Tesla and SolarCity requested permission to marry, and they received it from their shareholders, with 85% voting in favor of the merger. It seems Tesla CEO and SolarCity Chairman Elon Musk was right when he said before the vote that he was certain that he would receive approval to combine two of the three companies he is heavily invested in.

Needless to say, Musk’s critics are even more skeptical now that the merger has been approved, with one even forecasting a bankruptcy in the future of the merged company.

Tesla Motors, SolarCity

SolarCity, Tesla short interest surged this week

Short interest ticked up ahead of Thursday’s shareholder vote, but interestingly, short-selling activity today was minimal, according to data from financial analytics firm S3 Partners. Ihor Dusaniwsky, Head of Research at the financial analytics firm S3 Partners, provided the following analysis to ValueWalk in an email:

“Tesla short interest has been shrinking since the 1st quarter, down from $7.2 billion at the end of March to $5.7 billion at the end of October, a decrease of 23%. Short Interest kept steady at $5.7 billion for the first two weeks of November, but jumped by $389 million this week, or 7%, to $6.1 billion in anticipation of the TSLA – SCTY merger vote. Short selling in TSLA was minimal today, up $3 million. There is still a large amount of TSLA stock available to borrow, which is reflected in its 1.50% borrow fee. Rates got slightly more expensive this week, shorts will be paying a 2.0% fee to borrow TSLA shares.

“SCTY short selling was much more active this week after seeing short interest drop from $840 million in January to $478 million at the end of October, a decrease of 43%. SCTY short interest jumped by $615 million a 29% increase during the first two weeks of November and, $101 million this week alone. SCTY short interest was down slightly today, by $5 million. Unlike TSLA, which still has a large amount of stock available to borrow, there is very little SCTY stock left. SCTY stock borrow rates are reflecting this lack of borrow supply and the rate on existing shorts is 9% fee while any new borrows today are trading at the 12% to 15% fee level.”

SolarCity – Tesla a disaster waiting to happen?

Short-sellers were quick to decry the pending merger as a disaster waiting to happen. Mark Spiegel of Stanphyl Capital is predicting that the combined Tesla – SolarCity will fold and believes that Musk is essentially trying to squeeze something out of SolarCity before it goes belly-up.

“This deal was nothing more than a way for Elon Musk to salvage some value (at the expense of Tesla shareholders) from his 22 million SolarCity shares before THAT company spiraled into bankruptcy,” Spiegel told ValueWalk in an email. “So now he put together two companies each showing nearly $2 billion a year in negative free cash flow and thus a few years from now– as competitive pressure for Tesla intensifies– I think the whole thing will wind up in bankruptcy.”

Salome Gvaramia of Devonshire Capital, which has long held an outspoken short position in Tesla, called the merger “a blatant bail-out of a struggling company.”

“I don’t quite grasp the argument for consolidation that was put forth when the same goals of collaboration and streamlined production can be easily achieved by contractual relationships rather than going through the hassle of a merger, delisting, consolidations, etc.,” she told ValueWalk in an email. “I think this merger introduces a vulnerability in TSLA rather than enhancing its competitive advantage.”

SolarCity an “unneeded distraction” for Tesla

UBS analyst Colin Langan, who has a Sell rating and $160 price target on Tesla, expected the merger to be approved, but he was surprised that such a large majority supported it. However, he believes that the fact that most of the unhappy investors already dumped their shares of both companies helped in this regard, as did the support from Institutional Shareholder Services.

In his follow-up report dated Nov. 17, he called SolarCity an “unneeded distraction” for the automaker because it already has several challenges ahead of it, including the Model 3 ramp and launch, the target of producing 500,000 vehicles by 2018, and the ramp of Tesla Energy. Langan adds that SolarCity’s cash burn will weigh on the combined company. He estimates it at around $300 million to $400 million per year, although of course that depends on the availability of non-recourse capital.

He also notes that SolarCity has been focusing on lowering its cash burn as well, and Tesla has passed on the responsibility of manufacturing for the Silevo project to Panasonic. Tesla and SolarCity still have a $5 billion net benefit requirement for New York and will be required to buy Panasonic’s solar panels.

Shares of Tesla slumped by as much as 1.31% to $186.19, while SolarCity shares edged higher by as much as 0.39% to $20.48 during regular trading hours on Friday.