
Tesla Makes Offer to Acquire SolarCity - runesoerensen
https://www.teslamotors.com/blog/tesla-makes-offer-to-acquire-solarcity
======
rjdagost
Some people are questioning the reason behind this offer. Read between the
lines here, folks. Musk has borrowed heavily to invest in SolarCity and Tesla,
and with the ongoing rout in SolarCity shares he is facing a margin call:

[http://www.nytimes.com/2016/06/22/business/dealbook/tesla-
so...](http://www.nytimes.com/2016/06/22/business/dealbook/tesla-solarcity-
elon-musk.html) "But the transaction highlights the unusual moves that Mr.
Musk continues to make to support the various arms of his empire, where he is
the largest shareholder of each company.

He has taken out loans to buy up shares in Tesla and SolarCity, some backed by
his personal stock holdings in both companies — a risky move that leaves him
exposed to margin calls if their stock prices slide too far."

And if there's a margin call, Musk has to sell a lot of his shares to cover,
which imposes considerable risk on the stock price of his companies. From
Tesla regulatory filings:

"Tesla has warned investors in U.S. regulatory filings what could happen if
Musk had to sell the shares. "The forced sale of these shares pursuant to a
margin call could cause our stock price to decline and negatively impact our
business.""

This is just CYA for Musk, dressed up with happy talk about vertical
integration and increasing synergy and such.

Edit: I completely forgot about the massive debt that SolarCity owes to
SpaceX- all the more reason to prevent SolarCity from collapsing:
[http://electrek.co/2016/03/22/elon-musk-spacex-solar-
bonds-s...](http://electrek.co/2016/03/22/elon-musk-spacex-solar-bonds-
solarcity/)

"Last year, SpaceX already purchased solar bonds from SolarCity on two
separate occasions: another $90 million followed by $75 million. SpaceX’s
involvement in SolarCity’s Solar Bond Program is set to total around $255
million"

~~~
netcan
Trying to read between lines, but it's not all that obvious to me what is
going on. Considering Musk's history with big, risky, personal debts I would
not discount the possibility that he is doing something like that here.

Tesla has been making seriously interesting progress in terms of products.
It's far outside the norms of " disruptive tech" that we've gotten used to
with the giant successes of the last decade or two (Google, Facebook,
Uber...). To be Facebook or Uber, you need to put out your version of the
software, be popular, lucky on your timing and (ideally) dig a network effect
moat. There's a lot of risk, but not a lot of capital is involved.

Musk seems to love capital intensive ideas. There are definitely some
advantages to it. Tesla doesn't worry about competition from proverbial
college dorms. The competition they need to worry about is from the likes of
Google (or maybe Uber in the future) or the major manufacturers. Neither seem
like very strong competition. Tesla have ideas that require billions to try
mostly to themselves.

Anyway, I wouldn't discount everything as corporate smoke screens and CYA.
There is at least a decent chance this is what it sounds like. Tesla want a
Solar arm. This purchase makes sense ...and it also lines up well in terms of
converting debt-equity-risk-position-whatnot-intertwined-financial-magic.

~~~
rjdagost
It is important for a business to be thinking long-term. As we all know, that
is Elon's real strength. But the financials of this deal make little sense to
me and many investors view this decision as reckless. Tesla is a cash burning
company- they had to do another large capital raise just last month. SolarCity
is a cash burning company with considerable debt. When Tesla buys SolarCity
they must fund the day to day cash burn and also assume SolarCity's multi-
billion dollar long-term debt burden. With the Model 3 ramp-up Tesla already
has massive cash requirements. SolarCity will add fuel to the cash bonfire.

~~~
netcan
I never know what to think when people bring up "investor concerns" in cases
like this. I mean, I get that investors are owners. But, Tesla is public and
the stocks (are there bonds?) are liquid. This company has both stated and
demonstrated a big appetite for very high risk-reward. If investors don't like
it, they can take their win and get out of Tesla.

This is (in some sense ;-) the opposite to the criticism in your earlier
comment. Tesla is doing what Musk said they'd do, take lots of risk and try to
lead a shift away from fossil fuel. So far we've seen a surprisingly good car
and a very promising looking battery, some charging stations… Now he says he's
adding solar, with it more risk and more potential. Damned as a liar if he's
doing some financial engineering while talking visionary risk taking. Damned
as a loose cannon if he does what he said before (presumably) you bought the
stock and pursuing some massively risky vision.

I mean… hmmm… there are lots of companies you can invest in. One way they
differ is in risk-reward potential. I think it works better if/when CEOs can
decide on strategy and investors can decide to buy/sell shares. Catering to
investors that want to hold but also to moderate the company's strategy
encourages herding, averaging out of strategies.

I'm not an investor in Telsa so I guess I don't have a dog in the fight. But…
I have to say I'm excited to see a CEO (seemingly) not driven by bad
incentives take big risk. I think investors in Tesla should be the most risk
tolerant ones.

