Elon Musk believes SolarCity acquisition could push Tesla's valuation to $1 trillion but investors disagree
Tesla Motors CEO Elon Musk said on Wednesday that the proposed acquisition of SolarCity could eventually push the electric car maker's valuation to $1 trillion, but investors disagreed. Reuters reported that Tesla stock opened at $198.26, down nearly 10 percent from its Tuesday close while SolarCity opened at $23.27, up 10 percent.
Tesla on Tuesday had made an offer to buy the rooftop solar panel company, SolarCity in a stock-deal worth as much as $2.8 billion. Elon is a major shareholder in both companies.
In a conference call with analysts before markets opened on Wednesday, Elon said about the deal,
I have no doubt about this - zero. We should have done it sooner.
The combination of SolarCity's solar panels with Tesla's electric vehicles and stationary storage batteries is "what the world needs, the ultimate solution" to a sustainable-energy future, Elon said on the Wednesday call. He added,
As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company,
Barclays auto analyst Brian Johnson disputed that view in an overnight note to investors, saying the proposed merger had "little in the way of synergies (and) much in the way of cash burn," with "uncertain growth/cash prospects" for the combined companies. Brian said, "It is even more clear that Tesla will need additional cash raises to continue its expansion of electric car and battery production.."
SolarCity will become cash flow positive in the next three to six months and will not have a material impact on Tesla's future cash needs or expectation to be cash-flow positive by year-end, Elon said, according to Reuters. He also estimates that costs for both companies would go down significantly after the merger, but he did not give specifics.
Tesla General Counsel Todd Maron said he expected shareholders of both companies to vote on the deal in the next few months.
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