Tesla shareholders would be better off voting down the company’s merger with SolarCity, in part because combining the two companies would likely cause Tesla’s expenditures to explode.
The merger looks like a loser from a Tesla shareholder’s perspective, mostly because the addition of SolarCity would wear on Tesla’s financial well-being, as the company’s capital expenditures alone are expected to balloon to $1.75 billion by the second half of the year.
Adding the hulking, money-bleeding solar-panel developer to the mix would inevitably compound this problem.
SolarCity spent nearly $800 million on operating expenses in 2015, the Wall Street Journal reported Monday, essentially dwarfing its total revenue by more than half. The solar panel maker is an albatross on shareholders’ necks: It currently has more than $3 billion in long-term debt on its books; and its expenses hit $265 million by June.
At this rate, Tesla would need to raise millions more in fresh capital before 2016 comes to an end, despite raising nearly $2 billion in equity financing in May.
Shareholders are likely feeling the heat, as many of them filed lawsuits against Tesla on Sept. 20 claiming the fusion of the two companies is essentially a bailing out of Elon Musk’s cash-strapped solar panel project.
Musk, who is the chairman of both companies, owns 19 percent of Tesla and 22 percent of the beleaguered SolarCity.
The four lawsuits allege insiders with the electric vehicle maker would be unjustly enriched by the companies’ combination, according to a regulatory filing on Monday. Two individual shareholders and two public pensions filed the lawsuits earlier this month.
“The deal isn’t in the best interests of Tesla in any way, shape or form,” one of the plaintiffs told reporters. Merging with SolarCity amounts to “bailing out their own investments,” the plaintiff said of Musk and other Tesla executives holding investments in SolarCity.
Musk, who is the chairman of both companies, owns 19 percent of Tesla and 22 percent of the beleaguered SolarCity.
Rejecting the Tesla, on the other hand, would likely shake the seemingly unflappable confidence shareholders have in Musk. A loss of confidence in the company’s titular head consequences could have significant ramifications going forward. Tesla trades at nearly 250 times its earnings, mostly because investors have an undying love for Musk’s business acumen.
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