~~~
dmoy
Judging by the stock price today, I think that may be exactly what happened,
but only just a bit. Stock is down 8%, some investors have decided to get out
of tesla.

------
a13n
Some people think SolarCity is doing terribly because they're losing so much
money. Actually them losing money is an incredibly great sign for the long run
(assuming they don't run out of money - which Elon won't let happen).

Here's how their business model works:

\- They will install solar panels on your house for free (or cheaper than the
full cost).

\- You pay them a much lower rate than what the public utility company charges
for the electricity generated from those solar panels.

\- You save tens of thousands of dollars and lower your carbon footprint by
hundreds of thousands of pounds of CO2 over 20-30 years.

\- They lose a ton of money installing those expensive panels but make a TON
of money in the long run selling you that electricity that is generated for
next to nothing.

So as you can see, SolarCity losing money is actually a good thing because it
means they're making so many damn sales that in 10 years they're going to be
reaping the profits from those sales like crazy.

~~~
hugodahl
Unfortunately, their business model and pricing is far from competitive in
some areas of the United States. I inquired into their services, and when it
came to pricing, they were at least 50% over the average of all service
providers and plans, and in the bottom 10% as far as price per kw/h.

Also, the home owner has no ownership stakes in any of the hardware. That's
great during the service period (10 years if I recall), where they maintain
and manage the hardware. However, at the end of the term, you are offered to
buy the equipment with a hefty baloon payment. To the point ehere you'd be
better off and come out FAR ahead by paying out of pocket from the onset and
own the equipment outright.

~~~
loceng
The buyers likely can't afford to outright buy. Being the cheapest isn't
usually the best idea in business either. Apple does pretty well being much
more expensive than the average.

~~~
tdy721
I think the key here is batteries. The utilities will fight (lobby) to give
themselves the upper hand when it comes to buying solar power from
_consumers_. Tesla plans to make lots of batteries. Batteries also happen to
be good solution to these legislative issues.

A match made in... the backroom?

It's not about brand at this point, it's about economies of scale and
production?

~~~
Bartweiss
This is an underrated observation.

Converting to metered grids (on which consumers can sell) costs a small
fortune, often for very little benefit. Even environmentalists have been
weighing in against it as wasteful.

Tesla's home battery solution offers an obvious response to this situation -
you can minimize or avoid grid sell-off by doing in-home storage to smooth
demand. That has the potential to make SolarCity an incomparable player in
non-metered markets, keeping with Musk's general "no viable competitors"
ethos.

~~~
jaggederest
Also, Tesla automobiles are giant batteries themselves. If you're looking at
demand shifting, it's rarely a bad thing to have two days of storage capacity
plugged in all night. I think that is where the true magic happens, converting
non net metering markets to profitability.

------
SmallBets
This could be an all time Machiavellian move just to punish the Solarcity
shorts on Wall St., which include Jim Chanos and others. The after hours bump
to SC is killing the shorts and that might be the point more so than the deal
actually closing.

[http://www.businessinsider.com/solarcity-tesla-deal-short-
in...](http://www.businessinsider.com/solarcity-tesla-deal-short-
interest-2016-6)

~~~
sandstrom
It's very unlikely they would do something like this just to punish short-
sellers.

Also, Tesla is also popular among short-sellers, and it dropped in value
(which was expected), so it wouldn't make any sense to 'punish' short-sellers
in SCTY only to 'reward' them in TSLA.

~~~
kordless
Exactly. They are going to corner the energy market with this move. Solar has
arrived.

------
marricks
One simple way this could really help is just in naming. Tesla Energy is sure
to turn more heads than SolarCity as Tesla is a household name now that people
generally have good associations with. SolarCity always sounded a bit generic.

~~~
massysett
Where is Tesla a household name? I never have any exposure to Tesla other than
on Reddit and HN. Even now I know little about the company and my main thought
is "some new company making electric cars that sound expensive, have unknown
longevity, unknown reliability, and unknown depreciation, and will be hard to
service."

On the other hand, Solar City reps harangue me to buy their product every time
I go to Home Depot, and I see their trucks all over the road. I have no
favorable impression of them either--I think "if solar is so great, why isn't
my utility doing it, and why would I sign a long-term contract with some dude
who hangs out at Home Depot and harasses people." But I don't see "Tesla
Energy" having some kind of excellent brand equity.

~~~
rconti
Tesla is a household name among everyone I know up and down the West Coast,
and among every single car or motorcycle enthusiast I know.

But then, both your comments about Tesla and SolarCity seem to be feigning
ignorance as a way to disguise your denigration. Hint: Solar (on-prem) is a
way to deprive your electricity company of revenue, which is why they're not
doing it.

Of course, they use it as some component of their electricity mix, and then
bill you for it.

~~~
ams6110
Utilities are under constant pressure to provision capacity to meet rising
electric demand. If the on-premises Solar City model (front the cost of the
system and installation in exchange for being able to sell the electricity
produced) was proven they would be doing it. Building new generating capacity
is hugely expensive and almost always a major political battle to get
approved.

