I've been sitting on this one for about a week now because I wanted to see if my gut reaction would cool off, and it hasn't. Last Tuesday, June 21st, Tesla put out an offer to buy SolarCity in an all-stock deal, somewhere in the $2.6 billion range depending on which number you're reading, with Tesla offering something like $26.50 to $28.50 a share. On paper that's a real premium over where SolarCity was trading. In practice it reads like a rescue mission dressed up as a merger.
Here's the thing that keeps bugging me: Elon Musk is CEO of Tesla. He's also chairman of SolarCity and its largest shareholder, owning something like a fifth of the company. The guys actually running SolarCity day to day, Lyndon and Peter Rive, are his cousins. So the pitch is "one energy company, one roof, one battery, one car," which sounds nice at a keynote, but the timing is what gets me. SolarCity has been burning cash for a while and its stock had dropped a lot this year already. Buying it right now, with Tesla stock, from a position where the same guy is running the acquirer and chairing the target, is exactly the kind of thing that makes minority shareholders nervous.
Tesla's own stock dropped something like 10% in the days after the announcement, which tells you the market wasn't exactly cheering either. Tesla did set up a special committee of independent board members to evaluate the deal, which is the standard move when you're trying to show you're not just rubber stamping a favor for the boss's family, but a committee doesn't erase the optics.
I want to be clear I'm not anti-Musk here, I own zero Tesla stock and I'm not going to pretend I have some vendetta. I actually like a lot of what the company does, the Model 3 reveal back in March got me more excited about a car than I've been in years, and I think the Gigafactory bet is the kind of ambitious, slightly insane thing more companies should attempt instead of just optimizing quarterly numbers forever. But "combine the car company with the debt-loaded solar company that shares board members and a family tree" is a different category of bet than "build a factory to make batteries cheaper." One is vision. The other smells like moving a problem from one balance sheet to another.
There's also a practical angle that doesn't get talked about enough: solar installation and EV manufacturing are genuinely different businesses with different sales cycles, different install logistics, different customer bases. The idea that a Tesla showroom employee is going to upsell you a roof while you're looking at a Model S is a nice slide in a deck. Whether it survives contact with an actual sales floor is another question entirely. I've had a rep at my local Tesla store try to explain the Powerwall to me for twenty minutes once and I still don't fully understand the pricing, so forgive me if I'm skeptical about them bolting on a whole roofing division.
None of this means the deal won't go through, there's a shareholder vote coming and Musk has already said he'd recuse himself from voting his own Tesla shares on it, which is at least the right gesture. But I'll be paying more attention to what SolarCity's actual debt load looks like once someone forces the numbers into daylight than to any keynote language about a "complete energy ecosystem." I've seen enough of those slides by now to know they mean whatever the presenter needs them to mean that week.
Also, completely unrelated, but if anyone else has been trying to watch the Euro 2016 highlights on a phone over a hotel wifi connection this week, my condolences. England lost to Iceland today and the group chat has not recovered. Back to actual tech stuff next post.