Tesla Plus SolarCity: A Smarter Move than Investors Think
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.