Elon Musk Expects Tesla Valuation to Reach $1 Trillion with SolarCity Deal

Tesla CEO Elon Musk

Elon Musk, the chief executive officer of Tesla Motors (NASDAQ:TSLA) said the valuation of the electric car manufacturer could reach as much as $1 trillion, which will be driven by its proposed acquisition of SolarCity (NASDAQ:SCTY).

Musk expressed his expectation on the proposed transaction during a conference call with analysts before the market opens on Wednesday. He said, “I have no doubt about this—zero. We should have done it sooner.

Tesla offered to acquire SolarCity for $26.59 to $28.50 per share in a stock deal. The total value of the transaction would be around $2.8 billion. The electric car manufacturer believed that its proposal is fair and compelling for the solar energy company and its stockholders.  It is confident that it is well-positioned to negotiate and complete the transaction in an expedited manner.

Tesla-SolarCity merger is the ultimate solution

Musk believes that combining the solar panel systems of SolarCity and the electric cars and stationary battery storage systems of Tesla is “what the world needs” and it is the” ultimate solution” to a sustainable energy in the future.

“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,” said Musk.

Musk serves as Chairman of the Board of both Tesla and SolarCity. He owns 19% stake in the electric car manufacturer and 22% stake in the solar energy company/ His first cousin, Lyndon Rive is the founder and CEO of SolarCity. Both of them recused themselves from voting on the deal.

The Board of Directors of both companies is expected to vote on the deal over the next few months, according to Tesla General Counsel Todd Maron.

Tesla stock plummets

Although Musk is confident that combining Tesla and SolarCity offers substantial synergies, investors seem uncertain. The stock price of the electric car manufacturer declined more than 8% to $200.70 per share at the time of this writing, around 1:00 o’clock in the afternoon today.

Barclays analyst Brian Johnson commented that the proposed transaction has “little in the way of synergies (and) much in the way of cash burn.” He added that it has “uncertain growth/cash prospects” for the combined companies.

Johnson also emphasized that it is clearer that Tesla needs to raise additional cash to continue its expansion of electric car and battery production.

The stock price of SolarCity dropped more than 50% this year, and it has been posting quarterly losses. The company has more than $6 billion in liabilities. Musk expects the company to achieve positive cash flow over the next three to six months.

Musk believes that the deal will not have material impact on Tesla’s cash needs in the future. He also expects the costs for both companies will decline significantly after the merger, but he did not provide specific details.