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

Steph Willems
by Steph Willems
tesla buys solarcity for 2 6 billion wants to sell you a whole new lifestyle

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.

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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.

  • Bobbysirhan The Pulitzer Center that collaborated with PBS in 'reporting' this story is behind the 1619 Project.
  • Bobbysirhan Engines are important.
  • Hunter Ah California. They've been praying for water for years, and now that it's here they don't know what to do with it.
  • FreedMike I think this illustrates a bit of Truth About PHEVs: it's hard to see where they "fit." On paper, they make sense because they're the "best of both worlds." Yes, if you commute 20-30 miles a day, you can generally make it on electric power only, and yes, if you're on a 500-mile road trip, you don't have to worry about range. But what percentage of buyers has a 20-mile commute, or takes 500-mile road trips? Meanwhile, PHEVs are more expensive than hybrids, and generally don't offer the performance of a BEV (though the RAV4 PHEV is a first class sleeper). Seems this propulsion type "works" for a fairly narrow slice of buyers, which explains why PHEV sales haven't been all that great. Speaking for my own situation only, assuming I had a place to plug in every night, and wanted something that ran on as little gas as possible, I'd just "go electric" - I'm a speed nut, and when it comes to going fast, EVs are awfully hard to beat. If I was into hypermiling, I'd just go with a hybrid. Of course, your situation might vary, and if a PHEV fits it, then by all means, buy one. But the market failure of PHEVs tells me they don't really fit a lot of buyers' situations. Perhaps that will change as charging infrastructure gets built out, but I just don't see a lot of growth in PHEVs.
  • Kwik_Shift Thank you for this. I always wanted get involved with racing, but nothing happening locally.