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While Shares Drop Over SolarCity Deal, Muck Sees a $1 Trillion Tesla

While Shares Drop Over SolarCity Deal, Muck Sees a $1 Trillion Tesla
The proposed acquisition of SolarCity Corp could eventually push the US electric car maker Tesla Motor’s valuation to $1 trillion, said Tesla Motors Inc Chief Executive Officer Elon Musk on Wednesday amidst skepticism from investors.
The sentiments of the investors were reflected after the market capitalization of the car maker was put at $29.8 billion after the shares of Tesla fell by nearly 7 percent and touched $204.50. Valuing the U.S. market leader in residential rooftop solar panels – SolarCity, at $2.2 billion, the shares of the much smaller company were up nearly 9 percent at $23.01.
Proposing a stock deal worth as much as $2.8 billion, Tesla offered to buy SolarCity on Tuesday.  
"I have no doubt about this – zero. We should have done it sooner," Musk said on a conference call with analyst before markets opened on Wednesday. He is a major shareholder of both companies.
The proposed merger had "little in the way of synergies (and) much in the way of cash burn," with "uncertain growth/cash prospects" for the combined companies, noted Barclays auto analyst Brian Johnson who disputed that view in an overnight note to investors.
"It is even more clear that Tesla will need additional cash raises" to continue its expansion of electric car and battery production, Johnson said.
“The ultimate solution" to a sustainable-energy future was "what the world needs” and it be would be provided by the combination of SolarCity's solar panels with Tesla's electric vehicles and stationary storage batteries, Musk however said.
"As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company," he added.
At present the two companies are connected to each other already. While Musk owns 22 percent of Solar City, he is a 19 percent stakeholder of Tesla as well. And this has helped him to get a seat o the boards of both companies. Lyndon Rive, the CEO and founder of SolarCity, and Peter - his brother, the company's chief technology officer and co-founder are also related to Musk. They are his first cousins.
This year, operating in a highly competitive market, the stocks of SolarCity has fallen more than 50 percent and the company continues to posts quarterly losses on a regular basis. Including all its debts, the company has more than $6 billion in liabilities.
Musk said SolarCity would not have a material impact on Tesla's future cash needs or expectation to be cash-flow positive by year-end and it would post positive cash flow in the next three to six months.
While declining to give away any specifics , Musk said costs for both companies would go down significantly after the merger.
SolarCity stores could display Tesla electric cars and storage batteries but probably would not handle vehicle sales, Musk said while talking about the potential synergies from the merger. The shareholders of both companies are expected to vote on the deal in the next few months, said Tesla General Counsel Todd Maron.

Christopher J. Mitchell

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