The shares of a Tesla Motors today fell more than ten and a half percent. Well, is there any specific news from the company that would cause such a decline? Not necessarily, although Wall Street is questioning whether Elon Musk's plan to combine Tesla Motors with Solar City will actually go through or even as good for the companies. Here to tell us more is Salim Morsey, Advanced Transport analyst for Bloomberg New Energy Finance. Salium, thanks very much for
being with us, Thanks for having me. Is there any technical reason, any strategic reason why combining a solar power company with an automobile manufacturer that admittedly is building out that giga factory for batteries, But is there a technical reason why they are a fit? A technical reason, not
so much. I think this has been a quite a loadly day for Elon Musk uh since announcing UH this UH this proposed acquisition the the this this falls into a narrative of a unified vision that Musk has that far exceeds I think the the time horizons that investors have. This has to do with the fact that he wants to integrate this his his vision of having clean energy
powering vehicles that are zero tail pipe emissions. But in the short term, I think investors are having a very hard time understanding the ins and outs of this proposed deal. Why is it because we don't understand Investors unless they're very specialized, don't understand the the industry, the technology. I think that's part of it. That there was a very famous question in the last earnings called solar City that
simply asked them what is solar city? Leaving leaving that aside, though, Tesla is facing existential milestones it has to meet in the next two years. It's valuation depends on it. The equity rates that it uh did in the market about a month ago also depends on it, and those are very simple and straightforward in many ways. Though it's ramping up the production of Model three half a million cars a year, they say, by as well as building the largest battery factory in the world. That takes a lot
of capital and a lot of focus. And it's not clear at all that acquiring a solar company helps execute those goals. And this would also be a family business, wouldn't it exactly? So it's his two first cousins are the the run Solar City they came up with this idea when they were going to burning Man, so says the kind of urban folklore about about how the company was started. So yes, Elon Musko's about both of Tessa and Solar City, and his first cousins run the solar company.
He's recused himself as a shareholder and voting for this, uh this deal. But certainly I think there's going to be some corporate governance issues going forward. Well, um, you yourself have said that in terms of a Solar City acquisition, it doesn't help him. Elon must that is, execute critical milestones like keeping its focus on completing its Giga factory quickly ramping up production and model of the Model three.
And yeah, I mean that that's exactly right. I think that that, you know, the Tessa and and the valuation of the company has been giving a lot of leeway in the last few years because folks have been willing
to follow Elon Musk and his vision. I think today the company hit a critical kind of fork in the road where love investors said, Okay, hold on, you're loading up Tesla now with over three billion dollars of debt from Solar City for an enterprise value of solar City that is just under six billion dollars and it's a you know, a company that has had deteriorating financials, specifically their balance sheet. And again it is really not clear
how these quote unquote synergies fit into each other. And if you listen to a conference call that Musk had this morning to kind of justify this deal, the narrative was really around this unified vision of long term goals. But sadly for him, I think in the short term, investors are interested in return on investments and that didn't
particularly impress anyone in the market today. Well, as you said, taking a look at the share price for example of solar City, Uh, the offered range of the deal is between twenty six and a half and twenty eight and a half bucks of share. The stock traded higher today, but it closed, So that kind of tells you what
investors think. Yeah, exactly, So I mean that, you know, I think the share price has been sliding for for more than a year now on you know, essentially the fact that people like Jim Chaino is a famous short of solar City, is calling it a consumer finance company and it's frankly a commoditizing business, and commodities you know, usually don't generate great margins. They're usually low margin business.
Is one of the pitches that we heard Elon musk Uh present today was the fact that one of the differentiating factors of having solar panels sold in the showrooms of Tessa would help kind of consumers make better choices and perhaps differentiate the product. But again, this is perhaps not the right time to be thinking about, you know, introducing a new vertical to the test of business, where when they have such critical execution milestones to reach right now.
And I guess no matter who accuses from a deal, uh, the you know, in the pit of their stomach, investors may still be wondering if the fact that he's related to, you know, the Solar City guys is some some influence on him. And I guess even uh more broadly, Tesla and Elon must have been just such darlings. Doesn't matter what he does, right, everybody loves him in his stock
moves higher. Maybe people are just you know, maybe this is just he's he's stepping outside of his uh the batter's box just too much, and so some of that shine just it isn't enough to keep people saying, you go Elon, certainly, I think that's a great point. I think that's you know, that's pretty much what happened. I mean, they're very must be a very smart company, surrounds himself with very smart people. I have no doubt that in his when they were thinking about announcing this, it was
likely that this, uh, this reaction was was was anticipated. So, I mean, from their perspective, perhaps they anticipated this and they think that fundamentally this is the right move for the company. I mean, we should give them credit that. No, there is from our perspective at Bloomberg new energy finance
growth opportunities. For sure. In the residential PV industry in the US, about thirty thou US households are adding solar to the roost a month, but that again may not be enough to sustain Tesla through the next two years. Slen Morrisey, thank you so very much for joining us. What excellent perspective on Tesla. Elon musk the two point eight billion dollar announcement, uh well, and announcement of a two point eight billion dollar acquisition to buy Solar City.
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