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Tesla Motors Inc’s Acquisition of SolarCity Corporation: A Valuation Mistake And A Strategic One Too!

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We have witnessed a bearish response by investors lately in both companies, as the risks outweigh the prospects

A recent regulatory filing made by Tesla Motors Inc. (NASDAQ:TSLA) said that there has been a computational mistake in valuing SolarCity Corp. (NASDAQ:SCTY). The energy storage company has been valued $400 million less, according to the recent development. However, the terms of this deal shall not change, as SolarCity would still be valued at $2.6 billion. Perhaps, in our view, even $2.6 billion is a very hefty amount paid by the electric car maker for the company that has only posed some serious challenges since it was acquired.

Our thesis on Tesla Motors has been bearish, ever since the company announced the decision to acquire SolarCity. Maybe the deal was of interest to billionaire Elon Musk, as he heads both these companies. However, any potential benefit of this deal has not been seen yet, maybe because Mr. Musk envisions something that has not yet come into our minds, or may be because he only wants to save SolarCity from bankruptcy.

The Country Caller has discussed the recent developments, which have almost deprived SolarCity from obtaining any kind of debt, whatever security may be presented as collateral. Moreover, Tesla’s problems have also been getting bigger as the company seeks to expand its presence. The leadership of both the companies that includes Mr. Musk and his cousins has come through whenever their companies need debt.

But for how long will they be able to do it remains a question, as there is a risk of default for their investments too. We have witnessed a bearish response by investors lately in both companies, as the risks outweigh the prospects. Perhaps any substance in these companies would only come, should they look to improve their financial condition.

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