Tesla-SolarCity Merger Creates Energy Powerhouse

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

A little more than a week ago, a big merger created the world’s first vertically integrated sustainable energy company. It was born when Tesla Motors (Nasdaq: TSLA) acquired SolarCity Corp. (Nasdaq: SCTY) for $2.6 billion.

Tesla is best known for its early lead in the electric vehicle (EV) market. SolarCity is one of the most recognizable brands in clean energy. It’s a U.S. leader in residential solar energy systems.

The new Tesla will be the world’s first sustainable energy company focused on EVs, solar roofing and energy storage. It’s a huge opportunity for forward-looking investors.

As you know, Elon Musk founded both companies. Combining the two is his way of creating individual, sustainable energy systems. That includes energy production and use by individuals, homes and vehicles.

Imagine one company that provides products to supply all of the electricity in your home. In addition, it sells EVs to run off that electricity.

For some, it would mean a goodbye to power companies, car dealers and gas stations – all in one fell swoop.

That’s the new Tesla-SolarCity combination.

There’s no question it was a bold move by Musk, who owns 22% of each company. There was a risk that some institutional shareholders of SolarCity shares might block the deal.

But Musk was so confident in its passage he abstained from the vote. Tesla shareholders approved the merger by 85%. A majority of SolarCity shareholders also gave their approval.

The benefit for shareholders is simple. They now own stock in the first vertically integrated sustainable energy company in the world.

Over the next few years, I believe owning Tesla shares will turn out to be a fantastic decision for investors. Shortly after the merger is completed, the company expects to begin volume production of its newly announced solar roof in mid-2017.

Folks who don’t like the look of traditional solar panels on their homes will certainly give Tesla’s solar shingles a second look. These are Tesla’s building-integrated photovoltaic (BIPV) solar modules…

roof-shingles

Initially, the modules will be available in four roofing types: Tuscan glass, slate glass, textured glass and smooth glass.

Now going solar doesn’t require a different-looking roof. Yes, solar panels are finally fashionable. The idea could serve Tesla shareholders well.

Tesla isn’t the first company to develop a BIPV roofing product. Dow Chemical Company (NYSE: DOW) had a BIPV product called Dow Powerhouse.

They are less obtrusive than conventional solar panels. However, unlike Tesla’s product, Dow’s solar roof still looks different from regular shingles.

solar-roof

The trouble is Dow shingles don’t replace the actual roof. For that reason, customers gave the product a lukewarm reception. That led to Dow cancelling the rollout last June.

Tesla’s solar shingle line, on the other hand, seamlessly integrates solar modules with the look of a conventional roof. In fact, the solar shingles are the roof.

At the product unveiling, the audience had no idea it was a home with a solar roof. This is BIPV as it should be.

The panels are quartz and are virtually indestructible. Musk says, “It has a quasi-infinite lifetime.”

This is a completely new look for solar. The durability will be a big selling point to customers who want something more than just solar panels. Plus, Tesla designed the product so conventional roofing companies can install it.

Removing those barriers should provide a big boost to Tesla’s bottom line and shares.

And don’t forget about the 30% federal investment tax credit. It’s been extended through 2023. As a result, the U.S. solar market is forecast to continue annual double-digit growth in gigawatts at least through 2020.

This year looks like it will finish out with a record 13.9 gigawatts of new installations. Residential is about 30% of that total.

That’s a huge addressable market for Tesla. Right now, the company’s biggest obstacle is cost. But Musk claims his product will be no more expensive than replacing a conventional roof of the same type. However, Tesla has not yet priced the product.

But if pricing is comparable, the company could snag a big piece of a growing industry. Consider: There are 135 million homes in the U.S. and about 1 million more constructed every month.

The Tesla-SolarCity merger is a gamble. But it’s also a major opportunity for Musk. And as an investor, I would never bet against him.

Of course, I know not everyone shares my pioneering spirit. What do YOU think about Musk’s latest power move? Click here to let me know your thoughts.

Good investing,

Dave