Tesla, SolarCity stress financial, operational benefits in advance of merger vote

There have been no shortage of announcements by Tesla and SolarCity over the past few weeks, in advance of the critical November 17 shareholder vote on the merger of the two companies. After announcing plans for Panasonic to take over production of the SolarCity PV module gigafactory in Buffalo if the merger goes through, Tesla reported its first quarterly profit in a number of quarters.

This was followed last Friday by Elon Musk’s unveiling of the company’s new solar roof product, which will offer textured glass tiles that imitate a number of conventional roofing materials, with an emphasis on aesthetics.

But while Friday’s call was all about the beauty of the new tiles and the synergies of the combined system, tonight’s statement and call were focused squarely on assuaging investor concerns that SolarCity’s debt and quarterly losses will not be a lodestone on the combined company.

Tesla CEO Musk and SolarCity CEO Rive made several arguments that this will actually improve Tesla’s position. SolarCity is undeniably very good at raising money, and the companies claim that SolarCity will add more than $500 million in cash to Tesla’s balance sheet over the next three years, and that the company increasing its cash position in Q3 and further in Q4.

These claims are hard to judge, as SolarCity will not release its Q3 results until next week. However, the company’s cash & short-term investments dropped to $146 million in Q2 2016, the lowest in at least two and a half years.

Another issue is raw losses. While the companies are correct that third-party solar companies which build long-term value in assets that slowly pay off over time cannot be judged by the same metrics as a conventional solar developer or installer, SolarCity reports significant losses every quarter, and lost a staggering $250 million dollars in Q2.

Musk and Rive have implied that such heavy losses are a thing of the past, noting that loans and cash transactions are making up a larger portion of the company’s business, which will improve its revenue and profitability. In the note accompanying tonight’s call, the companies state that nearly 1/3 of SolarCity’s residential bookings in September were cash purchases and loans.

The companies additionally cited the potential cost savings of combining the two companies, estimating that they will save $150 million in the first year “from sales and marketing efficiencies through cross- selling, the elimination of overlapping R&D and product development efforts, and reduced overhead costs.”

“The bottom line is that we expect the acquisition of SolarCity to bring significant financial benefits to the combined company,” declared the joint statement.

At the same time, Tesla CEO Musk expects to sell more Powerwall batteries and Teslas – especially the new, lower-cost Model 3 – to existing SolarCity customers, which SolarCity CEO Rive describes as a “massive up-sell opportunity”.

During the call, Musk also answered questions about the Buffalo gigafactory and the new solar roof product, but here again key details were fuzzy. Musk reiterated the promise that the factory will produce a product that combines the best features of Silevo and Panasonic technology, suggesting that the new product could leverage Silevo’s ability to produce heterojunction technology on 6” solar cells.

Musk also noted that the tools for the two products are similar, however in the past Silevo has emphasized the unique architecture of its cell technology, leaving observers to wonder if the 6” cell will be all that is left of the original Silevo design if Panasonic takes over.

His comments on why his company will be able to produce a solar roofing tile where others had failed centered on aesthetics. “I have never seen a solar roof that I would actually want,’ stated Musk on the call. “They’re weird – they are worse than a normal roof. Unless you are going to beat a roof on aesthetics, why bother?”

Musk also emphasized that the final product will be low cost, noting the fundamentally low cost of glass and stating that he planned to leverage approaches from the automotive glass industry.

However, he offered no hard numbers in terms of expected costs for initial roll-out or future roadmaps, leaving observers to wonder if veteran solar analyst Paula Mints is correct in that the Solar Roof will be “another way for SolarCity to lose money”.