Although they currently operate as two distinct firms, there is significant overlap between Elon Musk’s two environmentally-focused companies. Tesla Motors, Inc. (NASDAQ:TSLA) is heavily invested in a new line of batteries that could be adapted for rooftop solar panels. Who makes solar panels? Oh yeah, SolarCity Corporation (NASDAQ:SCTY).
Most investors are probably familiar with Elon Musk. But just in case, let me catch you up. He’s the world’s most admired entrepreneur with an impressive stack of successes under his belt: PayPal, SpaceEx, Tesla, SolarCity, and a lesser known firm named Zip2 are all his creations.
Musk is commonly referred to as “the real Tony Stark,” a reference to the billionaire playboy whose alter ego, Iron Man, saves humanity from endless peril. It’s a fitting analogy. The director of Marvel’s blockbuster film even consulted Elon Musk to get a better sense of what Tony Stark’s life would look like!
Musk has a constant urge to better the world. But his true gift is channelling that altruism into phenomenal companies. Two of his latest creations are a match made in heaven despite operating in different industries.
TSLA makes cars and SCTY builds solar panels. No matter; their mission is the same. Both firms want to change how the world uses energy.
Where Tesla and SolarCity Meet
A few months ago, Tesla unveiled the Powerwall, an energy storage device for customers of all stripes. Residential customers can buy the battery in two versions: 7kWh and 10kWh. There are commercial versions, known as Powerpacks, which can be scaled to meet virtually any project’s demands. (Source: Bloomberg, May 1, 2015.)
The Powerwall is designed with the same eye for elegance that all Tesla products share. It has a smooth, pearl white face and is easily hung on a garage wall. The company estimates future revenues from the battery to cross into the billions, reaping massive rewards for TSLA stockholders.
Another obvious beneficiary from the Powerwall is SolarCity. Imagine you are a homeowner with solar panels on your roof. You collect enough energy during the day to also power you through the night. But where do you store it? Existing storage devices are more costly and less efficient than Tesla’s Powerwall.
However, there are still some hiccups to resolve before SCTY can adopt the Tesla battery. Peak shaving is crucial technique in the industry that TSLA has not fully accommodated. (Source: Bloomberg, May 6, 2015.)
Users like to save up energy when it’s cheap to charge, then use the stored up energy when demand, and consequently rates, are high. Tesla’s batteries weren’t designed for that type of recharge cycle, but it’s only a matter of time before the company’s engineers resolve that issue.
TSLA and SCTY: The Next NASDAQ Merger?
Imagine—if you will—the perfect energy company. They would not only produce the energy, but own the distribution, storage, and devices associated with that energy.
Tesla owns the best electric cars, the best batteries, and they’ll soon have a full fledged network of charging stations across the United States.
SolarCity is rapidly scaling the production of solar panels. Prices for photovoltaic cells—the technology underlying the solar industry—are dropping incredibly fast, making them more affordable to the average American.
If these two firms were to merge somewhere down the road, their combined product range would let customers manage their own energy supply end-to-end. A Tesla-SolarCity merger would provide the panels for energy production, the battery for storage, the car for commuting, and the station for recharging.
There would be no stopping such a firm.