The proposed Elon Musk merger: the market speaks

…note that Solar City’s stock, after jumping up 12% at yesterday’s open, ended the day only up 3%; both are well below the 25%~34% premium offered by Tesla, suggesting the market is very skeptical of this deal happening. The problem, though, is that Tesla dropped 9.2% at open (representing a market cap loss that was double Solar City’s worth), but instead of moving back up in the opposite direction of Solar City’s drop, the stock actually closed down even further for a 10.5% decline. This suggests that a good portion of the drop is not due to the possibility of Solar City being acquired, but a loss of confidence in the company.

That is from Ben Thompson’s Stratechery newsletter, worth paying for or so I find at least.  Here is basic background on the proposed deal.

Comments

The odds seem low to me considering there are almost enough institutional type investors that are very loyal to Elon to swing the deal. Also unusually there are no details yet on cost savings on sales etc. so everyone is thinking worst case.

The big concern is cash flow, but if you read the conference call transcripts it sounds like the entire solar city sales force will get axed and only sales online or in stores will take place. That makes future sales more profitable by lowering the super high customer acquisition costs and if sales dip temporarily that only improves cash flow.

It also appears as if he now thinks that the reaction in every state will be like Nevada or Arizona where incumbent utilities use rate setting boards to keep new entrants out. So he needs an integrated product of the new panels coming out soon and the batteries together to take people off grid.

It wouldn't surprise me if the odds start going up as the vision becomes more clear with hard numbers.

Solar-powered driverless car ride-sharing -- it's an obvious no-brainer, just a question of who gets there first.

"it’s an obvious no-brainer"

Indeed.

Don't comment or add-on to my posts please.

"add-on to my posts please"

Indeed.

Your wish is clearly the Internet's command.

If you don't want people to respond to you, then don't say anything in the first place.

The 10:01 am post is a forgery.

No it's not, the 11:09 post is a forgery.

Wait, are you the real me or am I the real you?

"It also appears as if he now thinks that the reaction in every state will be like Nevada or Arizona where incumbent utilities use rate setting boards to keep new entrants out."

Nevada reduced the implicit public subsidies for solar power.

The phrase "use rate setting boards to keep new entrants out" seems odd and misleading. It's not like they created different classes of solar providers or banned anything. Previously, consumer solar power users could "sell" their extra power to the utility and the utility was forced to buy it at the same price they would sell to other customers. Since, there are large distribution costs involved in providing electricity, the utilities had to raise their rates to cover the losses incurred. So, effectively, all non-solar customers subsidized the solar customers. Nevada eliminated the subsidy.

"We do not want the nonsolar customers, of whom there are over a million, to be subsidizing the 17,000 solar customers," Buffett said, talking about NV Energy's customers in Nevada."

http://www.npr.org/2016/03/11/470097580/nevada-solar-power-business-struggles-to-keep-the-lights-on

I mean there is some value added from the solar in not needing peakers running and avoiding new plants and transmission lines. It is hard to determine that value and balance it with other costs and it varies a lot. Since we are reading a libertarian blog and theoretically like markets a better answer would be time of use pricing. We already have versions of that and smart meters here in Oklahoma, surely other states can manage. Then the market can decide what the costs and value are.

When you have regulated monopolies deciding the costs through a rate board that isn't very accountable and often captured that doesn't seem like they would choose the optimal cost. So the most interesting state to watch will be Texas with their deregulated market. And their system operator is projecting a huge amount of solar of all varieties.

Yes, I agree.

You also need to price "electrical hookup" and "power usage" separately.

The former used to always be rolled into the latter. But if the latter is negative for some people, it breaks down rapidly.

"You also need to price “electrical hookup” and “power usage” separately."

I thought that was pretty much the standard now? However, I suspect that many regulators push for an artificially low figure for the “electrical hookup”.

Distribution and power are separate in liberal States that actually deregulated power utilities as conservatives promised would be so fantastic by reducing electric rates.

