The Take

Tesla and SolarCity’s financially motivated merger14/09/16

QUTEFS’ Secretary and Typewriter senior editor Zac Brown discusses what has been shaping up to be a very negative 2016 for Tesla CEO Elon Musk in this week’s edition of The Take:

Electricity must really not be conducted by water. Tesla and SolarCity, two of Elon Musk’s major investments, have been facing liquidity issues. For months now, a huge amount of attention has been paid to Tesla and its ability to tread the rising water of debt. Both companies have been running at a net loss since 2014 (QoQ). The two exceptions came in the form of SolarCity posting a minor profit in the 3rd quarter of 2014 and an even smaller one in the 4th of 2015.

However, both companies have been facing long-term cash flow issues, although Tesla has been able to reduce this factor through recent orders. The lack of revenue, or more accurately profit, has been reflected in their share prices. This year alone, SolarCity has lost as much as roughly 60%. Meanwhile, Tesla has seen a strong decline in its share price over the past 3 months. Its high point was July 29th and has since then been on a bear trend.

With these financials in mind, this brings context to the important merger being initiated by Musk. The proposed combination of the firms is expected to save as little as 150 million a year, with Musk stating he thinks that an underestimate. Some of the less tangible benefits include a stronger presence for SolarCity thanks to the publicity of Tesla, and less conflict in interest between the two firms. The overlap between the two is obvious, with Tesla being electric car developers and SolarCity being, well, solar power. The overlap will hugely diminish costs for Tesla, and significantly increase exposure for SolarCity.

In my opinion, things look fairly shaky looking at the bigger picture. The reasoning behind this merger is due to a push from lack of liquidity and tangled finances. Both companies operate in a hugely volatile market climate as they pioneer the commercialization of renewable energy. Although the concept in itself is brilliant, it’s the numbers behind the event that leave me skeptical. Not to be misunderstood, I think the work both companies undertake are brilliant. Additionally, if there is any man who can pull off the task of revolutionizing the transport and energy sectors in one generation, it’s Elon Musk.

Since we’re talking so much about Musk and his two main adventures, I thought it worth touching base on the recent SpaceX catastrophe. Earlier this month a rocket launch didn’t go according to plan, as evidenced by its explosion. Facebook had a $9 million US dollar payload aboard, with the objective of providing better internet connectivity around the world. Upon hearing about the failure, Mark Zuckerberg took to Facebook to voice his disappointment.

2016 certainly hasn’t been a good year for Musk thus far. Until next week, this has been our Take.