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GTM on Tesla’s big-money SolarCity buy: Vetoes, benefits and the role of Silevo

GTM Research director of energy storage Ravi Manghani considers the big-money deal. Flickr: Heisenburg media
Tesla Motors’ US$2.6 billion all-stock offer for SolarCity this week raised questions, as both firms’ share prices slumped on the announcement, and markets reflected a sense of both awe and unease at the proposed deal.

Indeed, market watchers appear genuinely split, with some calling it “brilliant” and some regarding it as “silly”.

As SolarCity continued to slash its guidance for the year in the background, Tesla’s final valuation of SolarCity was down on its original; to a ratio of 0:11 of Tesla shares, from 0:14 when it first broke its interest in July.

Why? Who gets the best deal? And how does solar-plus-storage work in car showrooms, and from door-to-door? GTM Research director of energy storage Ravi Manghani considers these questions, through the prism of Tesla chief Elon Musk’s self-titled ‘master plan, part deux’.

Whose shareholders are most likely to veto the deal? Will it go through, ultimately?

“I can’t speculate whose shareholders are most likely to veto the deal, but any kind of veto might be a result of disagreements on the underlying valuation. Both companies have made a pretty strong case for a joint value proposition. There are several synergies on revenue growth and cost efficiencies that could result from one of the largest vertically integrated clean energy companies.”

Why has the share ratio dropped 20% since the sale was first revealed (1:0.14 to 1:0.11)?

“This proposed sale price is reflective of changes in valuation of SolarCity and Tesla since the deal was first proposed.”

Who will gain most from the deal?

“The deal provides benefits to both. It loosens the tight leash SolarCity has been on in recent months, with repeated lowering of its guidance and pressure to achieve profitability. The same applies to Tesla as well, of course. An acquisition by Tesla will lower some of that pressure for SolarCity – in addition to expanding its solar plus storage opportunities, and opening up a much bigger cross section of customers at lower sales and marketing costs.

“For Tesla, there are several advantages. Historically, it’s been a technology company with sales operations. Adding SolarCity’s installation experience, it creates a seamless path for selling solar plus storage systems and home charging – all through a single sales cycle. This is one of the key pieces of Elon’s ‘master plan, ‘part deux’’ – seamless customer experience.”

What is the appetite for those leasing SolarCity products to take Tesla batteries?

“With regards residential customers, there aren’t any clear value propositions, apart from in markets like Arizona and Hawaii, where net energy metering policies have given way to demand charges or lower export tariffs. Now, moving to commercial and utility-scale segments, a much better business case can be made for combining solar with stationary batteries.

“It’s important to point out that both companies are already doing business together and selling solar with energy storage to multiple customers. But merging them can eliminate some of the challenges of conducting arms-length deals without turning customers and other partners away.”

How do the brands fit – one is high-end and ‘sexy’, the other is high-tech and not. What would Tesla need to do, is it simply a marketing exercise, or does it require new design and engineering of the SolarCity portfolio, or indeed both?

“This is where SolarCity's Silevo modules can play an important role. Most residential customers don’t install solar because of the way solar panels look on their roofs. But it’s also true that many residential customers don't install solar panels because they don't like their aesthetics.

“Silevo modules could change that traditional view of solar's roof appeal. To quote Elon's vision from his latest master plan: “Create a smoothly integrated and beautiful solar-roof-with-battery product that just works, empowering the individual as their own utility, and then scale that throughout the world.”

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