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Tesla-SolarCity merger could be fraught with danger -- and big potential

Lucas Mearian | July 4, 2016
Both companies have the same majority stock holder

On the surface, a merger between Tesla Motors and SolarCity looks like a winner: They have a similar customer base, use each other's manufacturing facilities and technologies -- and of course, there's the family ties.

Tesla founder and CEO Elon Musk is also the co-founder and chairman of SolarCity, which is run by fellow co-founder and CEO Lyndon Rive and his brother, CTO Peter Rive -- both of them Musk's cousins. Musk owns 22% of SolarCity's stock and 21% of Tesla.

"In my personal opinion, this is obviously something that should happen. It's a no-brainer," Musk said during a conference call last week on the proposed merger.

"Instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit," Musk continued. "It's an obvious thing to do."

MJ Shiao, director of solar research at GTM Research, said he shares Tesla's vision that a comprehensive and integrated energy solution "will be necessary for consumers to control their own energy destiny in the wake of changing electricity rate structures across the country.

"However, it's unclear whether a merger is necessary for Tesla and SolarCity to build and brand these products together," Shiao added.

Industry experts say the plans by Tesla to buy SolarCity in a $2.7 billion all-stock deal announced last week aren't likely to work out for several reasons -- including similarities between the companies.

Raj Prabhu, CEO Mercom Capital Group, a clean tech research and communications firm, said he's skeptical of the merger because the ties between the two companies will likely create conflicts of interest.

"Both companies have the same majority shareholder, both are run by family members and their board members have ties to both companies. All of which can create serious governance issues, even with family members recusing themselves from the vote," Prabhu said.

Musk and Antonio Gracias, who serve on the boards of both companies, have said they will recuse themselves when SolarCity's board takes up a merger vote. Peter Rive also said he would abstain from SolarCity's merger deliberations.

SolarCity SolarCity

SolarCity workers install a photovoltaic rooftop system.

Beyond the fact that Tesla's "Gigafactory" in Nevada will produce lithium-ion batteries for both its electric cars and for SolarCity to sell to customers for home and business use, some have speculated that Tesla's retail stores could be used to sell solar installations combined with the finance lease and loan expertise of SolarCity.

Last year alone, Tesla received a significant amount of revenue from selling lithium-ion battery systems to SolarCity; in fact, it amounted to 36% of all behind-the-meter battery revenue, according to GTM Research.

 

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