Some stock analysts question South African-born billionaire Elon Musk’s plan to buy the struggling U.S. solar panel maker SolarCity — the country’s largest — saying it looks more like a bailout than a synergistic marriage and could put Tesla at risk.
Musk’s announcement Tuesday that he wants Tesla to buy SolarCity raised concerns among investors about shaky finances, conflicts of interest, and unclear motives, LATimes reported.
Musk is chairman and top shareholder at both companies. He owns 21 percent of Tesla and 22 percent of SolarCity. SolarCity’s CEO and chief technology officer is Musk’s cousin.
That’s a clear conflict of interest, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
“You’re supposed to get the best deal for the company on whose board you sit, but if you’re on both how does that work?” Elson said. “The bottom line is that investors of one company or the other will lose in the transaction.”
The U.S. solar market is booming—2016 is predicted to be the largest year ever for both rooftop solar and utility-scale installations, MIT Technology Review reported. But shifting economic forces mean trouble for some of the largest U.S. companies in the industry.
SolarCity reported a first-quarter net loss of $25 million, and its share price is down 53 percent in 2016.
Until recently, growth in U.S. residential rooftop solar was driven largely by leasing models, in which installers own the panels and homeowners make monthly payments for up to 20 years.
This model is working well in Africa, where companies like Nairobi-based solar energy financier M-Kopa use a pay-as-you-go business model. Customers — many living on $2 a day or less — pay at least 50 cents a day plus a hefty interest by U.S. and European standards for one to two years, eventually owning their solar kits that provide lights and charge mobile phones, AFKInsider reported.
But in the U.S. the price of solar is going down, the government is extending investment tax credit for solar, and lenders are increasingly willing to finance solar purchases. This makes owning panels a much cheaper option for consumers, according to MIT Review. In April, SunEdison, a SolarCity competitor, filed for bankruptcy protection.
Musk said SolarCity and Tesla are in sync. SolarCity’s rooftop solar panels, Tesla storage batteries, and Tesla electric cars make for a cohesive “end-to-end” sustainable energy company.
Neither Tesla nor Solar City is particularly stable, LATimes reported. Both are unprofitable and bleeding cash:
The automaker had $1.44 billion in cash as of March 31, down from nearly $2 billion at the end of 2014. Tesla lost $888.7 million on revenue of $4.05 billion in 2015, a year in which it delivered 50,580 vehicles, mostly its mainstay Model S sedan.
SolarCity lost $768.8 million on revenue of $399.6 million last year, and its cash on the balance sheet shrank to $361.7 million as of March 31 from $504.4 million at the end of 2014.
Tesla short sellers, who make money when a stock loses value, are ecstatic.
It’s common for fast-growth companies in emerging industries to lose money for years until revenue growth makes up for upfront investment. Musk said the companies will be able to market their products together, with lower sales costs and better margins.
In Africa, where electricity access is one of the most pressing problems for businesses, a solar energy company backed by SolarCity is expanding from providing solar kits for homes to offering it for small businesses, Forbes reported.
Off Grid Electric, which has 100,000 customers in Rwanda and Tanzania, announced a new range of solar products aimed at rural entrepreneurs today at President Barack Obama’s 7th annual Global Entrepreneurship Summit (GES), underway at Stanford University in Palo Alto, California.
Based in Arusha, Tanzania, Off Grid provides provide pre-paid solar energy.
The company has some impressive investors backing it, including SolarCity, Omidyar Network, Vulcan Capital, and Zouk Capital. Musk’s cousin, Solar City CEO Lyndon Rive, is on the Off Grid board of directors, Forbes reported.
For years, fans and investors bought into Musk’s unconventional approach to corporate finance, LATimes reported.
He used his own money to help start Tesla Motors. His rocket firm, SpaceX, bought bonds backed by rooftop panel sales of SolarCity. But investors and analysts are wary of his latest plan.
