Elon Musk sought out to design a clean energy force for Tesla, maker of his electric cars, who offered to purchase SolarCity in a stock deal worth $2.8 billion.
Tesla shares plummeted more than 13 percent to $189.99 in extended trading, resulting in a value loss of $4.3 billion. Shares of SolarCity increased by 18 percent to $25.02.
Elon Musk is the CEO of Tesla and the Chairman of SolarCity. He is also the largest shareholder of both companies. Musk says it’s a no-brainer to follow through with the deal. He states that the company could now sell a home battery, an electric car, and a solar system all at once. Now in a single visit they can integrate solar panels, car chargers, and battery packs rather than making three separate trips.
However, Tesla investors dismissed the company’s shares. An analyst at Tigress Financial Partners says that the move may take away focus from expanding Tesla vehicles. Also, the move could financially strain the company. SolarCity has about $6.24 billion in liabilities and debt, but Tesla executives say its income for their solar systems would pay for the debt.
Although SolarCity is the U.S. market leader in residential solar systems, it posts quarterly losses regularly, and the stock value has fallen 60 percent this year. Investors say their business model is too complex in an increasingly competitive market.
Tesla will offer the solar systems under the premium Tesla brand. Tesla is looking to expand with a $35,000 electric vehicle known as the Model 3 set to deliver next year.
Musk owns 19% of Tesla Motors and 22% of SolarCity. He says he will not vote on the deal, and could not say how soon shareholders could vote.
Musk’s cousin and SolarCity CEO Lyndon Rive said he supported the contract but will also refrain from voting. Rive’s brother is also a founder of the company and its Chief Technology Officer.
Where It All Began
Musk and Lyndon Rive came up with the idea for SolarCity in 2004. SolarCity has become the top residential solar installer in the U.S within a decade. They credit their success to a no-money-down financing proposal offering residents to pay a monthly fee for their solar panels. The proposal results in paying less than they would on their local utility.
Tesla said their management would host a conference call where they plan to discuss the rationale surrounding the offer. The conference call is scheduled for Wednesday before U.S. markets open.