Oddly, the conservative States did not deregulated so utilities own the power generation and are charging rate payers to build new nuclear power plants, or at least trying to. And driving Tea Party activists to be advocates of solar roof power to not pay the high rates set by the PUC to pay for building new nuclear power plants.

After all, utilities get a return on invested capital which is depreciated so that requires constant labor investment in new capital assets to maintain profits.

In New England, the nuclear power plants were sold below costs to independent power providers who benefit from no new power generation being built because they can charge higher prices which inflates the price of their aging, depreciating old coal and nuclear plants. It's been the building of power plants by utility customers that have hurt the winners from deregulation and separation of distribution and supply.

By the way, I pay distribution costs that are a fixed monthly fee plus a fee per kwh which includes the stranded cost of constructing power plants the utility was forced to sell for deregulation, and then a second charge for power generation. And I can pick my supplier, but it's the distribution utility that must balance the flows to its customers, not the power generators who have zero idea what it's customers are using before the end of the billing cycle.

It is clear Milton Friedman and all the others in the deregulated utility advocacy were grossly wrong because they have no clue how infrastructure is built and paid for, imagining that Wall Street creates infrastructure on the trading floor on demand.

We have decades of experience, and the promised cheaper, better has not appeared. Instead it's been the opposite, worse and more expensive.

"Distribution and power are separate in liberal States ..."

That's not what was being discussed. The topic was charging a monthly service fee or “electrical hookup” separate from a per kWh “power usage” fee.

So, your rant was completely off topic.

@JWatts: why do you keep trying? The mulp does not hear you. You are figuratively hitting your head against a wall, over and over.

In this specific case, because other readers might get confused by what he wrote.

"...a better answer would be time of use pricing."

That would indeed be a wonderful thing.

Care to explain how to implement it without first hiking rates to pay for a smart grid twice as comprehensive as any smart grid anywhere in the world?

You buy your power from nuke power, your neighbor in your left buys from wind and solar and battery, and on the right buys from coal power, and you each get home at different times and crank up the AC at different settings, an one dries the laundry on a clothes line while another in an electric dryer.

How does that demand get back to the power generator so each knows to generate the right amount of power that minute, and thus can price it and send the current price back to each of you, with each of you seeing a different price of power every hour of the day?

Economists just find reality to be a leftist externality to be dismissed as fiction because by saying "markets" the laws of nature are eliminated.

Smart meters can save money. Oklahoma has some of the cheapest power prices the country and we have lots of smart meters etc. For instance when you need your power turned on or off they don't even send a guy out, it's done over the computer. Then they start usage programs to allow them to defer future investment. Since peak load generation is so expensive, it's save a lot of money to shave those peaks with time of use.

We have wind power and other programs but it's not like you get those exact electrons. They just purchase enough wind to cover the people that want it.

Its true that solar power puts more strain on the grid and is effectively getting a subsidy by not paying for grid use, but in the context of the climate crisis and the continuing ability for fossil fuel companies to externalize the costs of carbon emissions, it seems to me that renewable energies ought to get all the subsidies they can.

"it seems to me that renewable energies ought to get all the subsidies they can."

Every state gets to vote on their own policies.

I think that's overblown. When I use OGE smart hours, which is the time of use program we have here in Oklahoma, the avoided cost of using electricity is super high. Most days when solar panels would be at max output the time of use price is somewhere between $0.15-$0.30 per kWh then drops down to $0.06 at night. So during hot summer days that PV output is worth a lot right now. More panels would lower the cost of electricity at peak times for everyone and is more efficient than the usual price of $0.09 all the time. So it's more complicated than you think!

And Coyoteblog's take-

http://www.coyoteblog.com/coyote_blog/2016/06/tesla-and-solarcity-two-drunks-propping-each-other-up.html

These companies reach customers through different channels, they have completely different sales models, and people buy their products at completely different times and have no need to integrate these two purchases. It is possible there may be some overlap in customers (virtue-signalling rich people) but you could get at this by having some joint marketing agreements, you don't need an acquisition.

