SolarCity shares fell today as investors and analysts began to take in all the details of Tesla’s final bid. The solar panel installer accepted the slightly reduced all-stock offer and has since received at least one downgrade as a result of that. Tesla management finally explained some of the places where they expect savings beyond just sales and marketing, but they only expect to see $150 million in savings in the first 12 months.

Tesla, SolarCity

Why combine Tesla and SolarCity?

Tesla CEO Elon Musk emphasized that they’re trying “to create an integrated product for the end-user.”

He explained on the conference call about the acquisition: “So the idea is that there’s one sales process, one inflation process, one service contact, one phone app to monitor things, and then, on the hardware side, that we can integrate the power electronics and the energy management grid from DC from the solar panels, DC from the battery pack, and mixing and matching that to provide AC to homes, businesses, or, in the case of utilities, in those cases very high voltage DC.

SolarCity CEO Lyndon Rive added that the next step for growth is vertical integration and that combining the solar panel installer with their energy storage products will create “energy plus grid-related services,” providing customers with lower cost energy.

$150 million in cost efficiencies for Tesla and SolarCity

Tesla Chief Financial Officer Jason Wheeler added that they anticipate about $150 million in cost efficiencies in the first year by combining the automaker with SolarCity. He repeated that most of the efficiencies will come in sales and marketing by leveraging their combined digital and retail capabilities. He said they also believe they can “improve the overall value proposition” of both companies through the combination.

Wheeler also said they expect supply chain efficiencies as well because the two companies share components such as inverters and software. They also expect lower installation and service costs (although this assumes that customers buy an EV, solar panels, and a Tesla Energy storage unit from the combined company) and manufacturing efficiencies.

Analysts weigh in on the SolarCity – Tesla merger

Baird analysts downgraded SolarCity from Outperform to Neutral and slashed their price target from $37 to $25 per share to reflect the new deal. SolarCity shareholders will receive 0.11 Tesla shares per SolarCity share they own, which is less than the previous estimated range of 0.122 to 0.131 shares. Based on Tesla’s closing stock price on July 29, this implies a SolarCity share price of $25.83 per share, according to estimates from JPMorgan. The two companies expect the transaction to close in the fourth quarter, although SolarCity has a 45-day go-shop provision.

UBS analysts Julien Dumoulin-Smith and Colin Langan said they remain cautious on the deal because neither company has given any “compelling” synergies as they believe most of them could be achieved through a joint venture instead. They continue to believe this is an “unneeded distraction” for Tesla as it already faces challenges with the Model 3 launch and extreme production ramp that’s underway. Further, they believe the lack of a “quantitative assessment of the storage prospects – outside of (well articulated [sic]) prospects in Hawaii emphasize the lack of clarity” in the automaker’s ability to execute on the plan. Further, they see it as being too early because the residential solar industry is still in its infancy. They don’t expect a bidding war during the 45-day go-shop period based on the failure of the Vivint Solar acquisition.

JPMorgan analysts Paul Coster and Mark Strouse believe the deal is attractive to SolarCity shareholders and also mentioned the slowing residential solar market as a concern. The solar panel lowered its outlook for megawatt shipments for the full year by about 10% to between 900 and 1,000, although it beat its outlook for the second quarter, installing 201 megawatts, compared to management’s guide of 185 megawatts. Second quarter bookings grew 40% sequentially but plunged 43% from last year to about 224 megawatts.

SolarCity shares slumped by as much as 4.25% to $23.68, while Tesla shares slipped by as much as 1.65% to $226.21 during morning trading on Tuesday.