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Elon Musk's charm offensive sends signal: Don't bet against me

With just eight days to go before shareholders decide whether Tesla Motors' $2.2 billion merger with SolarCity will go through, Elon Musk is on a charm offensive to drum up support for the deal.

Worried about Tesla's losses?  Tesla reported a third-quarter profit, just its second ever, in a report last month that surprised Wall Street analysts who were expecting another quarterly loss.

Wondering why Musk would want the electric vehicle maker to hook up with a rooftop solar installer? The companies in late October unveiled their new solar roofing product, which looks astonishingly like a regular roof, only with solar modules inside. Musk said the roof shows the kind of things the two companies can accomplish when they work together - something that wouldn't be possible to that extent if they were separate companies.

Concerned about SolarCity turning into a financial anchor that will drag down Tesla just as it's launching its $5 billion battery gigafactory and preparing to ramp up production of its $35,000 Model 3 sedan, which already has brought in more than 350,000 deposits from eager customers? Musk and his cousins, SolarCity founders Lyndon and Peter Rive, hold a conference call with analysts last week to go over SolarCity's finances and their belief that the solar energy company will more than double its sales and generate more than $500 million in cash over the next three years.

For Musk, the stakes go beyond simply whether the electric vehicle maker will get the OK to buy SolarCity, the nation's leading installer of rooftop solar.

It's about whether Musk's fellow shareholders at Tesla buy into the next step of his vision for creating a renewable energy powerhouse that can help ease global warming and their faith in his ability to deliver the results he promises above the concerns they may have about SolarCity and its finances.

"It's pretty straightforward, really," Musk said from a stage on the Wisteria Lane set from the Desperate Housewives television series. "If you have a great solar roof and you have a battery pack in your house and you have an electric car, that's something that scales worldwide. You can solve the whole energy equation with that."

Musk's message is simple: Don't bet against me.

Doubters, Musk noted, said that he couldn't turn Tesla into a viable electric vehicle manufacturer. But now, with sales expected to top 80,000 vehicles this year and reach as many as 500,000 in 2018, when it starts deliveries on its $35,000 Model 3 sedan, Tesla is the nation's biggest electric vehicle manufacturer.

"There are quite a few naysayers on the financial front," Musk said during last week's conference call. "They have a batting average of zero. You should really expect something better."

Shareholders at both companies have to approve the deal. SolarCity shareholders are more likely to vote in favor of the deal because its rejection would leave the company without the financial support that a Tesla tie-up would provide. SolarCity's stock has badly underperformed the market, losing 63 percent of its value this year.

Musk's sales pitch is more targeted toward Tesla shareholders, who are more likely to view SolarCity as a cash-guzzling distraction at a time when Musk already is tackling two major initiatives in the Model 3 launch and the battery gigafactory.

"Tesla is on the precipice of making good on its promise of offering an affordable electric vehicle to the masses. A lot has to go right for this launch to be successful and the company is facing a high degree of execution risk," said Jeffrey Osborne, a Cowen & Co. analyst, in a report.

"SolarCity is going through its own set of growing pains and is adapting to the rapidly changing solar market, where state subsidies are changing, customers are shifting to loans and customer acquisition costs are on the rise," Osborne said.

While Osborne thinks the merger might really pay off three to five years from now, it could create even more volatility in the near term as both companies deal with the shifting landscapes in the solar and auto industries.

On the other hand, Musk last week won the backing of an influential shareholder advisory firm, used by institutional investors like mutual funds and hedge funds to help figure out which way to vote their shares. That's a huge thing for the Tesla-SolarCity merger, since more than half of the shares in both companies are owned by institutions. How they vote will go a long way toward determining the merger's fate.

"The transaction is a necessary step toward Tesla's goal of being an integrated sustainable energy company," Institutional Shareholder Services said in its report.

And while the ISS report said the deal is "heavily loaded with conflicts of interests," it notes that Musk's stake in Tesla is worth 10 times more than his SolarCity holdings. As a result, the advisory firm doubts that Musk is using the merger as a way for Tesla to "rescue" SolarCity from its financial straits.

"A deal that would have a negative impact on Tesla would certainly be damaging to his net worth," the report said.

But not everyone is buying into Musk's charm offensive. A rival shareholder advisory firm, Glass, Lewis & Co., reached the opposite conclusion about the merger.

“We believe non-affiliated Tesla investors should be concerned the proposed tie-up of Tesla and SolarCity mostly amounts to [a] thinly veiled bail-out plan,” the Glass, Lewis report said.

Musk scoffs at the notion that the merger is a bailout for SolarCity. "I see zero chance of SolarCity going bankrupt. Zero," he said during the conference call.

And, just as Donald Trump and Hillary Clinton both predicted that they'd win the presidential election, Musk is saying the early votes from shareholders have been encouraging.

"I'm pretty optimistic about where the vote's going," he said last week.

 

 

 

 

 

 

 

 

 

 

 

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