Elon Musk Adds New Wing to TSLA Stock
At almost every turn in its history, Tesla Motors Inc (NASDAQ:TSLA) has faced criticism from people who want to see it fail. These people don’t like Tesla stock (TSLA), nor do they have any warm and fuzzy feelings for Elon Musk.
So it’s no surprise they hate the SolarCity Corp (NASDAQ:SCTY) acquisition.
Buying SolarCity Corp is something Elon Musk planned for a long time. He hinted at it as early as 2006, but analysts weren’t paying attention. They saw Tesla as a company that made cars. Exceptional and beautiful cars, yes, but nothing more.
This view of TSLA stock, and of Elon Musk, is absurdly narrow. Squeezing them into a box may make it easier to label them, but the real world doesn’t partition so easily. For instance, we call Amazon.com, Inc. (NASDAQ:AMZN) an “e-commerce company,” but is that all it does?
I mean, yes, technically Amazon sells products online and ships them to buyers. But it also provides cloud-based IT services, video streaming, and data centers. Amazon has its fingers in a hundred different businesses, making it tough to categorize. We may call Amazon an “e-commerce company” for the sake of convenience, but the Seattle-based giant has a lot of things cooking.
Elon Musk has an equally ambitious hopes for TSLA stock. He thinks it could be an end-to-end energy company with other businesses on the side.
Just look at the “Tesla Master Plan,” which he wrote in 2006. There is literally an entire passage about SolarCity, and it makes it very clear that the two businesses are intertwined. Here’s a screenshot from the letter:
(Source: “The Secret Tesla Motors Master Plan (just between you and me),” Tesla Motors Inc, August 2, 2006.)
This was 10 years ago. Plenty of people were skeptical about the idea at the time. “You want to put solar panels on my roof to power an electric car? Sure, why don’t we also hitch it up to a unicorn and fly to Neverland?” That was the general attitude, if they had even heard about it.
TSLA stock bears thought the idea of a successful electric company was nuts. But they were wrong. In less than a decade, solar energy and electric cars have become mainstream ideas.
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Even stalwarts like Toyota Motors Corp (ADR) (NYSE:TM) and General Motors Company (NYSE:GM) are devoting huge resources to electric car production. Meanwhile, the solar industry employs more people in the United States than the coal industry. These are fundamental changes in American society.
But now it’s time for the next leap forward. Competition is heating up in both solar and electric cars, which is probably why Elon Musk decided to bring SolarCity under the Tesla stock banner.
Musk believes the path to energy independence should be easy and cost-effective. So, rather than having customers visit two separate companies, with two separate overheads, Tesla should consolidate and streamline their cost base.
For instance, SolarCity used to spend a fortune acquiring customers. Tesla can eliminate a lot of that waste by selling through its own car dealerships. It can also combine the sale with a “Powerwall,” the battery it designed to store excess solar energy, and have just one installation.
These issues sound boring, but this is what trimming the fat looks like. When two companies have a genuine overlap in either their customers or their process, they can shed a lot of extra weight by merging. Since Elon Musk owns both companies, he knows exactly where those overlaps are.
“Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together,” Musk wrote this year in his second “Master Plan.”
“That they are separate at all, despite similar origins and pursuit of the same overarching goal of sustainable energy, is largely an accident of history.” (Source: “Master Plan, Part Deux,” Tesla Motors Inc, July 20, 2016.)
The second “Master Plan” was released this past summer. It is just as ambitious (if not more) than the first one that Musk wrote a decade ago, but TSLA stock bears haven’t learned from their mistakes. They underestimated him then, and they were wrong.
Now they fail to see his vision for Tesla and SolarCity as a single unit. My guess is that they’ll be wrong again, but only time and the value of Tesla stock will tell.
Editor’s Note: Hi, Gaurav S. Iyer here. If you enjoyed this article, you can get more of my opinions and commentaries in our popular daily tech letter, Profit Confidential. Published daily, it’s FREE! Join us when you click here now.