Ilon Mask proposed to combine Tesla and SolarCity

A new product will appear in Tesla stores: solar panels

Ilon Mask, the executive director and the largest shareholder of Tesla Motors and SolarCity , proposed to merge the assets of the two companies by exchanging shares. According to experts , such a shuffle of the deck in the technological and energy empire Ilona Mask has an economic meaning.

In March 2015, Tesla Motors launched a subsidiary, Tesla Energy , which offers household lithium-ion batteries, Powerwall and Powerpack, to power homes and businesses from renewable energy sources. One of the leaders in the global solar market SolarCity is the missing element in this picture.

Energy company SolarCity is engaged in the design, financing and installation of solar energy systems. The company employs more than 13,000 people. The company was founded in 2006 by brothers Peter and Lyndon Riva, who implemented the idea of ​​their cousin Ilona Mask. Ilon himself became the head of the company and helped with the launch of the project.
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For ten years, SolarCity has maintained leadership in the installation of solar panels in California, ranking second in the number of installations in the United States.



The main business of SolarCity is leasing of solar panels to private homeowners (that is, installing practically free of charge) in such a way that the monthly leasing payment is less than the bill for electricity from utility companies.

In addition to private households, SolarCity customers include large organizations such as Walmart, Intel, and the US Army.

Tesla offered SolarCity shareholders an exchange of shares at the rate of 0.122 or 0.131 Tesla shares per share of SolarCity, that is, with a premium of 21% or 30% relative to the market price, based on yesterday's SolarCity share prices ($ 21.19) and a five-day weighted average share price Tesla.

After the announcement of the offer, the market adjusted, based on the new assessment and the likelihood of concluding the deal: Tesla shares fell by 15%, SolarCity shares rose by 12%.

“This is what we have been thinking about and discussing for many years,” commented Ilon Mask on the future deal. “But the right time seems to be now.” Ilon Musk means that in a month Tesla Gigafabrika for the production of lithium-ion batteries, which are planned to be used for the manufacture of household lithium-ion batteries, Powerwall and Powerpack to power homes, will come into operation. These devices are ideally combined with solar power plants, which are installed on the roofs of the company SolarCity.

The transaction must approve the shareholders of companies. Ilon Musk himself, the main shareholder, withdrew from voting, as did the chairman of the board of directors of both companies, Antonio Gracias.

If the shareholders approve the deal, then after the merger, the state of the combined company will be 30,000 people, and all products will be united under a single Tesla brand. It will include electric cars, batteries and solar panels for the consumer market.

Financial experts have expressed some concerns about the financial stability of the business. For example, Tesla Gigafabrika worth $ 5 billion will start generating profit no earlier than 2020, and Tesla recently announced an additional sale of shares to raise another $ 1.7 billion to cover capital expenditures.

Tesla's market capitalization is $ 32.7 billion, and SolarCity's market capitalization is $ 2.1 billion.

In 2014, Tesla Motors net loss amounted to $ 294 million, in 2015 - almost $ 900 million . SolarCity's net loss also doubled in 2015 to $ 769 million .

In addition to these two companies, Ilon Mask is also the executive director and the main shareholder of another company - Space Exploration Technologies (SpaceX). In 2014, SpaceX was the largest buyer of bonds worth $ 214 million, which SolarCity issued.

Since 2013, Tesla Motors shares have grown by more than 500%, although the company has not yet begun to make a profit. Investors are wary of Tesla spending, in which someone sees "signs of burning money."

Personally, Ilona Mask owns 22,160,370 shares of SolarCity. If shareholders approve the exchange of shares with a premium to the market price, then the value of this asset, Ilona Mask, will increase from $ 587,249,805 to $ 631,570,545.


^{Elon Musk}

Ilon Mask financed his companies when they needed money, bought their shares and opened personal credit lines on the security of their remaining shares. Possible financial destabilization in such a situation is threatened by a margin call, that is, a forced closing of a position. In other words, if the shares of SolarCity continued to decline, then additional financing would be required for open credit lines, otherwise ... well, I don’t even want to think about it.

Exchange for Tesla shares solves the problem with the reduction of SolarCity shares. Exchange of shares also solves the problem with a large debt of SolarCity to SpaceX.

Ilon Mask himself believes that the new deal does not increase the financial risks for Tesla shareholders, but only “multiplies opportunities for both companies.”

The main thing is to have enough finance to start mass production of the mass model of Tesla Model 3 electric vehicle, which should enter the market in the second half of 2017 at a price of $ 35,000 and for which more than 400,000 pre-orders have already been received.