Market wary of Tesla's plan to buy Solar City

Jun 22, 2016, 12:33 PM EDT
Tesla CEO Elon Musk.
(Source: OnInnovation/flickr)

The market was wary about Tesla's plan to buy Solar City, despite Tesla CEO Elon Musk's confidence.

Reuters reports:

Tesla Motors Inc (TSLA.O) Chief Executive Officer Elon Musk said on Wednesday that the proposed acquisition of SolarCity Corp (SCTY.O) could eventually push the electric car maker's valuation to $1 trillion, but investors were skeptical. Shares of Tesla were down nearly 7 percent at $204.50, putting its market capitalization at $29.8 billion. The much smaller SolarCity was up nearly 9 percent at $23.01, valuing the U.S. market leader in residential rooftop solar panels at $2.2 billion. Tesla on Tuesday offered to buy SolarCity in a stock deal worth as much as $2.8 billion. "I have no doubt about this - zero," Musk, a major shareholder of both companies, said on a conference call with analyst before markets opened on Wednesday. "We should have done it sooner."

CNBC writes:

Meanwhile, RBC Capital Markets analyst Joseph Spak said in a note Tuesday that while Tesla sees a number of synergies from the transaction, it will not be well received by shareholders. "We suspect the market will be more skeptical of the strategic rational and the financial/cash flow strain this could add to the TSLA story. By owning the asset, we believe TSLA may be trying the investing partner approach they have taken with shareholders and asking them to stick with them for something they potentially didn't sign-up for," Spak

Forbes asks:

Will the combined companies be better off? No.

Musk argues that the merger will make Tesla owners sign up for SolarCity’s services. There is no need to merger the two companies for that to happen. After all, it would be very easy for Tesla to offer its customers an incentive to sign up for SolarCity without merging the two companies — especially since Musk chairs both of