Tesla Motors has formally offered to acquire solar panel manufacturing and leasing company SolarCity for around $2.7 billion in an all-stock transaction. Tesla CEO Elon Musk is also the chairman of SolarCity, though his role in SolarCity's management is much smaller than in Tesla or SpaceX (the other company where he is CEO).
The proposed acquisition of SolarCity would primarily complement the Tesla Energy division of the company, which specializes in the production of residential and industrial power storage devices. The Powerwall and Powerpack battery modules that Tesla produces work hand-in-hand with SolarCity solar arrays, using the power of the sun to charge the cells inside.
As Tesla's post announcing the proposed acquisition pointed out the end-to-end clean energy synergy that Tesla and SolarCity combined offer:
We would be the world's only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.
Tesla is currently building an enormous multi-billion-dollar battery factory in Nevada dubbed Gigafactory 1. The facility is already producing cells for the home Powerwall energy storage devices and the larger industrial-scale Powerpacks. Eventually the Tesla Gigafactory will cover some 125 acres (1/5 a square mile) and will incorporate a massive solar roof and nearby wind farm to help defray the energy costs of producing the battery cells. The enormous factory will provide Tesla with economies of scale that will dramatically lower the cost of lithium ion cell production.
SolarCity is also building their own Gigafactory outside Buffalo, New York, to build solar panels. In addition to the same cost-reducing economies of scale that Tesla hopes to achieve with the Nevada Gigafactory, SolarCity plans for their factory to lower the cost of panel construction and help them achieve a record-breaking 22% efficiency in mass-produced solar panels. The SolarCity Gigafactory is expected to reach full production capacity by the end of 2017, churning out some 10,000 panels a day for a truly huge 1GW of solar capacity per year.
Elon Musk is CEO of Tesla and owns 27% of the automaker. Elon Musk is also Chairman of SolarCity and owns 22% of the company.
The exact pricing of the all-stock offer up for negotiation, though Tesla says they are "committed to a possible transaction that is fair to SolarCity's and Tesla's respective stockholders". Elon Musk and investment firm founder Antonio Gracias serve on the boards of both Tesla and SolarCity and both recused themselves from the Tesla board of directors vote on the proposal and will do so if the matter comes up for a vote at SolarCity (which we have no doubt it will — and that the two will argue forcefully in favor for the acquisition). Musk co-founded SolarCity, but his cousin Lyndon Rive serves as the company's CEO.
Elon Musk currently owns some 22 million shares of Solar City (roughly 22% of the company); depending on the final price of an approved merger he'll stand to receive between $580 million and $630 million in additional TSLA shares (Most of that would be in exchange for his holdings of SCTY stock, with some $118 million gained from the bounce in the share price after the announcement). Musk currently owns 27% of outstanding TSLA shares (worth around $8.8 billion), and while after the proposed SolarCity acquisition he would own numerically more shares of TSLA, his overall ownership of the company would decrease slightly.
Shares of SolarCity peaked at up by more than 20% in after-hours trading before settling at around an increase of 16%, while shares of Tesla were off by more than 10% — well over the total value of SolarCity.