WEBVTT - Bloomberg's Morsy on Tesla Bid For SolarCity (Correct)(Audio)

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<v Speaker 1>The shares of a Tesla Motors today fell more than

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<v Speaker 1>ten and a half percent. Well, is there any specific

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<v Speaker 1>news from the company that would cause such a decline?

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<v Speaker 1>Not necessarily, although Wall Street is questioning whether Elon Musk's

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<v Speaker 1>plan to combine Tesla Motors with Solar City will actually

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<v Speaker 1>go through or even as good for the companies. Here

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<v Speaker 1>to tell us more is Salim Morsey, Advanced Transport analyst

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<v Speaker 1>for Bloomberg New Energy Finance. Salium, thanks very much for

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<v Speaker 1>being with us, Thanks for having me. Is there any

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<v Speaker 1>technical reason, any strategic reason why combining a solar power

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<v Speaker 1>company with an automobile manufacturer that admittedly is building out

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<v Speaker 1>that giga factory for batteries, But is there a technical

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<v Speaker 1>reason why they are a fit? A technical reason, not

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<v Speaker 1>so much. I think this has been a quite a

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<v Speaker 1>loadly day for Elon Musk uh since announcing UH this

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<v Speaker 1>UH this proposed acquisition the the this this falls into

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<v Speaker 1>a narrative of a unified vision that Musk has that

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<v Speaker 1>far exceeds I think the the time horizons that investors have.

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<v Speaker 1>This has to do with the fact that he wants

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<v Speaker 1>to integrate this his his vision of having clean energy

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<v Speaker 1>powering vehicles that are zero tail pipe emissions. But in

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<v Speaker 1>the short term, I think investors are having a very

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<v Speaker 1>hard time understanding the ins and outs of this proposed deal.

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<v Speaker 1>Why is it because we don't understand Investors unless they're

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<v Speaker 1>very specialized, don't understand the the industry, the technology. I

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<v Speaker 1>think that's part of it. That there was a very

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<v Speaker 1>famous question in the last earnings called solar City that

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<v Speaker 1>simply asked them what is solar city? Leaving leaving that aside, though,

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<v Speaker 1>Tesla is facing existential milestones it has to meet in

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<v Speaker 1>the next two years. It's valuation depends on it. The

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<v Speaker 1>equity rates that it uh did in the market about

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<v Speaker 1>a month ago also depends on it, and those are

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<v Speaker 1>very simple and straightforward in many ways. Though it's ramping

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<v Speaker 1>up the production of Model three half a million cars

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<v Speaker 1>a year, they say, by as well as building the

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<v Speaker 1>largest battery factory in the world. That takes a lot

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<v Speaker 1>of capital and a lot of focus. And it's not

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<v Speaker 1>clear at all that acquiring a solar company helps execute

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<v Speaker 1>those goals. And this would also be a family business,

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<v Speaker 1>wouldn't it exactly? So it's his two first cousins are

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<v Speaker 1>the the run Solar City they came up with this

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<v Speaker 1>idea when they were going to burning Man, so says

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<v Speaker 1>the kind of urban folklore about about how the company

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<v Speaker 1>was started. So yes, Elon Musko's about both of Tessa

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<v Speaker 1>and Solar City, and his first cousins run the solar company.

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<v Speaker 1>He's recused himself as a shareholder and voting for this,

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<v Speaker 1>uh this deal. But certainly I think there's going to

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<v Speaker 1>be some corporate governance issues going forward. Well, um, you

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<v Speaker 1>yourself have said that in terms of a Solar City acquisition,

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<v Speaker 1>it doesn't help him. Elon must that is, execute critical

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<v Speaker 1>milestones like keeping its focus on completing its Giga factory

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<v Speaker 1>quickly ramping up production and model of the Model three.

