As promised, Tesla released more information about its pending acquisition of SolarCity. Analysts and investors have been questioning the deal since it was announced, with some calling it just a bailout for SolarCity. The question now is whether they will be satisfied with the answers Tesla management provided in tonight’s blog post and question-and-answer session.
SolarCity will add to Tesla’s cash balance
In the blog post, Tesla said that the deal will add to its cash balance, reporting that SolarCity increased its cash levels from the second to the third quarter and expects to increase it further in the current quarter. The automaker expects the company to add more than $500 million to its balance sheet in the next three years.
It also reported that more than half of SolarCity’s debt is in the form of project financing, which is non-recourse debt. Further, Tesla said that cash flows from payments made by customers more than offset the debt. The solar panel installer has secured approximately $1 billion in project financing since July 1.
Qualitative arguments for the merger
Bears will undoubtedly be looking for a plethora of quantitative arguments for the acquisition, although Tesla’s post also consists of a great deal of qualitative arguments, diving into topics related to climate change and the environment. The automaker said the combination with SolarCity will enable it to better fulfill its mission of dealing with such issues by speeding up the transition to sustainable energy.
The automaker said that by acquiring SolarCity, it will be able to “transform into a truly integrated sustainable energy company capable of developing, producing, selling, installing, and servicing these products in the most seamless way possible.” It went on to call out those who doubted that electric vehicles were the future, saying that the same people question the future of solar power and energy storage.
Tesla believes SolarCity’s financials are “often misinterpreted” and said that it expects the acquisition “to bring significant financial benefits to the combined company.” The automaker expects the solar company to add to its cash position already in the fourth quarter. It also expects SolarCity’s business to make up 40% of the combine company’s assets immediately after the transaction. Tesla believes SolarCity will contribute more than $1 billion in revenue in 2017.
Tesla expects $150 million in synergies
The automaker compared SolarCity’s business model to subscription-based businesses “like regional utilities and cable or voice service providers.” It said the solar company has incurred GAAP losses because of the way its projects are financed through leases and power purchase agreements. However, Tesla also said that the company now longer relies as much on leasing because customers are starting to purchase more using cash and loans, thus creating “a healthier mix of upfront and recurring revenue.
The automaker reiterated its expectation for $150 million in direct cost synergies with savings from “sales and marketing efficiencies through cross-selling, the elimination of overlapping R&D and product development efforts, and reduced overhead costs.”
Shares of Tesla rose by as much as 0.37% to $191.50, while SolarCity shares edged upward by 0.68% to $19.20 in after-hours trades.