Many utilities are investing heavily in utility-scale solar and wind
installations. But the reality is that on-premises solar is still a gamble.
Nobody is yet making money at it, quite the contrary.

~~~
djrogers
> If the on-premises Solar City model (front the cost of the system and
> installation in exchange for being able to sell the electricity produced)
> was proven they would be doing it.

No - this completely ignores the way the electric grid, generation, and
distribution work. Just because 'utility solar' is more efficient for large
scale generation, that doesn't mean it doesn't also make sense for individuals
to be able to produce their own electricity.

My solar system has a break even point of 5.9 years - in another 3.4 years I
will be pocketing several thousand dollars per year that would otherwise be
going to PG&E. Doesn't sound like a gamble to me.

~~~
admksx45v65uqpw
The question is, would you have had higher returns investing in a large-scale
solar project?

I have achieved breakeven over buying some produce from the grocery store by
growing it in my back yard, but that doesn't mean it's the future of
agriculture. I guess it would help if the local Whole Foods were required to
buy my excess lemons at the $1/each sticker price.

~~~
roel_v
Growing your own produce is a net negative 'investment', even when you don't
factor in the labor cost. On-premises solar starts making money after a few
years (or today, depending on circumstances - I took out a subsidized loan to
finance them, so no initial outlay, and had lower costs the day they were
installed); centralized solar _might_ make (a few percent) more but you can't
leverage, you don't have control over anything (CEO 200% salary hike? 'sure',
says the board, 'we're paying a 10% dividend aren't we? That's huge by
industry standards!'), and you run the risk of losing everything (whereas
solar panels are on your roof and unlikely to be a total loss).

So very different risk profiles, hence very different risk/reward trade-offs.

------
rock57
In retrospect I find this 3-days-old publication quite... amusing)) "... I [SC
CEO and Musk cousin L. Rive] asked, 'Elon, hey can I have a family discount'
and his answer is, 'Yeah absolutely. Go to TeslaMotor.com, buy the car online,
and the price you see there is the family discount,'" Rive told Tech Insider.
"Everyone gets a family discount."

So there you have it: Musk does not believe in preferential treatment for
family members.

"I give Elon credit beyond the fact of being the best entrepreneur in the
world — he treats everyone the same. Everyone. There’s no nepotism at all,"
Rive said. [http://mobile.businessinsider.com/elon-musk-response-when-
so...](http://mobile.businessinsider.com/elon-musk-response-when-solarcity-
ceo-asked-for-tesla-discount-2016-6)

~~~
mikeash
Supposedly he paid full price for his own cars too. Although I'm sure he can
afford it without too many sacrifices.

~~~
jjeaff
Unless you own 100% of a company, it isn't really ethical to give yourself a
discount or freebies. And wouldn't be legal unless handled correctly with the
tax man.

~~~
mikeash
Employee discounts are extremely common.

~~~
outside1234
Elon is not an employee.

~~~
adventured
Elon is an employee of both Tesla and SpaceX. The discounts conversation was
referring to Tesla vehicles.

------
coliveira
Elon is using a public traded company to save his other failing businesses. In
a sense he already did this before using his private loans guaranteed by Tesla
shares. But at least in that case it was his own money. Now he wants to use
other shareholder's money to bailout his floundering solar energy investment.

~~~
pdq
It does seem like a direct conflict of interest. This will be interesting to
watch if there are any challenges from the SEC.

~~~
partiallypro
The CEO is his cousin, but he has recused himself of voting on the deal. I
doubt the SEC & FTC will care; Wall Street on the other hand, I think they all
see what this is about.

~~~
jonknee
Elon is the chairmen of both companies... It's definitely unusual.

~~~
partiallypro
I didn't say it wasn't unusual, just that the SEC and FTC likely won't bat an
eye.

------
hackguru
So two companies with great potential. One (Solar City) has a problem
convincing investors and is exposed to wide fluctuations and the other (Tesla)
is pretty good at managing expectation and enthusiasm in the market. So I
guess the idea here is to limit exposure in one of them by absorbing it in
another. Might work but goes counter intuitive to the idea that I always
thought was the most important in Musk companies: Focus. Focus on delivering
one main value. Hope this works out.

~~~
kbenson
He's expanding the stack of technologies and resources he can directly
control. First there was the car, but the car is only useful with good
batteries, enough service stations, and cheap power. Step 1, open service
stations and provide cheap power. Step 2, integrate the batteries so you can
control production and reduce cost. Step 3, integrate power generation so you
can control cost of that cheap power you are providing.

This is the equivalent of Ford buying Exxon (which already includes the
service stations), and then offering cheaper gas to all Ford customers. Who
doesn't think that would influence at least some people (or companies! Fleets
of cars!)

