TSLA Stock: Is the SolarCity Deal Good for Tesla Motors Inc?

TSLA StockSolarCity Approves Deal; TSLA Stock Stays Flat

When Tesla Motors Inc (NASDAQ:TSLA) first sent an offer letter to buy SolarCity Corp (NASDAQ:SCTY), TSLA stock took a massive hit. Investors weren’t happy, to say the least.

Investors thought Elon Musk was trying to save SolarCity from a sliding share price. Musk is, after all, a founder of and major investor in both companies. He stands to lose a lot of money if SolarCity goes under, meaning his incentives aren’t identical to those of an average TSLA stockholder. Naturally, that makes investors a little wary.

So, investors started to think this merger looked more like a bailout than a strategic takeover—but that was only at first glance.

Since then, TSLA stock has rebounded, SolarCity’s board of directors has approved the deal, and Elon Musk released a “Master Plan” for Tesla. (Source: “Master Plan, Part Deux,” Tesla Motors Inc, July 20, 2016.)

Strangely enough, none of those things sent TSLA stock into a downward spiral. The share price has kept fairly even at $234.30, which is odd considering the initial reaction to the deal. Why isn’t TSLA stock plummeting like when the deal was first announced?

Let’s take a closer look…

TSLA Stock Outlook for 2016

At first blush, the markets hated the Tesla-SolarCity merger, but that’s only because it didn’t understand it. The markets viewed the move as a public relations stunt, as damage control.

But then Elon Musk released his “Master Plan, Part Deux” for Tesla. In just one blog post, he explained his vision of where the company is headed. It managed to inject a sense of calm and resilience into TSLA stock, which is why Tesla’s share price is level this week.

In the post, Musk talked about Tesla’s continually expanding product lineup and what the company intends to build after the “Model 3” production is sufficiently scaled. Most people would have guessed that he’d pursue an even more affordable electric car. Well, those people would be wrong.

Here are a few highlights from the second part of Musk’s Tesla “Master Plan”:

  1. An electric pick-up truck and compact SUV
  2. An electric, self-driving semi-truck for cargo transportation: this vehicle would be sold to shipping companies rather than to individuals, meaning that Tesla could sell these in bulk
  3. An electric, self-driving, high-passenger density urban transport vehicle: basically, it’s Elon Musk’s way of saying he’s building a Tesla bus
  4. Fully automating Tesla’s factories with cutting-edge technology, then offering that expertise as a service: to put it simply, Tesla will sell hi-tech factories as a product to other companies, which should be a cash cow for TSLA stock
  5. Use solar energy to power all these devices

Critics can say that Elon Musk put this last bit in because he’s already trying to buy out SolarCity, but that’s just not true. If you look back at his previous “Master Plan”—part one, which he wrote in 2006—you can see that he’s always believed Tesla and SolarCity are twins.

“A common rebuttal to electric vehicles as a solution to carbon emissions is that they simply transfer the CO2 emissions to the power plant,” he said. That’s why “we will be offering a modestly sized and priced solar panel from SolarCity, a photovoltaics company (where I am also the principal financier).” (Source: “The Secret Tesla Motors Master Plan (just between you and me),” Tesla Motors Inc, August 2, 2006.)

This quote is why the markets are no longer running from TSLA stock. For one thing, they realize that the SolarCity deal is not a spur-of-the-moment acquisition. Rather, it is a carefully calculated move to turn TSLA stock into a full-scale energy play.

The Bottom Line on TSLA Stock

With SolarCity under its belt, Tesla is selling a way of collecting energy, storing it, and then using it to power your car. It’s an end-to-end energy system that Elon Musk has envisioned for more than 10 years.

To be sure, investors are also excited to hear that Tesla will be selling trucks and buses, but it’s notable that they aren’t panicking about the SolarCity deal anymore. It means investors have unshackled TSLA stock from their pessimism, leaving it free to touch new heights.