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In new 'master plan,' Musk defends timing, rationale of SolarCity deal

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


In new 'master plan,' Musk defends timing, rationale of SolarCity deal

Inhis "Master Plan, Part Deux," Tesla Motors Inc. Chairman and CEO Elon Musk on July 20defended the rationale and timing of his company's proposed takeover of rooftopsolar company SolarCityCorp. while at the same time pushing a vision for an expandedproduct line of electric vehicles with self-driving technology.

Themanifesto, posted to the Tesla website following an initially cold reception tothe proposed SolarCity deal and after a traffic fatality was connected to theautopilot function in Tesla's Model S sedan, focused heavily on theelectrification of the automotive sector. In the power industry, Musk said hisgoal is to "Create stunning solar rooftops with seamlessly integratedbattery storage."

"Whatreally matters to accelerate a sustainable future is being able to scale upproduction volume as quickly as possible," he said, reiterating that hisambition in the energy sector can only be achieved by bringing electricvehicles, energy storage and solar power under one roof.

"Nowthat Tesla is ready to scale Powerwall and SolarCity is ready to provide highlydifferentiated solar, the time has come to bring them together," Muskwrote.

Teslaon June 20 proposedacquiring SolarCity for $26.50 to $28.50 per share, a premium of up to 30%based on the solar company's closing stock price that day. The all-stock dealvalued SolarCity at up to $2.8 billion.

The announcementwas made without any definitive agreement between the two companies due toMusk's prominent role at both. Musk is chairman and CEO of Tesla Motors andchairman of SolarCity, which is run by his cousin Lyndon Rive. He owns justover 20% of each company's outstanding shares.

MusktoldThe Wall Street Journal that heexpects a supermajority of shareholders to approve the deal, despite initialskepticism. UBS Securities LLC analyst Julien Dumoulin-Smith said there are fewstrategic overlaps between the companies, adding, "We don't think analternative energy conglomerate makes much sense."

Othersdisagree. "As a participant in the electric mobility transportationsector, we see … solar also being part of that ecosystem," Rob Healey,manager of electric vehicle infrastructure at BMW North America LLC, said in aninterview after Tesla announced its plan to buy SolarCity. BMW sees "thecar, the solar, the battery storage systems all [working] together holisticallyin the future, especially with the changing electric utility market,"Healey said.

InMusk's first master plan, publishedin 2006, he said "the overarching purpose of Tesla Motors … is to helpexpedite the move from a mine-and-burn hydrocarbon economy towards a solarelectric economy," which he called "the primary … sustainablesolution."

Nevertheless,the combination would bring together two companies that are burning throughcash. SolarCity's losses more than doubled last year to $768.8 million asexpenses grew by 85% to $766.6 million, according to S&P Global MarketIntelligence. Tesla's net loss grew by more than 200% last year to $888.7million. Some criticized the proposed deal as a bailout for the solar company.

"Idon't think the Tesla acquisition changes the story, at least in the short to mediumterm," Hugh Bromley, lead North America solar and distributed generationanalyst for Bloomberg New Energy Finance, said in an email after the proposeddeal was announced. "SolarCity may gain access to a new source of funding;however Tesla shareholders won't be pleased. Apart from this, all the headwindsSolarCity faces are still present."