That may not be 100% true. Maybe you explain to Tesla buyers that hey, it's not enough to buy an electric car; you need to be sure that the electricity it runs on comes from green energy rather than dirty coal or gas powered plants, so you might as well buy some solar panels to charge your new Tesla with.

But I think he's right about some sort of joint marketing agreement being a better move for Tesla and I wonder just how many wealthy walk-the-walk environmentalists there are out there to cross-sell these products to.

The same number as the good old boys paying $50,000 for a gas guzzling truck to tow a $40,000 boat and trailer which are used to take the driver to work and drive ten times to the lake to spend two weeks on the water per year. Or maybe a $50,000 RV trailer. Thank god for the $100,000 home equity loan!

This whole move didn't seem popular with shareholders or the business press. And I'm not sure I see the supposed synergies. Does Musk think that Solar City will do a lot better if he directly controls it?

Because he's a genius, duh.

(I'm still a skeptic. About this and about Tesla).

I've always been a skeptic about Tesla because the math never worked. However, I underestimated the social signaling aspect, value of showmanship and the amount of subsidies that could be extracted from government. All three have been huge positives for Tesla so far.

Yes. Tesla has certainly gone farther than I expected. I didn't realize there was such a large appetite for social signaling (but probably shouldn't have been surprised by this, given the vast premiums already paid for conventional luxury cars).

The big question will be whether they can successfully make the leap into the non-luxury market. It's much easier to make a $70,000 electric car than a $35,000 one.

"It’s much easier to make a $70,000 electric car than a $35,000 one."

The economics are substantially different. Furthermore, they'll be entering a much more competitive environment. Nissan, Ford and GM are all already competing heavily in that market space, whereas Tesla has traditionally dominated the upper market.

Which makes me think this whole Solar City deal is a distraction that Tesla doesn't need at this time.

Those $35k Model 3s are likely to sell around $50k with options, if the Model S is any guide. That means they're competing more with the 3 Series than the Focus, and given that Tesla is already eating the German's lunch in large luxury, I don't see why they won't do it in small luxury.

Anecdotally, my car guy buddy raves about his Model S in a way that colleagues with S Classes and 6 Series don't. I say all this as a long-time German buyer.

"Those $35k Model 3s are likely to sell around $50k with options ..."

Middle class buyers can't afford a $50K car. The average price currently is around $34K. And that's up steeply over the last decade.

http://mediaroom.kbb.com/new-car-transaction-prices-jump-august-2015

$50K puts the price in the Luxury car category. At that cost, I'm highly skeptical of Tesla's claims of being able to sell 500,000 cars per year by 2020.

For comparison, the best selling car last year was the Toyota Camry and it only sold 429,000. For comparison, the BMW X5 only sold 55,000.

http://www.goodcarbadcar.net/2016/01/usa-vehicle-sales-by-model-2015-calendar-year-december.html

BMW sells something like 300k 3 Series a year. Competitors include the C Class and the A4 which sell about as much as the 3 Series if you add them together. They're all in the same price range. Tesla will, if it can execute, own that segment.

This "mass market" stuff is not really correct, unless you consider low-end luxury mass market. The Camry and the Model 3 won't compete in any meaningful way.

"This “mass market” stuff is not really correct, unless you consider low-end luxury mass market. "

Tesla's stated plan to reach profitability is to sell 500K Tesla Model 3's per year by 2020.

"The Camry and the Model 3 won’t compete in any meaningful way."

Then Tesla's shareholders are in for a rough ride. The current stock prices assume that Model 3 will turn Tesla into a major car manufacturer instead of the niche player it is today.

I don't think I agree. I think the plan is to turn them into BMW, which looks tractable, and not Ford. I'd agree they're not turning into Ford by 2020.

