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Shareholders poised to decide fate of Tesla-SolarCity merger

Investors to set course for both companies in contentious Nov. 17 vote; after months of promoting deal, Elon Musk says a no vote would be "frustrating"


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PHOTO: Alexis Georgeson/Tesla

Tesla says the merger will be a boon for both the environment and for shareholders. Not all are convinced, however. Some question Musk’s motives, while others are concerned about synergies and profitability. PHOTO: Alexis Georgeson/Tesla

PALO ALTO, Calif.—After months of weighing the multibillion-dollar merger, Tesla Motors Inc. and SolarCity Corp. shareholders are poised to vote on the controversial deal that would redefine both companies.

Tesla CEO Elon Musk—who also serves as chairman of each company and has significant financial stakes in the electric vehicle maker and the home solar panel installer—announced the US$2.45 billion merger this June and has repeatedly made the case that the merger would be a boon for the environment and both companies’ shareholders.

Investors are set to vote on the deal on Nov. 17, nine days after the results of another high-stakes U.S. vote, which fueled fresh uncertainty in the clean economy landscape. Businesses, policy makers and investors are still weighing what impact President-Elect Donald Trump will have on the ascendant market for clean energy, electric vehicles and emissions-reducing technology.

Earlier this month, documents showed the merger could add $1 billion in revenue to the combined company next year, which would be more than double the $400 million revenue SolarCity reported in 2015.

SolarCity also could add $500 million in cash to Tesla’s coffers over three years. In the last several months, the company has raised around $1 billion to fund solar projects, Tesla said. Tesla currently has around $3 billion in cash.

“I’m pretty optimistic about where the vote’s going,” Musk told Wall Street analysts during a webcast Nov. 1.

Still, with neither company having achieved sustained profitability and the seemingly disconnected markets they serve, many investors are skeptical. The launch of the second-generation Powerwall and new Tesla solar roof tiles that mimic of look of traditional roofs but include PV cells could help allay some of those fears.

Analysts have also questioned whether the deal could delay Tesla’s first mass-market vehicle, the $35,000 Model 3, which is due out at the end of next year. Some shareholders have even sued, claiming that the merger is an attempt by Musk to use one company to bail out another. Musk owns 26.5 per cent of Tesla and 22 per cent of SolarCity, which is run by his cousins.

Musk said it will be “frustrating” if shareholders don’t approve the deal. If the companies don’t merge and Tesla is forced to keep SolarCity at arm’s length, Musk said, it’s hard to envision how Tesla stores could sell solar panels.

Tesla says the two Silicon Valley-based companies could cut $150 million in costs in the first year of a merger by jointly marketing Tesla’s electric vehicles and power storage batteries with SolarCity’s solar panels. The combined company would also have a wider reach, since Tesla has stores in the U.S., Europe and Asia but SolarCity mainly sells solar panels in the U.S.

“Would you go to an Apple store and see six different cellphones getting sold?” he said.

Still, demand for the combined product is uncertain, and Tesla and SolarCity said in the final pitch to investors at the beginning of the month they have no data to back up claims that electric vehicle customers will inherently want solar panels. Plug-in electric vehicles make up less than 1 per cent of U.S. sales, and less than 1 per cent of U.S. electricity generation comes from solar power, according to government data.

Tesla plans to showcase the vote live via webcast Thursday afternoon.


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