Elon Musk surprised everyone last week.
He announced he wanted to merge two parts of his change-the-world empire through an acquisition of SolarCity by Tesla, and the move was instantly criticised by investors and the media as a conflict of interest.
But the real reason Musk wants to buy the solar company is that it’s super cheap, according to Patrick Jobin, an analyst at Credit Suisse.
In a note to clients sent out on Friday, Jobin wrote, “Price too low for SolarCity in our view; could be a steal for Tesla shareholders.”
Jobin thinks that SolarCity has been undervalued for a long time. Before the merger was announced, Credit Suisse held a price target of $38.00 when shares were trading in the low $20 range. Their price target now sits at $27.00, right around the announced acquisition price.
But when Musk announced the price he’d be willing to pay for SolarCity, the company was valued at roughly one-third of its high for the past year.
Having Tesla as a parent might help SolarCity realise the potential Jobin sees in the company.
Sharing sales and marketing channels with Tesla will cut costs, the strong Tesla brand could help SolarCity sell more units, and the installation teams from SolarCity could also be used to set up Tesla’s Powerwall batteries.
Musk certainly sees the synergies in the two companies. Combining SolarCity and Tesla will provide a single source for off the grid living. Solar panels created by SolarCity wil charge batteries made in Tesla’s new Gigafactory, then power an electric car that never touches the grid for its juice. It all fits into Musk’s vision of the ultimate sustainable energy company.
“Decades from now, if electric vehicles adoption takes off as mainstream-priced cars are available, rooftop solar becomes cheaper than grid-purchased power even without net metering support, and if battery costs decline as envisioned, Tesla would have a full product portfolio that could seamlessly integrate to maximise the transition away from fossil fuels,” Jobin said.