~~~
the_watcher
> This is the equivalent of Ford buying Exxon

Henry Ford wasn't a founder of Exxon. Musk is a founder of SolarCity.

~~~
kbenson
I'm not sure how that's relevant. Musk being a founder of both companies
doesn't magically make them different in what they are and do. The pieces of
the pie in play are similar, if apportioned differently. They would combine to
a similar whole.

------
sl8r
Others have already made this point[1] but to me, SolarCity has some aspects
that make it look like more of a of a tax-arbitrage business than a solar
panel retail business. It reminds me a bit of the ethanol blending tax credit,
which led, in some cases, to companies mixing ethanol with petrochemicals
solely for the tax benefit.

[1] [http://www.newsmax.com/BradleyBlakeman/solar-kroll-
subsidy/2...](http://www.newsmax.com/BradleyBlakeman/solar-kroll-
subsidy/2015/10/12/id/695764/)

~~~
twelvechairs
You are probably right but (1) SolarCity would be foolish as a business _not_
to take advantage of tax incentives (2) the primary purpose of these
incentives in the first place should be exactly this - to encourage businesses
like solarcity (3) over the long term of course the business model assumes
panel prices reduce and become more efficient so the tax thing isnt required
in the long term to prop them up

~~~
makomk
There's taking advantage of tax incentives, and then there's this:

"According to the Kroll report, SolarCity reports solar system costs when
claiming tax credits that are 75 percent higher than solar system costs
disclosed to investors in the company’s quarterly investor earnings call."

~~~
TheCondor
That's a legal tax loop hole though, they are allowed to file based on retail
prices they sell their panels for even though they buy them at wholesale bulk
prices

------
pfarnsworth
What a disaster. The purchase makes no real sense, unless you bend over
backwards to try to force a rationalization. Anyone who thinks this is a good
idea can't read a financial statement. Solar City as an investment is
terrible, and even Goldman Sachs recently said they were one of the worst
performing companies in the sector.

I'm expecting a ton of shareholder lawsuits at this point. The idea that Tesla
was buying SCTY bonds is sketchy enough, the idea of buying the entire company
is just insane.

~~~
a13n
Why is this a disaster?

Why doesn't the purchase make sense?

Why do you think I can't read a financial statement?

Why is SCTY a terrible investment?

Why is buying the entire company insane?

You've said absolutely nothing constructive or useful, just a bunch of (wrong,
imo) opinion.

~~~
pfarnsworth
1) TSLA is spending money it doesn't have to purchase a money losing company
that does very little to help spur electric cars. Even if they did, the
purchase and association with TSLA would have to somehow have a halo effect
that doesn't currently exist. This will not happen because there's no way to
increase sales of either. They could have just had a licensing deal or
something, instead of purchasing the company at a premium.

To purchase a company that is so far away from your core-business model, ie.
electric cars, is insane and fiscally irresponsible. Terrible ideas like this
are what distract companies and cause them to fail. Look at Time-Warner
purchasing AOL. SCTY is a financing play, that just happens to use solar power
as its vehicle. It's maniacal rationalization to believe that this actually
helps either business or will justify the purchase price.

2) See #1.

3) Anyone who thinks this is a good purchase can't read a financial statement,
because otherwise they would see what sort of cash-flow-negative situation
both TSLA and SCTY are in. Companies like this do not go and buy money losing
companies that also burn cash.

4) See #1.

5) See #1.

6) I disagree with you.

~~~
imtringued
I'm pretty sure there is at the very least a tiny bit of synergy between
consuming electricity and producing electricity.

------
minimaxir
SCTY up 23% after hours
([http://finance.yahoo.com/q?s=SCTY](http://finance.yahoo.com/q?s=SCTY)), TSLA
_down_ 7%?
([http://finance.yahoo.com/q?s=TSLA](http://finance.yahoo.com/q?s=TSLA))

~~~
slg
The change in stock price doesn't give the complete picture. You want to look
at the change in market cap. There is roughly a 10x difference in the change
of market cap with SolarCity increasing by roughly $350 million while Tesla
decreasing by $3.5 billion. Tesla has actually lost more shareholder value
than it would even take to purchase SolarCity. That would seem to indicate
Tesla shareholders feel that SolarCity as a company has negative value. I'm
not quite sure what to make of that.

~~~
tinco
From what I've seen highly volatile stocks (such as TSLA) have a sort of
flyweight effect, if they go up the market expect them go up fast so the go a
little bit higher than is rational, same way if they go down.

------
abalone
_you would be able to deploy and consume energy in the most efficient and
sustainable way possible, lowering your costs and minimizing your dependence
on fossil fuels and the grid_

Naive question: Why is minimizing dependency on the grid more sustainable?
Doesn't connecting with the grid allow you to distribute excess power more
evenly?

~~~
gpm
I read those as separate benefits.

It's more sustainable because of transmission losses, reusing the real-estate
of your roof, and I believe doubling as partial shading and insulation.

Minimizing dependence on the grid is a benefit because power outages exist,
and sometimes they can really suck.

~~~
abalone
Even if those are separate phrases they still claim it's "the most efficient
way possible" to consume energy. But there are energy losses when going
through a battery instead of redistributing the energy in realtime -- much
greater than transmission losses. So unless I am missing something, that
appears to be a false claim.

