Tesla’s all-stock offer for SolarCity has triggered a host of bearish analyst reports and multiple downgrades for both companies as Wall Street weighs the implications of a merger between two cash-gobblers. Morgan Stanley, which was bullish on both companies, has downgraded them. Dilution is now a concern for Tesla shareholders, and SolarCity’s problems may get worse if the offer doesn’t close, according to UBS.

Tesla Motors Inc, SolarCity Corp Downgraded By Morgan Stanley

Tesla downgraded by uber-bull Jonas

It’s a pretty good indicator that a deal is bad when one of Tesla Motors Inc (NASDAQ:TSLA)’s biggest long-time bulls downgraded it as a result of it. Morgan Stanley analyst Adam Jonas sounded very skeptical in its first report following Tesla’s announcement, so his downgrade today doesn’t come as a huge surprise. Prior to Tesla’s bid for SolarCity, it appeared as if Tesla could do no wrong in his eyes. He moved from Overweight with a $333 price target to Equal-weight with a $245 price target.

The 26% reduction in his price target is largely due to the higher risk premium he feels is warranted as a result of the SolarCity offer. However, he adds that it’s very uncertain whether Tesla and SolarCity shareholders will approve the deal, so right now he’s not including the acquisition in his model.

SolarCity would weigh down Tesla

Jonas sees no benefit to buying SolarCity, and he poses four big questions. For one thing, he noted that the acquisition won’t help Tesla make better cars. Second, he said it won’t help improve the pace of the automaker’s cash burn; in fact, he agrees with most analysts who have said that it will make the cash burn problem worse.

Third, he noted that SolarCity Corp (NASDAQ:SCTY) won’t help Tesla improve its access to the capital markets. He added that the bid actually could hurt access because it may break down some of the trust the automaker has built up with investors, including those who funded its earliest successes. He warned that simply making the bid public may damage investors’ trust – whether or not the transaction is actually approved and closes.

Fourth, he said even if the acquisition turns out to be a success, SolarCity’s sales probably won’t be enough to move the needle much in terms of total sales.

SolarCity also downgraded by MS

A different set of Morgan Stanley analysts cover SolarCity, but they also moved to Equal-weight from Overweight on the company and cut their target from $34 to $24 per share. Analyst Stephen Byrd said the downgrade was due to a “more balanced risk-reward” following the offer, plus a number of fundamental risks to the business.

He warned that there’s a great deal of uncertainty about whether the deal will close and that the offer actually magnifies some fundamental risks if it doesn’t close. Further, it seems highly unlikely that Tesla shareholders will vote in favor of the deal. If the deal doesn’t close, he said SolarCity’s share price will probably fall quite a bit, and if this happens, its operational and financial problems could be magnified.

No synergies, only distraction for Tesla

UBS analyst Colin Langan called Tesla’s offer an “unneeded distraction” at a time when the company must focus on hitting its aggressive production target of 500,000 vehicles per annum by 2018. He added that throwing SolarCity into the mix may only increase the complexity of the business as solar is very different from making cars. Further, he sees SolarCity’s continued losses as potentially being a “significant drag” on Tesla.

He noted that while Tesla management said there are synergies in the case of a merger, they didn’t specify any estimates of those suppose synergies. He has a Sell rating on Tesla and Neutral rating on SolarCity.

Tesla shares declined by as much as 1.2% to $194.31, while SolarCity shares reversed course and declined by as much as 2.24% to $21.39 on Thursday. Apparently SolarCity shareholders are starting to see how unlikely the deal is to close and how many more problems the company may have if it does fail.