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<v Speaker 1>And yeah, I mean that that's exactly right. I think

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<v Speaker 1>that that, you know, the Tessa and and the valuation

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<v Speaker 1>of the company has been giving a lot of leeway

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<v Speaker 1>in the last few years because folks have been willing

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<v Speaker 1>to follow Elon Musk and his vision. I think today

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<v Speaker 1>the company hit a critical kind of fork in the

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<v Speaker 1>road where love investors said, Okay, hold on, you're loading

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<v Speaker 1>up Tesla now with over three billion dollars of debt

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<v Speaker 1>from Solar City for an enterprise value of solar City

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<v Speaker 1>that is just under six billion dollars and it's a

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<v Speaker 1>you know, a company that has had deteriorating financials, specifically

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<v Speaker 1>their balance sheet. And again it is really not clear

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<v Speaker 1>how these quote unquote synergies fit into each other. And

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<v Speaker 1>if you listen to a conference call that Musk had

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<v Speaker 1>this morning to kind of justify this deal, the narrative

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<v Speaker 1>was really around this unified vision of long term goals.

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<v Speaker 1>But sadly for him, I think in the short term,

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<v Speaker 1>investors are interested in return on investments and that didn't

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<v Speaker 1>particularly impress anyone in the market today. Well, as you said,

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<v Speaker 1>taking a look at the share price for example of

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<v Speaker 1>solar City, Uh, the offered range of the deal is

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<v Speaker 1>between twenty six and a half and twenty eight and

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<v Speaker 1>a half bucks of share. The stock traded higher today,

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<v Speaker 1>but it closed, So that kind of tells you what

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<v Speaker 1>investors think. Yeah, exactly, So I mean that, you know,

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<v Speaker 1>I think the share price has been sliding for for

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<v Speaker 1>more than a year now on you know, essentially the

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<v Speaker 1>fact that people like Jim Chaino is a famous short

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<v Speaker 1>of solar City, is calling it a consumer finance company

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<v Speaker 1>and it's frankly a commoditizing business, and commodities you know,

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<v Speaker 1>usually don't generate great margins. They're usually low margin business.

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<v Speaker 1>Is one of the pitches that we heard Elon musk

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<v Speaker 1>Uh present today was the fact that one of the

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<v Speaker 1>differentiating factors of having solar panels sold in the showrooms

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<v Speaker 1>of Tessa would help kind of consumers make better choices

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<v Speaker 1>and perhaps differentiate the product. But again, this is perhaps

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<v Speaker 1>not the right time to be thinking about, you know,

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<v Speaker 1>introducing a new vertical to the test of business, where

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<v Speaker 1>when they have such critical execution milestones to reach right now.

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<v Speaker 1>And I guess no matter who accuses from a deal, uh,

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<v Speaker 1>the you know, in the pit of their stomach, investors

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<v Speaker 1>may still be wondering if the fact that he's related to,

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<v Speaker 1>you know, the Solar City guys is some some influence

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<v Speaker 1>on him. And I guess even uh more broadly, Tesla

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<v Speaker 1>and Elon must have been just such darlings. Doesn't matter

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<v Speaker 1>what he does, right, everybody loves him in his stock

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<v Speaker 1>moves higher. Maybe people are just you know, maybe this

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<v Speaker 1>is just he's he's stepping outside of his uh the

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<v Speaker 1>batter's box just too much, and so some of that

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<v Speaker 1>shine just it isn't enough to keep people saying, you

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<v Speaker 1>go Elon, certainly, I think that's a great point. I

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<v Speaker 1>think that's you know, that's pretty much what happened. I mean,

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<v Speaker 1>they're very must be a very smart company, surrounds himself

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<v Speaker 1>with very smart people. I have no doubt that in

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<v Speaker 1>his when they were thinking about announcing this, it was

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<v Speaker 1>likely that this, uh, this reaction was was was anticipated. So,

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<v Speaker 1>I mean, from their perspective, perhaps they anticipated this and

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<v Speaker 1>they think that fundamentally this is the right move for

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<v Speaker 1>the company. I mean, we should give them credit that. No,

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<v Speaker 1>there is from our perspective at Bloomberg new energy finance

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<v Speaker 1>growth opportunities. For sure. In the residential PV industry in

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<v Speaker 1>the US, about thirty thou US households are adding solar

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<v Speaker 1>to the roost a month, but that again may not

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<v Speaker 1>be enough to sustain Tesla through the next two years.

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<v Speaker 1>Slen Morrisey, thank you so very much for joining us.

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<v Speaker 1>What excellent perspective on Tesla. Elon musk the two point

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<v Speaker 1>eight billion dollar announcement, uh well, and announcement of a

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<v Speaker 1>two point eight billion dollar acquisition to buy Solar City.

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<v Speaker 1>This is taking stock on Bloomberg Radio. Yeah,