CNBC News

Tesla-Solarcity merger 'may even be a little late'

CNBC News


Elon Musk dismissed critics who say it is too early for Tesla to acquire SolarCity, saying it will streamline the ability to secure big contracts.

"It is really an accident of history that the companies are even separate," Musk told CNBC in an interview Friday.

Musk said the need to join both companies became apparent as customers began doing joint deals with the two.

"It was getting clunkier and clunkier to do these joint deals," Musk said, citing a recently signed 20-year contract with the Kaua'i Island Utility Cooperative for a SolarCity solar array and Tesla energy storage facility on the island as an example.

"It took us months to vet that through our independent board members of both companies, and confirm that it was an arm's-length transaction, and it was just very unwieldy," said Musk. "We are going to do hundreds -- if not thousands -- of deals of that size and bigger," he said. "Are we going to run them all through the independent committee?"

Musk also said that the combined companies will be able to provide a fully integrated product, allowing customers to deal with one company for maintenance, upgrades, troubleshooting, or other needs.

"You really need product integration," he said. "You want the solar panels and the batteries to work seamlessly."

Some critics of the merger have argued that Tesla already faces significant challenges on its path to becoming a major automobile manufacturer, and that a merger with SolarCity, could be a drain on Tesla's finances, and on the energy of management.

Musk himself is not only chairman and CEO of Tesla, but also chairman of SolarCity, and CEO of SpaceX. Tesla has struggled at times in the past to meet production and delivery deadlines, and has posted only two profitable quarters since its IPO in 2010.

But the merger also received a blessing from the Institutional Shareholder Services , an influential advisory firm, on Friday. ISS recommended shareholders of both companies vote for the merger on Nov. 17.

Musk said he had not expected ISS to approve the merger, since the firm has a tendency to be "conservative in their recommendations."

"But I am very glad they did," he said.

On Tuesday, the companies outlined some of the financial benefits that will come along with the merger. Among them is the expectation that SolarCity will add more than $500 million in cash to Tesla's balance sheet over the next three years and will add more than $1 billion in revenue next year.

The combination will result in $150 million in cost savings in its first year through steps such as cross-selling Tesla and Solarcity products and streamlining research and development activities.