During a recent conference call with Tesla investors, Elon Musk, the company’s CEO said that his firm’s impending $2.8 billion acquisition of SolarCity was a ‘no brainer,’ and that it is a ‘legally and morally correct’ move which Tesla should have done sooner. Musk also sought to convince investors that if the deal is concluded, it could help make Tesla the world’s first trillion-dollar company and could provide a solution to the problem of climate change.
Tesla Product Demonstration
Musk has touted the proposed deal as a step closer to making Tesla a one-stop shop; customers would be able to walk into any of Tesla’s stores and purchase SolarCity’s solar panels for their roofs. They would also then be able to purchase the Tesla Powerwall for storage of that solar power or they could also buy one of the company’s three electric car models, the Model S, Model X and the soon to be launched Model 3.
Tesla Motors, this week, held a highly publicized product demonstration in conjunction with SolarCity. The two companies unveiled an integrated power system that consists of a solar roof as well as a next generation energy storage device capable of charging electric vehicles. It is believed that this product is capable of shaping both companies’ futures.
About the Powerwall 2
In May 2015, Tesla introduced its first stationary power storage device. In the week that followed the announcement, the company had managed to get 38,000 pre-orders for the 7kWh daily cycle and 10kWh emergency batteries. However, the company later discontinued plans for the 10kWh battery in favor of the development of the 7kWh daily cycling Powerwall battery. The reason for this is that Tesla believed that it would be better suited for customers who tend to store solar energy during the day and use the power in the evening. The rollout of the battery has been slow, mostly because the company is still waiting on the first sections of its Gigafactory to come online since this is where the Powerwall batteries will be produced.
Now, Musk has come out to announce plans for the Powerwall 2, a system which will feature 14kWh of storage as well as 5kW of continuous power. The Powerwall 2 will be sold at $5,500. According to Tesla, the new battery will carry enough juice to power sockets, lights and a refrigerator for a full day in a four-bedroomed house.
Powerwall 2 Advantages
According to press materials provided by Tesla, the Powerwall 2 is much more advanced than its first-generation batteries, since it contains an integrated inverter, a liquid thermal control system and advanced control software to intelligently provide electric power when it is needed most. In addition, the battery software allows the Powerwall owner to discharge the battery during heavy use periods.
Musk has insisted that the combination of the Powerwall 2 and SolarCity’s solar roof does not spell the end for utilities. The reason for this is because demand for mains electricity is bound to increase by as much as two thirds due to increased battery powered transportation as well as electric heating.
Investor Concerns Over Tesla’s New Direction
Despite Musk’s enthusiasm, many analysts still aren’t so sure. There has been a steep drop in Tesla’s stock this week – 10% in trading, wiping out $3 billion from the company’s huge $32 billion market cap. This is clear confirmation of investor skepticism.
There are also major concerns about Tesla’s willingness to absorb a company that operates in such a volatile industry. There are also eyebrows raised at Musk’s apparent conflict of interest arising from the deal as he is a director at both companies, while SolarCity is run by Lyndon Rive, his first cousin. Musk is also a major shareholder in both companies.
According to Brian Johnson, an analyst at Barclays, the deal and the proposed products have little in the way of synergy, but will burn plenty of cash. In a note that he made to investors, he predicts that the combined net debt of the two companies would be a staggering $2.5 billion. “Although Tesla bulls will hail this latest move as visionary, we believe that Tesla’s assumption of debt in the solar company, combined with a lack of synergies and uncertain cash prospects reinforces the negative view of Tesla,” he added.
If Tesla and SolarCity are to be successful in the long term, they need to design a proprietary solar panel with better performance than any of the existing competitors. What is clear is that Musk and Co. have plenty to do as they try to re-imagine renewable energy for the future.