~~~
dvdkhlng
I think you need to factor in the costs incurred by building and maintaining
high voltage power transmission lines. These have to be payed for by users of
the power grid. If you go off grid, then you not only reduce transmission
losses, you also eliminate costs for use of the power distribution
infrastructure.

------
fencepost
Seems to me that if Tesla can bundle things from companies/divisions they own
it may work out well for them. Driving a Tesla? Bring it home and plug it in
to pull power from your PowerWall, which was charged during the day by your
SolarCity panels. Charge a little less on the secondary items, but increase
your volume by trying to drive sales to Tesla vehicle owners who might
otherwise have never considered such a thing.

If they can combine the PowerWall with the vehicle charging station, that just
makes it better.

~~~
josh2600
I think the major problem is the total lack of synergy between Tesla and SCTY.

Tesla has a sales program which is basically 0 marketing, 0 sales, 100%
inbound and SCTY is tele-sales + door to door (which is payroll intensive and
harder to manager). Tesla has an operations cycle which is completely
centralized except for the car delivery. All of SCTY is contractors installing
stuff on customer roofs.

I do not see any operational synergies between the two companies except for
the superchargers (and buying SCTY for superchargers feels wrong).

~~~
azernik
What the press release talks about is combined installation of solar panels
and Tesla home infrastructure (charging station + Powerwall). I think that
speaks to the sales perspective too - it could be very easy to upsell the
(incoming) Tesla customer to a Tesla + SolarCity installation, for a lower CAC
than the usual SolarCity sale.

~~~
josh2600
I get that, but do they really need to buy solarcity to do that partnership?
Why would SCTY not just become a sales channel for TSLA?

~~~
gpm
Optics for consumers, it feels more scummy to have one company advertise
another than a company advertise itself. At least to me.

It also makes the accounting simpler and liability, this way no one is going
to sue Tesla for giving too good a deal to Solar City, or the reverse.

------
aerovistae
Trying to work something out here, need input, as I've never had this happen
before:

I advised a friend to buy Tesla and SolarCity stock some time ago, and they
did so. The SolarCity stock was much higher at the time than it is now,
perhaps $60-70.

I see that the offer from Tesla involves "0.122x to 0.131x" exchange for Tesla
stock. So what does this mean for people whose positions in SolarCity were
currently down? They have to hope the Tesla stock eventually goes up enough to
recover the loss they suffered on SolarCity?

~~~
jonknee
Yes, and up significantly. This is valuing the SCTY shares at $26.50 to
$28.50. Your friend would need to wait for TSLA shares to more than double
(which would be a higher market cap than Ford, GM, Honda or Nissan).

~~~
aerovistae
Personally I anticipate that won't be a long wait for the patient investor.

~~~
ams6110
Hm I'm not so sure. Ford sells about 5 vehicles per minute around the clock
worldwide, they're just a _bit_ ahead of Tesla.

~~~
toomuchtodo
Total market for vehicles (Ford) compared to total market for energy storage &
vehicles (Tesla).

------
partiallypro
Given that both companies have insane cash burn and negative cash flows. This
would make me very worried if I'm an investor. Not that I wasn't worried
before. There's a reason short interest in both companies is fairly high.
Their financials are pretty bad.

------
dhaivatpandya
How is conflict of interest generally handled in this sort of situation?

Given that Elon Musk is personally major investor in SolarCity and Tesla is a
publicly traded company with obligations to its shareholders, would Elon be
removed or limited in his ability to control negotiations with SolarCity? Even
though it seems like an acquisition of SolarCity would fit within Tesla's
overarching strategy, price negotiation could probably be affected by Elon's
interests within SolarCity.

~~~
adventured
No, not necessarily (re Elon being limited or removed). In fact, that's very
unlikely.

For example, Berkshire Hathaway has occasionally run into conflicts of
interest over its long history. They've usually handled them by being as
transparent and open about the details as possible. In one famous acquisition,
they intentionally over-paid for the company they were buying that they
already held a large stake in. They told the SEC during a questioning about
it, that they over-paid by a bit because they wanted their new shareholders to
be happy, long-term partners. The SEC regulators apparently struggled to
understand the premise, per Buffett's biography.

I would suggest in Elon's case, that his best bet is to be extremely open
about all details of the acquisition, including how the price was arrived at.
Tesla should pay a bit more than what would otherwise be normal. The more
transparent the better. There's nothing to inherently restricts Elon's role
here, regulation wise, but he does need to be a bit careful so as to avoid
setting up an easy lawsuit.

~~~
AJ007
There are a lot of other comments here about margin calls and short sellers,
but ignoring all of that, if Tesla had some financial interest in SolarCity,
and Elon wanted to buy SolarCity, it may be a conflict of interest if Elon
Musk personally attempted to acquire SolarCity instead.

During the most recent Berkshire shareholders meeting Warren mentioned that he
tries to never personally buy anything that Berkshire owns or would have
interest in owning (and he does personally own financial assets outside of
Berkshire.) It is a pretty clear gulf for him and fairly easy since Berkshire
operates as a holding company.

