Speaker 1: The shares of a Tesla Motors today fell more than
Speaker 1: ten and a half percent. Well, is there any specific
Speaker 1: news from the company that would cause such a decline?
Speaker 1: Not necessarily, although Wall Street is questioning whether Elon Musk's
Speaker 1: plan to combine Tesla Motors with Solar City will actually
Speaker 1: go through or even as good for the companies. Here
Speaker 1: to tell us more is Salim Morsey, Advanced Transport analyst
Speaker 1: for Bloomberg New Energy Finance. Salium, thanks very much for
Speaker 1: being with us, Thanks for having me. Is there any
Speaker 1: technical reason, any strategic reason why combining a solar power
Speaker 1: company with an automobile manufacturer that admittedly is building out
Speaker 1: that giga factory for batteries, But is there a technical
Speaker 1: reason why they are a fit? A technical reason, not
Speaker 1: so much. I think this has been a quite a
Speaker 1: loadly day for Elon Musk uh since announcing UH this
Speaker 1: UH this proposed acquisition the the this this falls into
Speaker 1: a narrative of a unified vision that Musk has that
Speaker 1: far exceeds I think the the time horizons that investors have.
Speaker 1: This has to do with the fact that he wants
Speaker 1: to integrate this his his vision of having clean energy
Speaker 1: powering vehicles that are zero tail pipe emissions. But in
Speaker 1: the short term, I think investors are having a very
Speaker 1: hard time understanding the ins and outs of this proposed deal.
Speaker 1: Why is it because we don't understand Investors unless they're
Speaker 1: very specialized, don't understand the the industry, the technology. I
Speaker 1: think that's part of it. That there was a very
Speaker 1: famous question in the last earnings called solar City that
Speaker 1: simply asked them what is solar city? Leaving leaving that aside, though,
Speaker 1: Tesla is facing existential milestones it has to meet in
Speaker 1: the next two years. It's valuation depends on it. The
Speaker 1: equity rates that it uh did in the market about
Speaker 1: a month ago also depends on it, and those are
Speaker 1: very simple and straightforward in many ways. Though it's ramping
Speaker 1: up the production of Model three half a million cars
Speaker 1: a year, they say, by as well as building the
Speaker 1: largest battery factory in the world. That takes a lot
Speaker 1: of capital and a lot of focus. And it's not
Speaker 1: clear at all that acquiring a solar company helps execute
Speaker 1: those goals. And this would also be a family business,
Speaker 1: wouldn't it exactly? So it's his two first cousins are
Speaker 1: the the run Solar City they came up with this
Speaker 1: idea when they were going to burning Man, so says
Speaker 1: the kind of urban folklore about about how the company
Speaker 1: was started. So yes, Elon Musko's about both of Tessa
Speaker 1: and Solar City, and his first cousins run the solar company.
Speaker 1: He's recused himself as a shareholder and voting for this,
Speaker 1: uh this deal. But certainly I think there's going to
Speaker 1: be some corporate governance issues going forward. Well, um, you
Speaker 1: yourself have said that in terms of a Solar City acquisition,
Speaker 1: it doesn't help him. Elon must that is, execute critical
Speaker 1: milestones like keeping its focus on completing its Giga factory
Speaker 1: quickly ramping up production and model of the Model three.
Speaker 1: And yeah, I mean that that's exactly right. I think
Speaker 1: that that, you know, the Tessa and and the valuation
Speaker 1: of the company has been giving a lot of leeway
Speaker 1: in the last few years because folks have been willing
Speaker 1: to follow Elon Musk and his vision. I think today
Speaker 1: the company hit a critical kind of fork in the
Speaker 1: road where love investors said, Okay, hold on, you're loading
Speaker 1: up Tesla now with over three billion dollars of debt
Speaker 1: from Solar City for an enterprise value of solar City
Speaker 1: that is just under six billion dollars and it's a
Speaker 1: you know, a company that has had deteriorating financials, specifically
Speaker 1: their balance sheet. And again it is really not clear
Speaker 1: how these quote unquote synergies fit into each other. And
Speaker 1: if you listen to a conference call that Musk had
Speaker 1: this morning to kind of justify this deal, the narrative
Speaker 1: was really around this unified vision of long term goals.
Speaker 1: But sadly for him, I think in the short term,
Speaker 1: investors are interested in return on investments and that didn't
Speaker 1: particularly impress anyone in the market today. Well, as you said,
Speaker 1: taking a look at the share price for example of
Speaker 1: solar City, Uh, the offered range of the deal is
Speaker 1: between twenty six and a half and twenty eight and
Speaker 1: a half bucks of share. The stock traded higher today,
Speaker 1: but it closed, So that kind of tells you what
Speaker 1: investors think. Yeah, exactly, So I mean that, you know,
Speaker 1: I think the share price has been sliding for for
Speaker 1: more than a year now on you know, essentially the
Speaker 1: fact that people like Jim Chaino is a famous short
Speaker 1: of solar City, is calling it a consumer finance company
Speaker 1: and it's frankly a commoditizing business, and commodities you know,
Speaker 1: usually don't generate great margins. They're usually low margin business.
Speaker 1: Is one of the pitches that we heard Elon musk
Speaker 1: Uh present today was the fact that one of the
Speaker 1: differentiating factors of having solar panels sold in the showrooms
Speaker 1: of Tessa would help kind of consumers make better choices
Speaker 1: and perhaps differentiate the product. But again, this is perhaps
Speaker 1: not the right time to be thinking about, you know,
Speaker 1: introducing a new vertical to the test of business, where
Speaker 1: when they have such critical execution milestones to reach right now.
Speaker 1: And I guess no matter who accuses from a deal, uh,
Speaker 1: the you know, in the pit of their stomach, investors
Speaker 1: may still be wondering if the fact that he's related to,
Speaker 1: you know, the Solar City guys is some some influence
Speaker 1: on him. And I guess even uh more broadly, Tesla
Speaker 1: and Elon must have been just such darlings. Doesn't matter
Speaker 1: what he does, right, everybody loves him in his stock
Speaker 1: moves higher. Maybe people are just you know, maybe this
Speaker 1: is just he's he's stepping outside of his uh the
Speaker 1: batter's box just too much, and so some of that
Speaker 1: shine just it isn't enough to keep people saying, you
Speaker 1: go Elon, certainly, I think that's a great point. I
Speaker 1: think that's you know, that's pretty much what happened. I mean,
Speaker 1: they're very must be a very smart company, surrounds himself
Speaker 1: with very smart people. I have no doubt that in
Speaker 1: his when they were thinking about announcing this, it was
Speaker 1: likely that this, uh, this reaction was was was anticipated. So,
Speaker 1: I mean, from their perspective, perhaps they anticipated this and
Speaker 1: they think that fundamentally this is the right move for
Speaker 1: the company. I mean, we should give them credit that. No,
Speaker 1: there is from our perspective at Bloomberg new energy finance
Speaker 1: growth opportunities. For sure. In the residential PV industry in
Speaker 1: the US, about thirty thou US households are adding solar
Speaker 1: to the roost a month, but that again may not
Speaker 1: be enough to sustain Tesla through the next two years.
Speaker 1: Slen Morrisey, thank you so very much for joining us.
Speaker 1: What excellent perspective on Tesla. Elon musk the two point
Speaker 1: eight billion dollar announcement, uh well, and announcement of a
Speaker 1: two point eight billion dollar acquisition to buy Solar City.
Speaker 1: This is taking stock on Bloomberg Radio. Yeah,