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Musk pushes limits with SolarCity deal

Elon Musk’s bid to acquire the US solar panel installer has been met with mixed reactions

Never far from headlines, Tesla’s recent offer to acquire solar panel installer SolarCity for up to US$2.8 billion has drawn both ire and admiration from Wall Street and industry commentators.

The architect of the deal – and a shareholder in both companies – Elon Musk, said in a June 21 blog post that it makes sense, enabling Tesla to offer a seamless chain of “end-to-end clean energy products to our customers.” This would allow the firm to link SolarCity panels, Tesla Powerwall storage products and its EVs, boosting demand for clean energy and enabling multiple forms of energy storage that can be fed into the grid at times of peak demand.

“Tesla customers can drive clean cars and they can use our battery packs to help consume energy more efficiently, but they still need access to the most sustainable energy source that’s available: the sun,” Musk wrote. “It’s now time to complete the picture. The SolarCity team has built its company into the clear solar industry leader in the residential, commercial and industrial markets, with significant scale and growing customer penetration.”

People interested in buying EVs are also interested in going solar, Musk argued, so there would be synergies for the two companies. “Culturally, this is a great fit,” he adds. “Both companies are driven by a mission of sustainability, innovation and overcoming any challenges that stand in the way of progress.”

Integrated expectations

The market appears unconvinced. Sceptics have questioned whether buying SolarCity – which is run by Musk’s cousin Lyndon Rive, and in which Musk is chairman and the largest shareholder – is a good idea.

With the exception of the panel-Powerwall link, the companies have little in common, and SolarCity’s shares have failed to rise to the price that Tesla is offering, of somewhere between US$26.50 and US$28.50 per share. Meanwhile, Tesla’s shares fell 10% in the wake of the announcement, and despite some rallying in the week since the bid was announced, wiped US$1 billion off the value of Musk’s personal holding.

There are worries that Musk is simply looking to save SolarCity because he is so heavily invested in it, and is doing so by leveraging the strength of Tesla’s shares, worth around US$208 at the time of writing.

The opposite view, set out by David Roberts in Vox Technology, says that this clean energy vertical integration is a good idea that is running ahead of the market and regulators.

“It’s the right direction for the electricity sector,” he writes. “There’s probably no way to integrate enough renewable energy to hit US carbon targets without power-market reform of some kind. It’s likely that tech and business developments around distributed energy are going to force utilities to support these kinds of reforms anyway, lest they wither.”

The question is whether it is the right direction for an EV and storage manufacturer. The potential deal will only see further speculation in the coming weeks. Five of SolarCity’s eight board members have excused themselves from proceedings because of ties to either Tesla or Musk himself. A special committee of just two SolarCity directors was set up on Monday June 27 to evaluate the offer.

As more EV manufacturers begin to push into the energy storage marketplace, tie-ups with large and small-scale renewable energy providers are inevitable. The big question hanging over the Tesla-SolarCity deal is whether Musk, known for pushing technical and corporate boundaries, is pushing investors too far in his pursuit of an entirely new form of integration.

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