The whole view of conflicts of interest can not be fully be evaluated without
untangling the exact details and facts of both Elon's ownership interests and
Tesla's.

I own a tiny amount of both companies but I don't know enough concrete details
about SolarCity. Conceivably if Tesla is moving heavily in to the
battery/energy storage business SolarCity could have assets that are much more
valuable to that business. I don't know if there is valuable IP, or maybe even
the current SolarCity customer base is worth a lot as battery pack customers.
Presumably a Tesla battery pack/powerpack doesn't make a lot of sense if the
customer doesn't have solar power? If there is an overlap between customers
and SolarCity is in bad financial shape, then the acquisition could make
sense.

There is a lot of guessing here, and its probably something that may be really
obvious either way only years from now.

------
sabertoothed
In combination with the battery business this just makes sense. It is
perfectly vertically integrated.

~~~
jonknee
How does it make sense? SolarCity is losing an extraordinary amount of money
and is heading toward a bankruptcy. Tesla does not have the free cash flow to
stop the bleeding.

Elon is a very large (~20%) SolarCity shareholder and this is pretty much a
bailout for him.

~~~
aerovistae
Elon will end up with about one Tesla share for every ten SolarCity shares he
previously owned. How does this in any way bail him out or save him? Save him
from what, exactly?

Now Tesla is "burdened down" by SolarCity, if you prefer to think of it that
way. If anything it's liable to hurt Tesla's stock while SolarCity gets its
feet under it. As Tesla's stock drags down, Elon will lose more money than the
20% of $2.1 billion that his SCTY stake was worth today. That's a $420 million
stake, and Tesla just dropped $3.2 billion in market cap when this news came
up.

I'm totally guessing, but it seems to me this move protects SolarCity from the
danger it was in. If SolarCity can make it a bit longer, a couple more years,
which they will with no trouble (they were not on the verge of bankruptcy
whatsoever), soon Tesla will have all the revenue they need to help SCTY grow.
And that's Elon's gamble, as has it all been.

~~~
caminante

      How does this in any way bail him out or save him? 
      Save him from what, exactly?
    

Alternatively, he'd lose up to $478 million (MV of his % of CSO).

------
ForHackernews
Is it legal to use one of your companies to bail out the other? What about
obligations to shareholders?

~~~
haser_au
> In addition, as a result of their overlapping directorships, Elon Musk and
> Antonio Gracias have recused themselves from voting on this proposal at the
> Tesla board meeting at which it was approved, and will recuse themselves
> from voting on this proposal at the SolarCity board as well. Source:
> [https://www.teslamotors.com/blog/tesla-makes-offer-to-
> acquir...](https://www.teslamotors.com/blog/tesla-makes-offer-to-acquire-
> solarcity)

They're not voting in the board meetings, so can only recommend it to the
board and then not vote.

~~~
RandomBK
They won't be abstaining from the shareholder vote, though.

------
cespare
Isn't it unusual to make an offer as an "open letter" like this? I thought
these discussions generally happen behind tightly closed doors.

~~~
jonbwhite
It the letter it noted that the reason for the public disclosure was due to
Elon's significant stake of ownership in SolarCity and SEC disclosure
obligations.

~~~
cespare
Ah, there it is. I had read the blog post but skipped the letter.

------
yyyuuu
Tesla, Solarcity and SpaceX are eventually going to merge together to create
an hyper advanced ecosystem of extremely fast travel, within and outside the
confines of Earth. Hyperloop is going to complement this ecosystem quite well.

Basically, Elon Musk is walking into the history books and folklore and we are
the ones to witness his humble beginnings.

His efforts/ventures, if successful even marginally, will play a large part in
the next technological jump that Humans are going to take as civilization, the
previous one being the Western Industrial revolution of the 19th century.

~~~
jomamaxx
Ha ha ha ... he he ...

I remember when I was 21 in the Valley ...

------
suavesav
With 98.1 million shares outstanding and an offer price of $26.5 - $28.5 per
share. This puts the potential cost of acquisition between $2.6 billion and
$2.8 billion.

~~~
aerovistae
Yes, I too am extremely curious how this factors into Tesla's expenditures
plan....where do they find the money for these things?? He must have been
planning this for some time.

~~~
pns
It's an all-equity deal from the letter

~~~
aerovistae
Oh...of course. This makes a lot of sense.

------
paulsutter
The key here is they feel that Tesla customers will be interested in solar,
and that Solarcity customers are interested in Tesla. Offering new products to
the same customers works great - the core of every business is acquiring
customers, and selling more (and related) products to the same customers
conserves that core effort.

The disaster is when a company takes on a new product for /new customers/.
That is when a company's efforts are diluted.

------
r3pl4y
Now SpaceX only needs to start producing electric rockets, then they can all
be unified.

