Tesla Plus SolarCity: A Smarter Move than Investors Think

Tesla-SolarCity

Sometimes the visions and planning of a forward-looking CEO run counter to what investors and markets think. Today is one of those days. With the announcement that Tesla is buying SolarCity in an all-stock deal of $2.8 billion, SolarCity’s stock took off and Tesla’s tanked.

Market pundits started calling this move a bailout by Elon Musk of his other company, which was also described as in financial trouble.

It should be pretty obvious by now that Elon musk does not just operate in the short-term, but takes a longer strategic view.

It’s not hard to piece together what this view might be. But if one is focused on the short-term and the daily news cycle—which doesn’t seem to allow for a lot of thoughtfulness—one might miss it.

The Bigger Picture

Let’s take a different look at this. SolarCity is the country’s largest solar supplier. It could almost be looked at as a utility unto itself. Almost is the key word because most SolarCity installations are done as a co-generation setup. This means that if the grid goes down so does your power in spite of the fact that you have solar panels.

The next obvious thing to look at is the Tesla Powerwall, the battery storage device designed to let homes store up unused solar energy for when there is no sun. Great concept. Scary for utilities because it generates a fear of a bigger issue than net metering—the fear that big utilities might no longer be needed.

From the viewpoint of a homeowner, being independent of the grid sounds pretty damn cool—especially during the summer when you get those fat bills from having the AC on all the time. There is a pent up demand for this, especially in areas that have experienced outages for various reasons like heat and weather events.

There is already a big demand for the Tesla Powerwall, with $800 million in pre-orders booked in the first week they were announced. But one thing has been conspicuously missing in the Tesla Motors organization to complete the Powerwall product flow lineup: a delivery and installation infrastructure. But wait, doesn’t SolarCity already have that? In spades.

This merger not only gets Tesla a practically nation-wide delivery and installation infrastructure, but also the ability to sell the Powerwall at a retail price point rather than wholesaling it to SolarCity.

Musk loves direct sales and delivery—let us not forget how much auto dealer associations hate him for this. It is probable that this move will net him similar enmity from electrical utilities all over the country, once they understand what he’s doing.

With this merger, Musk’s getting ready to disrupt some rather large and entrenched monopolies. It will be interesting to watch.

 

  • This is going to be very interesting to watch. He should franchise out the EV stations w/ stores that sell not only grocery items, but some high end products.

  • Patrick James Bayham

    chanos is going to be eating shit and working at Mcdonalds with all his little acotlytes at this rate….
    chanos might be allowed to kept his shrunken balls after this is over.

  • Joe Huber

    The only thing you (and Musk) highlighted is that Powerwall should have been a Solar City product all along. Neither of you have given any reason how this merger benefits the CAR, nor Tesla’s goal of sustainable TRANSPORTATION.

    • William Jackson

      The car and the power system are synergistic.

    • Brian

      About half our energy use is our cars for many people.

    • davbo

      But isn’t he just closing the loop?:
      Sun -> energy generation -> stored energy -> charge the car (and everything else in the house too) with the stored energy.
      A complete solar powered ecosystem with no dependency on the grid. That’s sustainable.
      When he does the same for the factories – job done.
      The question is does it make more sense financially for this to to be under one corporate roof or was it OK having it under two?
      Yes the power wall makes more sense as a Solar City product – but it was Tesla that developed the battery technology to make it possible.
      So should Tesla have instead licensed the power wall to Solar City and let Solar City roll it out?
      The answer must lie in the difference between such a licensing deal and straight merger to join the storing and charging with the initial energy creation. I guess i works out financially better than way but I’m not sure why.

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