Now it is time to sell the deal to shareholders

Now it is time to sell the deal to shareholders

Tesla's CEO and Solar City President Elon Musk held an impromptu 2nd conference call to address concerns about the ~$2.7 billion dollar Tesla offer for Solar City (which has not had favorable market reaction to say the least) ...and/or because the first conference call after the market closed yesterday had more than a few technical glitches.   Your call.

The CEO of Tesla, and fellow board member of both companies - Antonio Gracias, have both recused themselves from voting due to conflict of interest, so ultimately shareholders will have final say, and odds aren't looking too great they are up for the challenge of integrating Solar City at the moment.

If you don't care to read our bullet notes from the call, the takeaway message from Elon Musk was this.

The Tesla CEO has "zero doubt" on this deal, and that Tesla now has the potential to be a "trillion dollar market cap company" someday...so everyone get on board with it already.

Highlights from Elon Musk on 2nd call this morning:

  • SolarCity and Tesla - Bringing sexy back to solar...apparently

    SolarCity and Tesla - Bringing sexy back to solar...apparently

    Tesla legal team explains why a blog post (and not an official Tesla release) announced the deal - apparently Mr. Musk had to announce the offer because of his position of authority at both companies

  • Musk: "synergies are common sense", adds/admits that "synergy" is a dirty word these days - deal is a "no-brainer" and that these "synergies" would be in place by 2nd quarter after the deal is done
  • Musk states Tesla couldn't give Solar City "special deals" without being the same company.  Later in call, Musk adds, "We’re not going to be a jerk to other solar companies"
  • Solar City will be cash flow positive in ~6 months, so SCTY's debt is meaningless, "cash flow covers what’s required with the recourse debt"
  • some light talk of throwing in steak knives with solar installation deal, and the houses look better with PV on them
  • both Elon Musk and Antonio Gracias, who are on the board of both companies, have recused themselves from voting on the deal - so Musk will need help of shareholders to come on board to make it happen
  • only ~1% of population utilize a solar option, Musk is asked about usage rates amoung Tesla EV owners, CEO seems unsure/does not answer
  • re-states earlier position that both the PowerWall and Solar City's PV systems have to be designed together

Dirty word -

Dirty word - "synergy" describes the union of Tesla Energy storage and Solar City

  • Musk figures that cost of sales could be cut in half, quickly back-peddles to say 30-40%, then notes "...whether its 20% reduction, 30%, or 40%, it is pretty significant"
  • negative market reaction is brought to Musk's attention, with the CEO using a LinkedIn comparison about the premium being offerd (recently acquired by Microsoft in a bidder situation), says offer was "completely normal"
  • possibly in reaction to market reaction, Musk says that the $2.5 billion offered really is a "small number" and Tesla could be a"trillion dollar market cap company" someday

"If we didn’t do this, it would make Tesla’s execution harder and worse."

  • analyst intimates this deal is a "bailout" of SolarCity - Musk quickly shoots down that notion saying it is false
  • although recused from the vote, Musk says the deal will "make things better" at the company and obvious recommends to shareholders that they support it saying,  "I have zero doubt about this.   Arguably, we should have done it sooner."

SolarCity Residential Install

SolarCity Residential Install

Overall, the call seem to focus a lot on the "feel good" aspects of the deal and the value that can be created by the two companies coming together.

Disappointing analysts however was the fact that there was little financial information given out, with Elon Musk summing the whole thing up neatly.

"I’m highly confident we’ll be the world’s best manufacturer by a margin people don’t even think is possible,"  he also added that "this is what the world needs, it is earth's solution.....we are trying to have the non-weird future get here as fast as possible"

Tesla figures that the shareholder vote will ultimately arrive "in a few months".  Last night after the announcement and market reaction, Credit Suisse forecasted only a 20% to 40% chance the deal would close.

Initially on the announcement Tuesday night, shares of Tesla traded off some $26 (-12%) in extended hours trading, while Solar City moved up about $3.90 or about 18.5% higher.  Sentiment in TSLA rebounded somewhat overnight and after this Musk's conference call in the early AM, opening Wednesday's session off about $18.50 (-8.5%).

Real time quotes on both companies can be found here - TSLA, SCTY