~~~
stevesearer
Elon Musk has publicly mentioned electric aircraft actually:
[https://en.wikipedia.org/wiki/Musk_electric_jet](https://en.wikipedia.org/wiki/Musk_electric_jet)

That wiki doesn't mention it but I remember from an interview something about
being able to fly higher and therefore faster because you don't need to worry
about a combustion engine and necessary oxygen levels (could be way off
though).

~~~
AshleyGrant
Lack of oxygen to burn fuel for the engines isn't the only thing that keeps
civilian aircraft generally below 50,000 feet. There's a few other things.

For subsonic aircraft, the higher they go, the smaller the "coffin corner"
gets. As air gets thinner, the speed of the aircraft where it will stall goes
up (in terms of True Airspeed. In terms of Indicated Airspeed it basically
stays the same which is why coffin corner is a thing). At the same time, the
speed of the air moving around the wings gets faster and faster. This is
because the aircraft has to move faster and faster through the air to move the
same amount of molecules of air over the wings to create enough lift to hold
the aircraft up. At a certain point, the stall speed of the aircraft equals
the speed at which air moves over the wings at supersonic speeds. The aircraft
stalls while simultaneously overspeeding. Bad things ensue. It is possible to
design around this (see U-2), but for civilian aircraft, there's little
benefit compared to flying at more typical flight altitudes.

The other issue is in regards to the length of time the pilots will stay
conscious in the even of cabin depressurization. For aircraft that fly at high
altitudes, the autopilot will have an emergency descent mode in the event that
cabin altitude rises above a certain point. This is less of an issue than the
first one, though.

In the end, this means that for an electric aircraft to fly higher and faster,
it would end up needing to fly at supersonic speeds, and thus deal with the
increased energy requirements of that, as well as the regulatory hurdles.

This doesn't mean we won't eventually see electric airliners, but they
probably won't have a much different flight profile than today's aircraft.

------
gist
For anyone who doesn't know Musk is also the Chairman of Solar City.

------
restalis
It's not "market penetration" anymore, now we have "customer penetration"?!
The Tesla Team must have a truly disruptive view on the world.

------
adventured
Tesla will be picking up an additional $2.6 billion in long-term debt, and
only $413 million in cash, if the deal completes. They'll also pick up the
interest tab at about $120+ million per year in fresh red ink.

It'll bring Tesla's total long-term debt up to $5 billion or so, and push
their net tangible assets negative. They'll likely get some debt downgrades
out of this.

------
ricw
this is the future of energy! end to end energy production, storage as well as
one of the greatest energy users all under one roof. combined in a useful
package, this could change the energy market dramatically.

if tesla now produces a range of trucks and thereby also enters the
transportation sector, they're completing the full circle.

~~~
jsprogrammer
Does Tesla have mining operations? Does SolarCity make its own panels?

~~~
deepinsand
I believe it was going to start manufacturing its own panels (IRIC in NY
State)

~~~
netinstructions
SolarCity was making their own "gigafactory" in Buffalo, NY last I heard -
[https://www.technologyreview.com/s/600770/10-breakthrough-
te...](https://www.technologyreview.com/s/600770/10-breakthrough-
technologies-2016-solarcitys-gigafactory/)

~~~
jsprogrammer
That article says that New York state is paying for _and_ building the
factory.

------
avipars
Conflict of interest? Elon Musk is on the board of SolarCity and his cousins
started the company

------
imanagedog
This is fortuitous timing for me. Interestingly (to me), I had a stop loss set
to sell all my TSLA at 220.50 today if the stock started to drop again. It did
today, so my order was executed. Suddenly this happens.

------
foota
Well, it does fit with their mission statement "Tesla’s mission is to
accelerate the world’s transition to sustainable energy."

------
seesomesense
Related party transactions smell bad

------
anonymous7777
What is this guy doing? I think he is trying to transfer money from one
account to another?!

------
markokrajnc
This may be >>very good<< for SolarCity and >>just good<< for Tesla.

------
vishnuks
Is it common to make the offer letter public before the deal is made?

~~~
davej
It's required because Elon Musk is already a significant stockholder in
SolarCity.

------
heurist
Looking forward to the day when SpaceX finds a way to launch satellites with
massive batteries that harvest solar energy from orbit and transports them to
and from Earth (to feed Tesla's recharge network).

------
datamingle
I think this is a great move for Elon to devote more time for SpaceX. His
cousins will eventually be running the combined Tesla/SolarCity company.

~~~
decasteve
Almost, but not quite. JB Straubel will be the next Tesla CEO. This will
happen after the Model 3 launch and after Tesla sells off its car
manufacturing to focus on battery/energy/infrastructure.

~~~
neurotech1
Do you have a source for selling off the car manufacturing part of Tesla?

Its worth noting that JB Straubel is just as passionate about electric
vehicles as Elon is. JB actually worked on electric aircraft at his previous
company, Volacom.

[https://en.wikipedia.org/wiki/JB_Straubel](https://en.wikipedia.org/wiki/JB_Straubel)

~~~
decasteve
No source. Armchair prediction. Not to be taken too seriously.

------
setheron
didn't his brother start SolarCity or something like that ?

