To be a Tesla family now, you’d have a garage full of cars loaded with lithium-ion batteries, but an acquisition of Solar City could see Tesla families add Tesla Energy solar panels to their roof and a Tesla Powerwall to the wall.
Overnight Tesla announced plans to buy Solar City, who are America’s #1 solar provider and also co-founded by Elon Musk. Tesla say their goal is to ‘accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles’ and they believe a key piece of that strategy is to create an end-to-end solution.
Solar City haven’t made their way to Australia yet, but do have 14,000 employees. If the $2.8 Billion acquisition is (all stock) is approved, then it could have big implications for the Australian solar market. Right now Tesla’s business model for Powerwall is to sell through existing energy retailers like Energy Australia, Origin Energy, Natural Solar and many more.
If Tesla Energy bring solar solutions to Australia, we may see a very different landscape as energy storage becomes increasingly important for making the economics of solar work. Severe reductions in feed in tariffs, mean that traditional solar installations are becoming less viable, despite technology and efficiency of PV panels and inverters improving.
When you speak to owners of all-electric vehicles, they almost always say the dream is to have a couple of solar panels on the roof of the garage and have that charge the car, leaving you completely off the grid for your automotive needs. Extending this philosophy to the rest of the power used in your home becomes more viable and hopefully more cost efficient with an end-to-end solution.
If you’ve ever watched the futuristic videos from Corning or Microsoft in which almost every surface is a display, or where every device is connected, what you may not have thought about is the single biggest prohibitory factor to that becoming a reality, its the power. Across Australia we’ve seen energy prices soar and households switch off any non-essential items to save money. That puts in doubt the viability of smart homes of the future and technology that enhances our lives.
Imagine having a home with the right balance of solar collection and energy storage that means you can add any number of displays, any number of online gadgets that consume power 24/7 without ever thinking about the cost, because it’d could be free. Something we will see in Australia if Tesla starts selling solar, is increased competition and creative opportunities to allow more people into the solar market. At this stage, there’s no suggestion that Tesla would stop selling Powerwall through competing providers.
For many households the upfront cost is a prohibitively expensive and that can double if you’re adding a battery to the equation. It is early days, but providers are now experimenting with long-term leasing or rent-to-own solutions that require $0 down, with a commitment to buy power from a retailer for 20+years.
In the US, Solar City have an option where owners can pay-off solar solutions over 10 or 20 years. This $0 up front agreement is essentially a loan, so while we may not think of Tesla as a financial institution, with a Solar City acquisition, they will be. Owners who choose this option are charged fixed monthly payments.
There’s certainly a long way to go before this is a reality for Australians, but as we consume less from the grid, energy providers will inevitably increase service charges just to be connected to the grid, should you need it. Solar calculations for individual families remain complex and there’s so many factors to consider, in some households, an outright buy would still be the best option, that said, things are about to get a whole lot more interesting.
Tesla are building one of the largest buildings on earth to create enough batteries to power their cars and powerwall (residential) and powerpack (commercial/government) energy storage solutions, so don’t be surprised if they also become one of the world’s largest solar panel producers as well.
Below is the full message sent to CEO of Solar City,
We are pleased to submit to you and the SolarCity board of directors a proposal to acquire all of the outstanding shares of common stock of SolarCity in exchange for Tesla common shares. Subject to completing due diligence, we propose an exchange ratio of 0.122x to 0.131x shares of Tesla common stock for each share of SolarCity common stock. This proposal represents a value of $26.50 to $28.50 per share, or a premium of approximately 21% to 30% over the closing price of SolarCity’s shares, based on today’s closing price of SolarCity’s shares and the 5-day volume weighted average price of Tesla shares.
We believe that our proposal offers fair and compelling value for SolarCity and its stockholders, while also giving SolarCity’s stockholders the opportunity to receive Tesla common stock at a premium exchange ratio and the opportunity to participate in the success of the combined company through their ongoing ownership of Tesla stock.
The board of directors of Tesla is excited at the prospect of a potential combination of SolarCity’s business with Tesla. We believe that the possibilities for product, service and operational synergies would be substantial, and that a combination would allow our companies to build on our respective core competencies and remain at the forefront of delivering innovative approaches for sustainable transportation and energy. We believe that a combination would generate significant benefits for stockholders, customers and employees of both Tesla and SolarCity.
We are committed to a possible transaction that is fair to SolarCity’s and Tesla’s respective stockholders. To help ensure that, Tesla is prepared to make the consummation of a combination of our companies subject to the approval of a majority of disinterested stockholders of both SolarCity and Tesla voting on the transaction.
In addition, as a result of their overlapping directorships, Elon Musk and Antonio Gracias have recused themselves from voting on this proposal at the Tesla board meeting at which it was approved, and will recuse themselves from voting on this proposal at the SolarCity board as well. We believe that any transaction should be the result of full and fair deliberation and negotiation by both of our boards and the fully-informed consideration of our respective stockholders.
Our proposal is subject to the satisfactory completion of due diligence, the negotiation of mutually agreeable definitive transaction documents, and final approval by the Tesla board. While a transaction would be further subject to customary and usual closing conditions, we believe that Tesla is well positioned to negotiate and complete the transaction in an expedited manner. We do not anticipate significant regulatory or other obstacles in consummating a mutually beneficial transaction promptly.
In light of Elon Musk’s SEC disclosure obligations in his individual capacity as a stockholder of SolarCity this proposal will be publicly disclosed, but Tesla’s intention is to proceed only on a friendly basis.
We look forward to discussing a potential transaction with you, and hope to expeditiously enter into a definitive agreement.
Sincerely,
The Board of Directors of Tesla Motors, Inc.
