How Tesla and SolarCity might work together
If that was the only big change here, a merger would seem rather small and pointless. But in its post, Tesla hinted at some more subtle ways the partnership could matter:
That could prove a fruitful synergy — at least in theory. America's grid is changing rapidly, and solar power, electric cars, and battery storage are all quite likely to play a key role in that evolution going forward. No one knows which business models will prevail just yet, but a Tesla/SolarCity partnership would at least be decently positioned here.
There are also big potential downsides to the deal
One huge risk here is that acquiring SolarCity could potentially muck up Tesla's plans to build the Model 3. Tesla is taking on about $2.8 billion worth of debt in the deal, right at a time when it needs to raise a large amount of cash to ramp up production of a mass-market car.
A few analysts, like Edward Niedermeyer, have been skeptical that Tesla will succeed with the Model 3 — the required skill set to create a reliable, mass-market vehicle is way different from anything the company has shown today. Now here's another potential hurdle to overcome.
Some analysts have also wondered if the real reason for this move was to prop up SolarCity, which has been ailing of late. The company's stock price has been sliding this year, partly due to concerns about its debt load and partly because it was hurt by regulatory changes in Nevada that throttled the rooftop solar industry. And its last earnings report was disappointing.
In recent months, the Wall Street Journal has been probing the peculiar ways in which Musk uses his companies to prop each other up. For instance, when SolarCity needed to raise money in October 2014, it offered "solar bonds" to investors. About half of them were bought up by SpaceX — another Musk-owned firm that's engaged in private spaceflight.
Here is Elon Musk & Family Inc. (Tesla, SolarCity and SpaceX) pic.twitter.com/qkh49oLVtx— Scott Austin (@ScottMAustin) June 21, 2016
If Musk is primarily making this move to prop up a failing company, the logic becomes much, much less compelling. We'll see how investors react — and if any shareholders object to one of Musk's companies buying up another in the coming days.