Is Joining SolarCity and Tesla Together a Good Idea?
Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY) shares took hits as the build-up to their merger draws closer.
Both companies suffered drops in their share prices, with TSLA stock falling 4.1% and SCTY stock falling 3.5%. This comes as details regarding the $2.6-billion merger of the two companies are expected to be revealed in the near future. In total, TSLA stock has lost $4.3 billion of value since the deal was announced.
Tesla stock has dropped 10% since the deal was made public, and that compounds the bad news in a year that saw the electric car company burn through $600.0 million in the first half of 2016. (Source: “Tesla, SolarCity shares fall ahead of merger details,” The Globe and Mail, November 1, 2016.)
Both companies are headed by everyone’s favorite eccentric techie, Elon Musk. While Musk is defending the deal as good business that will help both companies thrive in the near future, investors and shareholders are not so sure. In fact, Tesla is staring down shareholder lawsuits over what they allege was a breach of fiduciary responsibility by the board, when the board chose to approve this merger.
The two tech companies have struggled to become profitable. Whether it’s Tesla’s mass-market “Model 3” sedan or SolarCity’s no-money-down residential solar installations, both TSLA and SCTY stocks are facing an uphill battle to convince investors that the merger is a deal worth making.
While Tesla is ostensibly a car company, much of its work has been in green energy like the Tesla “Gigafactory 1”, a lithium-ion battery-powered factory that is meant to aid in production of Tesla vehicles without leaving behind a carbon footprint.
Despite the stock drop, the merger allows Musk to save $150.0 million by selling SolarCity panels to eco-friendly Tesla drivers. And it helps keep SolarCity afloat. Left on its own, SCTY stock would potentially have been eclipsed by mounting liabilities, debt, and a failure to become profitable.
Musk is ambitious and possibly the biggest name in tech right now. He certainly has foresight and vision, but can he maintain these companies long enough to turn a profit and boost Tesla stock? Saving the environment can garner a lot of goodwill, but you can only operate on goodwill for so long.