Tesla Motors Inc (NASDAQ:TSLA), SolarCity Corp(NASDAQ:SCTY): Elon Musk is a Mad Scientist
Reactions have been strongly negative for the Tesla Motors Inc (NASDAQ:TSLA) deal to purchase SolarCity Corp(NASDAQ:SCTY). SolarCity shareholders think the price is too little and Tesla shareholders have to be concerned they are being spread too thin. At the same time no one can be too surprised this happened, after all Elon Musk owns over 20 percent of both.
Some have quickly noted that the deal dilutes Tesla shareholders somewhere between 8 to 9 percent, and that the combined entity has negative free cash flow of 4.856 billion with $5.234 billion of debt. Others have noted the conflict of interest of with Musk whom owns a 21.3% stake in Tesla and 22.2% of SolarCity, even though he will recuse himself in the deal.
Tesla itself has sold the deal by pointing to the fact it would create the first vertically integrated clean-energy company with the ability to purchase energy, storage, and an electric vehicle from a single entity. Obviously there are synergies in the bigger picture and SolarCity needs Tesla’s battery technology, not to mention more preferable access to the capital markets to finance its company. That being said, Tesla itself has large cash needs and this merely exacerbates that.
I couldn’t count how many times, I’ve pointed out that Tesla needed more capital and how crazy some of their goals have seemed. Each time, Musk has used his high flying stock to raise shares, taken advantage of the debt markets, or even started taking deposits for a Model 3 that isn’t ready yet. I don’t have any clue what SolarCity nor Tesla is truly worth or whether Tesla will meet their lofty expectations.
That being said I am constantly amazed at how Elon Musk the mad scientist operates. Selling shares in offerings, raising debt, using his high flying stock as currency to purchase another one of his companies, or kicking off a pre-order for the Model 3 early to collect hundreds of thousands of deposits to use as funding to make it a reality.
Tesla creates a beautiful product and has many people that love it. Elon Musk is a zany founder who is trying to push the limits in all ways and boy is it a show to watch. With electric cars, batteries, and rockets on his resume. Who truly knows what is next.
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