"I think the plan is to turn them into BMW, which looks tractable, and not Ford. "

Hmmm, you make some very good points.

20-30% of the cost of SCTY's panels are customer acquisition so using the stores and firing all the current salesman would help that.

Also if you are building a solar + storage solution and want to optimize the power electronics etc. for cost it helps to be together. If they want to do things like push the voltage to reduce costs way above what other people are doing etc. it's easier to do that in house.

It makes sense from a product standpoint, but most people get hung up on the cash flow since their risk tolerance is so small compared to Musk. Hence that's why the projected odds are so low.

"20-30% of the cost of SCTY’s panels are customer acquisition so using the stores and firing all the current salesman would help that."

That's only true if the current sales force was a net negative.

I think they really could be a net negative ha ha. They are trained to sell complex leases using tactics that might be familiar on used car lots. The market is moving towards mortages that are simple where homeowners buy the panels outright. Those can easily be sold in the store for lower sales cost and need to be anyway since the margin is lower for SCTY than leases. Firing the current sales staff and selling simpler products would fix the cash flow right away since the leases are cash hogs and the owner financed deals are cash positive.

As musk said they need the people installing and the guys doing permitting, but not the sales.

I would imagine the current sales force generates direct sales. A store front with order takers is a different type of business. To effectively use the second approach a company has to spend a lot of money on advertising. It won't be a straight forward calculation.

Does Musk think that Solar City will do a lot better if he directly controls it?

There are a lot of things competing for Musk's attention. He has trouble keeping a marriage together because of all his companies.

My #1 fear is that this somehow takes down SpaceX. SolarCity and Tesla, if they fail, are still in competitive markets and someone else will pick up the work and do it if it's valuable, perhaps not as quickly but it will still happen.

SpaceX has some competitors, but I could easily see the market returning to "oh, just make it expensive, who cares." And is anyone else working on methane rockets?

Blue Origins new orbital rocket that will likely power some ULA missions is methane.

+1 SpaceX is the big bet. It has far and away the most financial upside.

Tesla is likely to succeed on car quality alone, but at the end of the day it's just a car company.

Solar City will be gone. In 2050 we'll all think of rooftop solar panels as something weird our parents did 40 years ago, like hot tubs are today. Musk should just swallow his pride and recognize it's a bad idea and you can't win 'em all.

I wonder what people would say about SpaceX if it was a public company with all its books open to criticism?

Good thing all the NASA development money has precluded the need for an IPO

The US government has done just about all it could to kill SpaceX.

It's interesting to view the three Musk ventures through that lens: Solar City exists for subsidies. Tesla is kind of neutral; the subsidy helps, but having great cars helps a lot more. SpaceX is in a fight with Uncle Sam for its existence.

That's an interesting view. In 2008 SpaceX was toast until NASA gave it several hundred million to develop Dragon. And SpaceX is getting more for Dragon 2 even if it is less than Boeing gets. Military launches were definitely a tough nut to crack but all of SpaceX launches happen in government owned facilities. Even Falcon 1 in the Pacific was. I love SpaceX, what they are doing, and their vision. But I have no doubts that they have benefited significantly from what are essentially subsidies. I'm happy to have my tax dollars funding space exploration, especially them since its on a stringshoe budget. It's too bad the other companies needed so much capital that they had to go public, but what can you do.

So yes ULA strongholds are tough on SpaceX but the federal government is a huge entity and many parts are supportive to the tune of 9 figures.

https://www.nasa.gov/content/nasa-chooses-american-companies-to-transport-us-astronauts-to-international-space-station

We gave their direct competitor twice as much to do the exact same job. For years, we banned SpaceX from even competing for Air Force contracts.

Nobody adds up the subsidy Boeing and Lockmart have gotten over that time period. The US government, and the Senate in particular, did all they could to drive their preferred contractors' competitors out of the launch business.

