New Product Fails to Allay Fears Over Tesla Stock
Tesla Motors Inc (NASDAQ:TSLA) stock has been losing ground gradually, and is now below the $200.00 level.
The new solar roof product unveiled last week by Tesla CEO Elon Musk did not help to allay fears surrounding the future of Tesla and SolarCity Corp (NASDAQ:SCTY). This will continue to put pressure on TSLA stock.
On Tuesday, Musk released more details about how the merger with SolarCity will help Tesla. The main area of concern for investors is the high cash burn of both companies. But the electric carmaker says that the transaction is expected to add to Tesla’s cash balance; SolarCity is likely to add more than $500.0 million in cash to Tesla’s balance sheet over the next three years.
Moreover, the transition to loans and cash transactions—as opposed to leases—will significantly improve SolarCity’s generally accepted accounting principles (GAAP) revenue and profitability. (Source: “Tesla and SolarCity,” Tesla Motors Inc, November 1, 2016.)
The strategic rationale is that the acquisition of SolarCity will create the world’s only integrated sustainable energy company, from energy generation to storage, to transportation. The solar roof and “Powerwall 2” will transform energy generation and storage just as Tesla has transformed the transportation space.
Tesla stock has been falling since the company announced its new solar roof and Powerwall last Friday. The company did not provide details on the price and performance of the new roofing tiles, and there are concerns that the costs might be quite prohibitive. Investors are not convinced that the merger creates significant cross-selling opportunities, nor that customers would like to buy all three Tesla products.
The financial details might help persuade shareholders to vote for the Tesla/SolarCity merger on November 17. Tesla believes that it has executed well on its existing goals, and that it can successfully integrate SolarCity and realize the financial benefits that come from this acquisition.
Although it is a compelling vision to accelerate the world’s adoption of sustainable energy solutions and provide them under one roof, the economics of the solar business does not generate confidence. This has been the prime reason that the TSLA stock price has been pushed down in the past.
Solar power cannot compare with other low-cost sources of energy, and residential solar power is quite a different market. Unless more clarity emerges as to how the adoption of solar roof tiles might lead to reduced energy costs for consumers, the company might face challenges in this area, and this may continue to push TSLA stock down.
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