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Musk’s vision extends far beyond next quarter

Elon Musk has always been willing to think big – and his bid to merge SolarCity with Tesla Motors is a central part of his long-term vision.

That vision is built around a world that no longer relies on fossil fuels. In that vision:

• Gasoline-powered vehicles are replaced by electric cars, a field in which Tesla is the leading player.

• Electric power plants, now running on fossil fuels such as coal, oil and natural gas or nuclear power, will be largely replaced by solar panels, an area in which SolarCity is the biggest installer for residential rooftop systems.

• Affordable battery systems, also made by Tesla, will make solar power more practical, by allowing its energy to be stored during the day so it can be used at night.

The Tesla-SolarCity merger bid, however, has some analysts wondering whether Musk is going too far. The merger has raised questions about potential conflicts of interest between two closely linked companies in which Musk is the biggest investor. There are worries about merging two companies that lost a combined $1.6 billion last year and questions about the short-term savings and synergies that a deal would produce.

But while Wall Street focuses on the next quarter, Musk is looking to the next decade.

“I really would encourage people to think about the long term,” Musk told analysts during a conference call after Tesla’s $2.8 billion bid to buy SolarCity was disclosed. “The long-term picture is a world with sustainable power generation, with stationary storage to buffer that power, and then electric cars. And Tesla is going to be the leader in all three.”

But to get there, a lot must happen, Patrick Jobin, a CreditSuisse analyst, said in a research report:

• Tesla has to succeed in bringing affordable electric vehicles to the masses.

• Solar power needs to get cheaper so it can compete with conventionally generated electricity without any subsidies.

• Battery costs have to drop as Tesla prepares to complete its Nevada “gigafactory” by the end of this year.

“I think the tide of history very strongly supports a sustainable energy future, primarily solar and virtually entirely electric vehicles,” Musk said.

“In the long term, it will overwhelm everything. Our goal is to accelerate the advent of that future as fast as possible, and this helps accelerate it.”

Musk is no stranger to thinking big.

The entrepreneur, backed by the fortune he earned by building PayPal and selling it to eBay, created SpaceX, a rocket company that has become an established space cargo carrier and satellite launch vehicle. The company recently has been able to land its rocket boosters on platforms floating at sea – a key step toward reusable rockets that would vastly reduce launch costs.

He has been able to turn Tesla into the leading manufacturer of electric vehicles, with hopes of moving into the mainstream with its scheduled release next year of the Model 3, which will be priced as low as $35,000.

“Low-cost storage, electric vehicles and distributed solar are a natural fit,” Jobin said. “Tesla would have a full product portfolio that could seamlessly integrate to maximize the transition from fossil fuels.”

Musk is convinced that it all will happen, and by bringing SolarCity under the Tesla umbrella, he thinks that it will happen more efficiently.

By offering SolarCity’s rooftop panels at Tesla’s stores, Musk says, SolarCity will gain access to Tesla customers who already tend to be environmentally conscious. Selling through Tesla stores also could help SolarCity reduce its stubbornly high selling costs.

Musk says the two companies could work much more closely after a merger. That would allow Tesla, for instance, to design its residential solar batteries to work best with SolarCity’s panels and equipment.

“The storage product will be geared toward a SolarCity-type system,” Musk said. “It’s quite difficult to create an integrated product if you’re forced to be at an arm’s length and be two different companies.”

And it has to look good. Musk said that adding SolarCity’s high-efficiency panels, which will be made at the company’s factory in Buffalo beginning late next year, will allow the installer to create rooftop systems that add or maintain a home’s value, not detract from it. “Creating a seamlessly integrated Tesla battery & solar power product that looks beautiful is the reason,” Musk tweeted this week.

Analysts have pushed Musk to provide more details about the cost savings and the benefits of the deal. Musk has promised to provide them once a formal merger agreement has been reached.

Musk’s accomplishments, so far, at SpaceX and Tesla, have given him a solid cachet on Wall Street among investors, even if some of his vision is downright futuristic.

His hyperloop, for example, would revolutionize travel by whisking passengers in capsules riding on a cushion of air from San Francisco to Los Angeles in a half-hour.

And there’s his plan to colonize Mars, using SpaceX rockets that could start with unmanned missions as early as 2018 and continue with subsequent flights every 26 months, when Mars and Earth are in their closest orbit.

Sometimes, Musk’s vision is too aggressive, yielding short-term timetables that often have been too optimistic.

Tesla, for instance, has missed its quarterly vehicle delivery targets for three straight quarters, including a 15 percent shortfall that it announced earlier this month pegged to the ramp-up in production of the Model X crossover sport utility vehicle that it introduced late last year. Federal investigators are looking into the fatal crash of a Tesla driver who was using the vehicle’s “autopilot” feature.

The SolarCity deal also has raised concerns among investors, from the two firms’ deeply entangled boards of directors and management to losses at both companies that totaled $1.6 billion last year. Analysts also have been wary because Tesla has not spelled out how much savings the deal would yield.

Musk, however, believes that the vision – and the product – matter far more than short-term targets. “It’s easy to get mired in the details, but I think the right thing to do is to look up and to the future and say: Where is this headed? What are the macro trends? Does this action match where the tides of history are going?” Musk said. “That’s really what’s going to make the difference in the long term, so I’d just encourage people to think that way.”

If you go back 10 years, when Musk spelled out his vision for Tesla in an August 2006 blog post that he called “The Secret Tesla Motors Master Plan,” much of it has come to pass.

In it, Musk predicted that Tesla would build “a sporty four-door family car” that became its Model S, followed by an even more affordable model – its Model 3 – that is expected to reach customers next year.

Musk also predicted that Tesla would start selling SolarCity’s rooftop solar energy systems – at a time when the company was just a month old. Now that Tesla is proposing to buy SolarCity, Musk has touted the ability to sell SolarCity’s solar arrays at Tesla’s stores as a key selling point for the deal.

Musk isn’t done, either. He tweeted last weekend that he is close to releasing his “Top Secret Tesla Masterplan, Part 2.”

email: drobinson@buffnews.com