the acquisition does offer some potential benefits to both parties.

“There is a similar customer base; SolarCity brings the installation expertise; Tesla brings manufacturing capabilities; the company will be able to use Tesla’s stores to sell solar installations; and they will be able to leverage SolarCity’s finance lease/loan expertise,” he explained. Prabhu added they are, nonetheless, “very different businesses.”

Because the market is still reeling from the collapse of SunEdison, it’s a bad time to gamble. Yes, the solar industry is booming, but stakeholders need to proceed with caution, lest all of that momentum and success be lost. Then again, if enough public companies push forward and persevere, it might regain investor confidence in the overall solar market. That said, I wish Tesla and SolarCity the best of luck.

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