A lot of skepticism: Mercom Capital’s Raj Prabhu on the pending Tesla/SolarCity merger

On Sunday, the boards of Tesla Motors and SolarCity agreed to the terms of Tesla’s acquisition of the solar company. And while this deal is still awaiting votes by shareholders of both companies to go forward, there are indications that this may come soon. pv magazine USA spoke with Mercom Capital CEO Raj Prabhu about the evolution of this deal, and what to expect.

Shifting sales strategies by national residential installers like SolarCity will cause customer acquisition costs to rise in the short term - but as the market adjusts, GTM Research predicts they will fall below their previous 2013 lows.

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pv magazine USA: How would you describe the current attitude in the investment community around Tesla’s planned acquisition of SolarCity?

Raj Prabhu: I don’t see a lot of investors celebrating the deal; there is still a lot of skepticism on how all this will work out in the end. Tesla is now a sustainable energy company with multiple offerings: solar+storage, EVs, and solar panel and battery manufacturing. It will take some time to see results from the anticipated synergies. For now, investors will have to buy into the Musk brand and hope it all works out.

 

mercom_ceo_raj_prabhu_croppv magazine USA: How have circumstances, both around this acquisition and in the larger market, changed since the acquisition was first announced?

Prabhu: It has not been that long since the acquisition was first announced, but SolarCity just reduced its 2016 guidance by 10 percent as the first half bookings were slower than anticipated. Solar installations in the U.S. are slower than many expected. In fact, Mercom was one of the few firms with a conservative forecast after the ITC extension as we did not see the U.S. market hitting the aggressive 15-16 GW projections that others were making. Net metering is still an issue for rooftop players; solar public companies are still having a rough time in the stock markets; financing models are evolving and so is competition.

 

pv magazine USA: Tesla and SolarCity are both putting this to a vote of shareholders, with Elon Musk, the Rive brothers and other key executives recusing themselves. Do you think that if the vote goes forward, this will be enough to ensure investor confidence?

Prabhu: It looks like Elon Musk is sold on this acquisition and it is likely to go through. It’s unlikely they would have announced the deal without making sure they have the shareholder backing to approve the transaction, and I don’t anticipate a SunEdison-type investor revolt. Technically there is a 45 day go-shop period for SolarCity to find another buyer, but I would be shocked if any other company makes a bid.

 

pv magazine USA: Any other observations?

Prabhu: SolarCity was the first public vehicle for investors to get into residential solar. Now investors that are specifically interested in the residential solar model are currently left with Sunrun and Vivint Solar.

 

Interview conducted by pv magazine Americas Editor Christian Roselund.

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