Tesla gets SolarCity

Agreement has been reached for Tesla’s acquisition of SolarCity for US$2.6 billion.
Published: Tue 02 Aug 2016

The deal is done and dusted: Despite negativities in the market and subject to approvals from ‘disinterested’ shareholders and the usual regulatory conditions, Tesla will acquire SolarCity in an all-stock transaction for US$2.6 billion (based on the 5-day volume-weighted average price of Tesla shares as of July 29, 2016).

The proposal was made by Tesla CEO Elon Musk a little over a month ago and he gave a further push to it in his ‘Master Plan, Part Deux’ of a week ago, with one of the elements being the integration of storage and solar – the products of the respective companies. [Engerati-Tesla seeks to become first ‘vertically integrated energy company offering end to end products’ and Elon Musk’s master plan]

“One ordering experience, one installation, one service contact, one phone app,” said Musk.

Combining solar and storage

According to a Tesla statement on the acquisition, now is the right time to bring the two companies together: Tesla is getting ready to scale its Powerwall and Powerpack stationary storage products and SolarCity is getting ready to offer next-generation differentiated solar solutions. “By joining forces, we can operate more efficiently and fully integrate our products, while providing customers with an aesthetically beautiful and simple one-stop solar + storage experience.”

The deal is expected to close in the fourth quarter of the year. Tesla expects to achieve cost synergies of US$150 million in the first full year after closing. The company also expects to save customers money by lowering hardware costs, reducing installation costs, improving manufacturing efficiency and reducing the customer acquisition costs.

Tesla – the way ahead

Besides these obvious benefits for potential solar-storage customers, in its statements Tesla has revealed few details on the forward strategy of the combined company.

In the original proposal, there was an intriguing hint to design innovations to solar panel technology, “including by making solar panels add to the look of your home.” There is also reference to creating “fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed,” indicating the possibility of other new products in this area.

Tesla also refers to leveraging its “190-store retail network and international presence” to extend the combined reach. This suggests that the company will also take the combined solar-storage solution to the international market to Europe and countries such as Japan, China, Australia and New Zealand where it is building a vehicle and/or battery presence. [Engerati-Australian Households To Lead the Energy Revolution] With the same business model as in the US, and with the economies of scale gained from the respective gigafactories, Tesla could prove a formidable competitor in these markets.

Tesla’s battery gigafactory is projected to reach an output capacity of 50GWh/yr within 2 years and 150GWh/yr at full production around 2020 - for comparison total global output of Li-ion batteries in 2014 was about 30GWh - and SolarCity’s gigafactory in New York up to 10,000 solar panels per day.