Put another way, if US govt contracting was fair, open, and market based, SpaceX would have had vastly higher revenues these past few years.

If you can somehow call attempting to starve them in the crib "subsidy," well, okay.

I never said it was fair but giving a company several hundred million dollars seems hard to equate with trying to starve them out.

They have their fans and their detractors in the Senate just like everyone else. Their big states support them. Then you have guys like Shelby from Alabama that they threaten his cash cows.

mu original point was many shorts would be talking about the subsides if this was a public company, regardless of how fair that criticism is given the largesse of SpaceX's peers.

Fair enough, that's a more subtle take on it.

I'd argue that when you have a pressing need for something (launch services, technology development), and you pay several times as much as you need to to avoid giving business to a new entrant, I'd wouldn't call that subsidy. I'd call that anything but subsidy.

He already directly controls both more than Trump controls all the stuff with his name on them that he takes all the credit for being so great.

Tesla is making batteries in planned multiple factories that need sales, and cars and electric power are the source of demand for Tesla BATTERIES, NOT lithium ion CELLS. Tesla has designed battery modules that go into battery pack systems for Tesla cars and Tesla electric power solutions for homes and for corporations and utilities and electric power generators.

Solarcity sells to homes and businesses, so selling battery solutions is the next stage along with solar. As two separate corporations, Elon Musk as head of both has a problem in implementing a long term strategy which serves the long run interests of Tesla in Solarcity buying Tesla battery solutions by Tesla forward pricing batteries sold to Solarcity to make Solarcity the strongest integrated solar and battery vendor using Tesla battery technology.

For Elon, pricing a Power wall at $6000 to competitor x for a commitment of 10,000 units is consistent with pricing it at $5000 to Solarcity based on growing sales to 100,000 for both the Gigafactory battery and solar panel factories. But because Elon in head of both, this is not arms length and thus can be argued not objective.

FedEx and UPS can charge Amazon and Walmart half as much as they charge us, but with different structures based on contracts negotiated based on different mail order strategies and keep it secret, while the USPS must charge the exact same published rates (with volume discounts), but because the four corporations have different management, with the same 60% common shareholders as Tesla and Solarcity, the deals are arms length and thus objective.

Given Tesla and Solarcity has over 60% of shareholders in common, shareholders investing in Elon Musk, merging the two makes it clear who is defining the long term strategy for manufacturing first, batteries, cars, and solar second.

Elon Musk is an industrialist, not a technologist, building factories to produce high labor cost stuff.

That makes him the enemy of the rent seekers. Who get all the say on Wall Street and the business press....

Bear warning..." if Musk isn’t a con man, he sure does a great impression of one" http://streetwiseprofessor.com/?p=9982

In recent years the result of merging two zombie banks is not healthy bank. How far or how close is Tesla to other cash burning business?

I saw on a board that Musk owns more of Solar City than he does of TSLA, so this deal of saving Solar City would actually increase his ownership stake of TSLA (this after he just raised more money in a stock offering and cashed out about reported @$150m from that deal). This is speculative as I have not chased down the details, but in the context of the discussions it seemed accepted as fact.

Many commenters on stock boards are also upset that TSLA facing cashflow shortage just raised so much money to supposedly help fund the new car for which demand is questionable, and didn't disclose this material event that was coming that would clearly dilute shares further in short order.

So it looks like the plan was a) raise a bunch of money, b) cash out some in the process at higher prices in process of getting funding, c) next announce this dubious Solar City deal for a company probably going to fail, and d) that'll end up increasing Musk's stake in TSLA.

I'm surprised the SEC allows this to happen.

Imagine if you're the CEO of Exxon and you also happen to own a small drilling company. Is it legal to make Exxon pay well over fair market value to acquire your personal drilling company? Isn't that just a con-job?

What am I missing here?

Thanks for analyzing the topic from the investment side. Some kids are busy with shinny cars.

