Why You Should Dump SolarCity

Tesla Motors (TSLA) is planning to buy SolarCity (SCTY), but considering the market’s negative reaction to the all-stock offer, it is highly likely that the proposal would not go through. On the other hand, the company has been performing very badly, as its prior two quarter’s earnings reports were so disappointing. SolarCity’s fourth quarter FY15 results conveyed the full year missing formerly reduced earnings guidance, reaching just 870 MW of new installations for 2015.
Although, first quarter 2016 installations beat guidance, bookings were frail. Furthermore, full year guidance was declined from 1.25 GW to 1-1.1 GW.

Although SolarCity’s shares have soared ever since the acquisition talks became public, there is a high chance of the deal not materializing, which is why I think the stock is a sell at current levels.

Tesla believes that by acquiring SolarCity, the company’s customers can run clean vehicles as well as can use their battery packs to help consume energy more proficiently, but they still require admittance to the most sustainable energy source, the sun. Tesla also detailed that by successfully completing the deal, it can accomplish various synergies, which would help stockholders and customers.

If the deal went through successfully, SolarCity and Tesla could cross sell products to each other’s customers. This looks like a positive thing, but it will permit competing solar opponents to build an identical cross selling alliance with an even extensive range of EV makers. SolarCity accounts for a dominant player in the residential solar industry, therefore, it needs customers who might be engrossed in purchasing an electric Audi, Chevy, or any number of vehicles impending to the market in the coming few years.

But, players such as, SunPower, could jump in and form alliance with all of these auto makers, turning into the first solar power system consumers are told about when they purchase an EV from one of those brands. SunPower has made several inroads in the auto segment, by partnering with Ford and Nissan in the past to produce solar leads from EV sales.

At present stage, SolarCity has many questions in front of it that stockholders should own the stock vigilantly, even if Tesla acquires it mainly because the company’s management has not shown the ability to achieve its own growth targets.


Tesla’s shares lost over $6 billion in market cap when the company disclosed that it is planning to acquire SolarCity. Clearly, the market thinks that the acquisition will be very bad for Tesla and I am of the same opinion. Thus, I think the chances of the deal falling apart are high and investors should sell SolarCity while its valuation is high.
Published on Jul 28, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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