~~~
apocalyptic0n3
Two cousins of his founded it based on a concept by Musk, who I believe helped
them start it up and serves as Chairman still.

------
dang
> _Your argument is shallow, specious, and ignorant._

Please (re)-read what the HN guidelines have to say about not calling names in
arguments
([https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)).
We ask people to edit this kind of thing out of their comments here. That will
not only make your comments more polite, but more substantive too.

~~~
aerovistae
Edited. I agree. Sometimes hard to avoid the temptation.

~~~
dang
Appreciated! We detached this subthread from
[https://news.ycombinator.com/item?id=11949814](https://news.ycombinator.com/item?id=11949814)
and marked it off-topic.

------
ams6110
Why did you post the same comment in two places?

~~~
dang
That was bad but forgivable. We've killed the other comment and marked it as a
dupe.

We detached this subthread from
[https://news.ycombinator.com/item?id=11949754](https://news.ycombinator.com/item?id=11949754)
and marked it off-topic.

------
Zelphyr
I can't help but wonder if this went down:

 _Elon Musk: I want to buy Solar City. Can I get a family discount?_

 _Lyndon Rive: Everyone gets a family discount._

\-- Sometime later --

 _Lyndon Rive: Hey Elon, can I get a family discount on a Model X?_

 _Elon Musk: ..._

~~~
sandstrom
Or the other way around :)

(in that case he'll regret not giving a steep discount on that Model X)

------
jonknee
A bad name isn't why SolarCity is an awful business.

~~~
smellf
Just wondering, why is it bad? Does their leasing model screw the homeowner?

~~~
toomuchtodo
It doesn't "screw" the homeowner per se, but its not as financially beneficial
to them as them financing the system themselves (which, admittedly, can be
difficult for a lot of homeowners). If Solar City can still be profitable
financing installs instead of doing PPAs, and sales can be turned around using
the Tesla model, its a win.

I'm pretty sure the big win is giving Solar City access to Tesla's financing
facilities.

~~~
tomp
> but its not as financially beneficial to them as them financing the system
> themselves

You could say that for pretty much every service you buy. Yet people keep
spending money for things they could do (cheaper) themselves!

~~~
toomuchtodo
No no, I don't mean them installing their own systems vs Solar City doing it.

If you have a PPA, the installer reaps all of the financial benefits. If you
finance the system, you get all of the financial benefits. Its the difference
between leasing a car versus financing it and then driving it until the wheels
fall off (keep in mind, panels have a 25 year warranty but will still produce
above 80% capacity for decades after that).

~~~
tomp
Again, you could make the same argument for all consumer finance services. Car
leasing (as you mentioned), mortgage, student debt...

------
niels_olson
The divided tenor in this thread makes me wonder how many people don't realize
just how fast tech is accelerating.

~~~
mac01021
Can you elaborate? I'm not sure how failing to realize that tech is
accelerating relates to the content of this thread.

~~~
TillE
Solar keeps getting cheaper. People are wagging their fingers about bad
financials, when SolarCity is still building a huge state-of-the-art factory.

When investing in something like this, it doesn't really make sense to look at
what they're doing now, but where they're going to be in the near future.

~~~
omarchowdhury
What they are doing now is directly connected to the future. Question is, is
the current state of affairs sustainable?

------
jpeg_hero
SolarCity moves 100% of their product through churn-and-burn tele-sales.

Elon may have a rude awakening transitioning from"pull" marketing to "push"
marketing.

You can't do a 1hr webcast and get 400k solar "pre-pays."

~~~
tlb
What do you mean by churn-and-burn in the context of rooftop solar? Most
people have only one roof, so a solar installation is a one-time purchase.
What would low churn look like?

~~~
jpeg_hero
If boiler room selling is not hardcore enough for you, looks like SolarCity
will let you go full "Glengarry Glen Ross" with an in-person "sit" at the
customer's house for the real hard sell...

>You will be responsible for identifying potential customers, answering their
questions regarding our service and driving to customer consultations and
signing them up for our service in their homes.

>TOP PERFORMERS ONLY!

>Unlimited Earning Potential

>2 years prior experience in a quota-driven sales position highly preferred

>This position requires proactively approaching customers throughout the store
by engaging the customers in one-on-one discussions and _regularly moving with
them as they shop_

[http://www.indeed.com/cmp/SolarCity/jobs/Sales-
Representativ...](http://www.indeed.com/cmp/SolarCity/jobs/Sales-
Representative-Work-1a5945a7b6ff9b19)

~~~
NikolaNovak
WoW. Exactly like a job I almost took but luckily bailed out of as a
teenager... still causes shudders, thinking about being on either side of that
relationship :-O

~~~
imanagedog
This is hilarious. In my first year of college I almost took a job at a car
dealership. I did the group interview and "sold" them a stapler. They were
very impressed and offered me a job. One of them told me it wasn't compatible
with college given the time commitment and that I should quit college and take
that job, pointing to his "success" of owning five cars.

I went to college instead.