I think that document is pessimistic. The underlying product that Tesla sells, does indeed work. Yes, it requires subsidies and yes Tesla loses money. Also, there's little doubt that Elon Musk is a showman much in the vein of Donald Trump. But I wouldn't refer to either as a Con Man. He's selling a product and a lot of the value is based on social signaling. That doesn't make the product worthless or the seller intrinsically deceitful.

All of that being said, I do agree that there is danger here with both companies losing money (Tesla & Solar City). Furthermore, Solar City's entire market is endangered, since it was propped up by large state subsidies that are being removed. It does seem rash to combine a marginal (but potentially very profitable) company like Tesla with a company that may be swirling towards bankruptcy like Solar City.

Meh, "Elon Musk" is a Con Man!" sounds like a slightly higher brow version of the "hot take" style commentary you hear on talk radio. It might be a lousy value, but Tesla cars are still quite functional.

Cars are judged by consumers and journalists, from popular opinion the cars are great. On the investing side, Tesla stock sold on last May will be diluted by this deal.

I know, Con Man sounds excessive but....Space-X bought Solar City debt in 2015. http://fortune.com/2015/08/07/this-is-why-elon-musks-spacex-has-been-buying-up-solarcitys-bonds/ and bought more bonds 3 months ago http://electrek.co/2016/03/22/elon-musk-spacex-solar-bonds-solarcity/ Another red flag is that these bonds are for "retail investors" but 80+% is owned by Space-X.

Perhaps this entanglement of debt and stock among sister companies is easy to understand for investment fund people. But, if the sister companies leverage each other? What's the "real" value?

Interesting stuff. Re: Tesla, I didn't mean their cars stink (never drove or rode in one), I just meant they may not be worth the extra cost in comparison to much cheaper hybrids or other EV's.

Is there another EV that performs like them? Is there another large sedan that performs like them within a factor of two in cost?

The Model S doesn't compete with the Prius, it competes with the 7 Series.

"Is there another EV that performs like them?"

My impression was that you could get other EV's at about half the cost of a Tesla, but 3/4ths of the performance. Maybe I'm wrong about that. Re: hybrids, they're generally cheaper and they don't have the range issues of EV's. Are the purported environmental benefits of an EV vs a hybrid really worth the extra costs? Color me skeptical.

No, there are no EVs anywhere near them in the market. The Model S is much more expensive than a Prius or Leaf, of course, but it also performs and feels like a hopped up 7 Series rather than a detuned Corolla.

The environmental benefits of the Model S are irrelevant. Which is good, because they're probably negative.

Quickly looking, the best Prius 0-60 time I could find online was 9.6 seconds. The worst Model S time, from the 2012 base model that they don't sell anymore, was 5.9. The best is 2.6.

The Prius is worse than the worst Camry. The Model S is better than the best Lamborghini Huracan.

How's the Tesla stack up, range-wise/charging time, though, just out of curiosity?

To a Leaf? I think the Model S is about three times the range. Charge times are similar.

I believe you still need to buy gas for all Prius.

"Perhaps this entanglement of debt and stock among sister companies is easy to understand for investment fund people. But, if the sister companies leverage each other? What’s the “real” value?"

Well on the other hand, Tesla buying Solar City out right will resolve that issue. They'll have one valuation, not two different highly entangled valuations.

If only all con-men landed the first stage of a rocket safely back to Earth!

Can a combined producer of electric cars and solar power more efficiently lobby and collect government subsidies than two separate companies? Probably.

Ding! Ding! We have a winner.

