Tesla's $2.6 Billion Merger With SolarCity Shows Elon Musk's Outsize Vision
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Version 0 of 1. While other automakers struggle to push quarterly profits higher, Tesla Motors' (TSLA) co-founder Elon Musk seeks ever to enlarge the scope of his vision, promising a fossil-free future as tomorrow's payoff in return for massive current losses. Tesla's second-quarter results are expected to be a variation on this theme, with losses reaching 52 cents a share, compared with 48 cents in the year-ago period. Though investor attention will be focused on specific Tesla results, such as an expected $1.6 billion in quarterly revenue, 36% higher than last year, much notice also will be directed at the company's pending $2.6 billion merger with SolarCity (SCTY) . In theory, the blending of Tesla's vehicle and battery manufacturing operations with SolarCity's electricity generating solar products could make sense, if you buy into the threshold premise that oil, gas and nuclear power can and should continue to diminish in favor of renewable energy. Analysts, including those who have stood by Musk, Tesla's chief executive, have expressed caution about the merger, warning that it could strain the automaker's finances, which depend on continued sale of shares. "While we agree with the long-term and 'big idea' merit of a TSLA/SCTY combo, we still question the near-to-mid-term impact given solar/storage economics and the effect this could have on cash flow as TSLA tries to ramp Model 3 and Gigafactory," said Joseph Spak of RBC Capital Markets. The Model 3 is a mass-market electric sedan, slated to debut next year; Tesla's Gigafactory in Nevada manufactures lithium-ion batteries. The deal is subject to shareholder approval and is expected to close in the fourth quarter. |