Tesla Motors Offers to Buy SolarCity

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Written by Guest | Last Updated November 1st, 2019
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In a letter dated June 20, 2016, Tesla Motors made a direct offer to SolarCity to acquire all outstanding shares of the solar provider's common stock in exchange for Tesla common shares. This announcement comes in the wake of SolarCity's financial troubles, consistently netting negative profit margins throughout the 2015 fiscal year.

What This Means for Shareholders

The estimated value of this deal falls somewhere between 2.5 and 3 billion dollars, which seems like a hefty price to revive the struggling solar provider. After this announcement was made, Tesla's stock value immediately dropped 13 percent while SolarCity's share price shot up 20 percent. Some believe this stock fluctuation is in response to Tesla CEO Elon Musk's attempt to rescue his 22.2 percent ownership of SolarCity by acquiring it through Tesla.

However, Musk does not see things that way. If anything, he feels uniting the two companies will produce a synergy that will outpace what either company could do individually.

What Each Company Brings to the Table

According to a statement released on Tesla's blog the day following the proposal letter, merging the two companies will help further their shared goal of a future powered by sustainable energy. Simply put, Tesla manufactures electric cars; SolarCity installs solar panels that produce electricity. Combining the two entities would make Tesla "the world's only vertically integrated energy company," helping reduce customer reliance on fossil fuels and the grid from start to finish.

And the possibilities continue. Combining Tesla's aptitude for design and manufacturing will help to streamline the look and function of its customers' solar panels. Meanwhile, SolarCity's vast network of distributors and salespeople would allow Tesla to enter new markets otherwise unreachable for an electric car company. SolarCity technicians would also be able to adapt their expert installation skills to Tesla products, such as the Powerwall, a massive solar-panel-charged home battery.

Moving Forward

While the acquisition of SolarCity by Tesla Motors may not make the most financial sense to short-term investors at this time, Tesla maintains that this deal will yield long-term benefits. Hashing out the details and finalizing the deal may not run as smoothly as anticipated, Musk is optimistic. For instance, he does not anticipate this merger to delay the release of the Model 3, Tesla's newest electric car. Yes, this is a risky, 3 billion-dollar move, but it is not altogether uncharacteristic of an entrepreneur who has built his career on bold moves that usually pay off. Only time will tell if this merger is one of them.

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