Making quality cars that sell at a reasonable price is hard. As is being discovered by Tesla - although it helps to receive almost $2.5 billion in government subsidies. Making quality solar panels that sell at a reasonable price is hard. As is being discovered by Solar City - although it helps to receive almost $2.5 billion in government subsidies. I'm not confident that Tesla can ever build a quality car that can sell at a reasonable price. I'm only slightly more confident that Sun City can build quality solar panels that sell at a reasonable price. In both cases, competition from China will undermine the companies. Here's a Forbes article on the electric car industry/market in China. http://www.forbes.com/sites/tychodefeijter/2016/05/18/10-new-electric-cars-from-china/#69e7cfce1e2f Here's a Bloomberg article on the solar panel industry/market in China. http://www.bloomberg.com/news/articles/2016-03-21/china-to-more-than-triple-solar-power-capacity-in-five-years Of course, both industries in China are heavily subsidized by government. Government subsidies in America are subject to harsh criticism, from both the left and the right. As we enter this new phase of globalization, with goods produced in China for China companies, I expect howls of protests from American firms, the loudest protests coming from American companies that shifted production to China to produce the goods sold by the American companies. The hypocrisy will be revolting.

It seems to me that the branding is strong for Tesla, weaker for Solar City. Improved roof sales should be possible for "Tesla," and there is the obvious tie-in of that Powerwall home battery. If they were serious about that it would be a Tesla and Solar City joint project to make a solar -> battery -> car.

So, there is a natural integration. That said, I share a bit of all the skepticism above. Even if solar -> battery -> car is going to work someday, it isn't necessarily going to work now.

(* - I notice that https://www.teslamotors.com/powerpack/design#/ has some pretty strange defaults. A $2,162,000 price with an "order" button.)

Muak may believe that there are scale advantages when it comes to lobbying for the subsidies that drive both businesses. Having a single entity with more employees in more states will help with that.

I think the market is reacting to the signal sent by the business combination. When the management focuses on corporate restructuring instead of improving the products or the production capacity (which is necessary for these specific companies to be profitable), a reasonable conclusion is that management does not believe it may accomplish those goals and instead is looking for ways of improving the bottom line through financial engineering.

If this perception is correct, the market may be anticipating the fact that product or production goals will not be met. This may be especially relevant in companies valued for their perceived future profitability or market share.

Meanwhile, the Russian government is investing in Hyperloop.

http://www.dailymail.co.uk/sciencetech/article-3655109

They want one between Moscow and St. Petersburg. That might be a good place to build it, if they follow the old railroad track. It's a straight line. The tsar appointed the ruthless engineer Kleinmikhel to head up the project, and he demolished everything along that line.

It's surprising the Soviets never got into high speed rail. Most of the costs after you get the engineering down are in building out. Economies of scale are improved by ruthless efficiency and ignoring externalities and the Soviets were effective in both of those areas.

Remember - Elon Musk is a very successful rent seeker. Solar City values their solar projects above market and gets Investment Tax Credits from the federal gov't to cover a large portion of the install costs. The value they base the federal tax rebate is higher than the installation cost of the solar. Solar City values of the future cash flows from lease payments calculated by a discount rate that is inflated - not tied to reality in a zero interest rate world. This was a risky approach and it was spelled out as a risk in the IPO docs of Solar City. If Elons' past successes in rent seeking are any indication of future actions I would bet that this merger is going to benefit from a change in federal law that will allow for a similar tax advantage like the ITC but this time based on battery storage. There was no significant tax re-capture of ITC from Solar City so now it is safe for him to buy/merge the stock and now try it with battery storage now that it looks safe from an potential IRS recapture event. I expect either presidential candidate will support any change in tax law supporting batteries- environmental on one side to made in USA on the other.

He didn't need the merge the two companies to lobby for subsidies for battery storage. So, I don't think that explains the actions.

The thing I thought when I heard about the proposed merger is "Ahh, Musk must believe that Tesla shares are over-valued relative to Solar City shares." Even if people think that the merger makes sense, they might have the same thought that I did and re-evaluate their value of Tesla, which might have led to Tesla shares dropping significantly.

I'm buying a home in the Bay Area, new construction. The city required the builders to put in solar from the jump and it's prewired for an electric car charger. Maybe he is betting on a wave of new home construction, a lot of pent up demand to be sure.

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