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Tesla (Un)Surprisingly Wants To Be a Clean Energy Company
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When Tesla Motors Inc. (TSLA - Free Report) announced its offer to acquire struggling energy company SolarCity Corp. for $2.8 billion, shock and skepticism rocked Wall Street, sending TSLA down over 11%. Investors of the car company are concerned that the deal will not benefit them, and that the financial burdens from purchasing SolarCity will be enormous.
Shareholders are also worried that Tesla, and their investment in Tesla, is not what they had initially thought it to be. For many, Tesla is considered a car company like any other, except they specialize in luxurious, elegant, electric vehicles; it is far from being a clean energy company, and its decision to make a purchase offer for SolarCity goes against what they believed the company to stand for.
But is this move by Tesla really that surprising? If you think about it, it was an inevitable decision that shareholders should have seen coming.
Sustainability is Its Mission
In the blog post addressing the offer, the first thing Tesla writes is how its “mission has always been tied to sustainability. [They] seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles.”
Tesla has made a name for itself for building electric vehicles, so it seems to me that part of what they are as a company is grounded in sustainability, alternative energy, and renewable resources. Thinking of Tesla as just a car company is not thinking of Tesla’s desire and potential to be something much more, especially with Elon Musk at the helm.
The CEO has invested a great deal of time and money in other sustainability projects. Tesla’s $4 billion Gigafactory in Nevada—where the company plans on manufacturing lithium-ion batteries for its cars—is officially ahead of schedule and plans to start producing batteries in November. Last year, Musk unveiled a new lithium-ion battery that customers can buy for their homes or businesses, dubbed the Powerwall. And then there’s SpaceX, Musk’s private aerospace company that is revolutionizing space technology with reusable rockets and spacecraft.
The goal of this acquisition deal falls in line with Musk’s other lofty clean energy ventures, creating “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers.”
Bottom Line
I understand the hesitation towards this acquisition deal. Both companies are growing quickly, but both are losing money just as fast: Tesla lost $889 million in 2015, and SolarCity lost $769 million. Combining two very unprofitable companies does seem like a “What the f@*#?” type of decision, especially when you consider all the slightly-shady connections that put Musk at the center of it all.
But if Musk and Tesla wanted to wait until the electric car maker was more financially stable, they’d be waiting for a while longer. It is an audacious move, and a move that could create positive long-term results for both companies, as well as the energy and automotive industries. In the short-term, however, Musk saddled Tesla with a large amount of debt in a time when it desperately needed cash to speed up its Model 3 production.
It’s never a good time to be bold.
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Tesla (Un)Surprisingly Wants To Be a Clean Energy Company
When Tesla Motors Inc. (TSLA - Free Report) announced its offer to acquire struggling energy company SolarCity Corp. for $2.8 billion, shock and skepticism rocked Wall Street, sending TSLA down over 11%. Investors of the car company are concerned that the deal will not benefit them, and that the financial burdens from purchasing SolarCity will be enormous.
Shareholders are also worried that Tesla, and their investment in Tesla, is not what they had initially thought it to be. For many, Tesla is considered a car company like any other, except they specialize in luxurious, elegant, electric vehicles; it is far from being a clean energy company, and its decision to make a purchase offer for SolarCity goes against what they believed the company to stand for.
But is this move by Tesla really that surprising? If you think about it, it was an inevitable decision that shareholders should have seen coming.
Sustainability is Its Mission
In the blog post addressing the offer, the first thing Tesla writes is how its “mission has always been tied to sustainability. [They] seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles.”
Tesla has made a name for itself for building electric vehicles, so it seems to me that part of what they are as a company is grounded in sustainability, alternative energy, and renewable resources. Thinking of Tesla as just a car company is not thinking of Tesla’s desire and potential to be something much more, especially with Elon Musk at the helm.
The CEO has invested a great deal of time and money in other sustainability projects. Tesla’s $4 billion Gigafactory in Nevada—where the company plans on manufacturing lithium-ion batteries for its cars—is officially ahead of schedule and plans to start producing batteries in November. Last year, Musk unveiled a new lithium-ion battery that customers can buy for their homes or businesses, dubbed the Powerwall. And then there’s SpaceX, Musk’s private aerospace company that is revolutionizing space technology with reusable rockets and spacecraft.
The goal of this acquisition deal falls in line with Musk’s other lofty clean energy ventures, creating “the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers.”
Bottom Line
I understand the hesitation towards this acquisition deal. Both companies are growing quickly, but both are losing money just as fast: Tesla lost $889 million in 2015, and SolarCity lost $769 million. Combining two very unprofitable companies does seem like a “What the f@*#?” type of decision, especially when you consider all the slightly-shady connections that put Musk at the center of it all.
But if Musk and Tesla wanted to wait until the electric car maker was more financially stable, they’d be waiting for a while longer. It is an audacious move, and a move that could create positive long-term results for both companies, as well as the energy and automotive industries. In the short-term, however, Musk saddled Tesla with a large amount of debt in a time when it desperately needed cash to speed up its Model 3 production.
It’s never a good time to be bold.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>