Investor's Corner
Tesla – SolarCity merger: the devil is in the details
On Monday August 1st, Tesla announced that it had reached a definitive agreement to acquire SolarCity. Tesla provided investors with an Investor Presentation slide set, and a 180 pages long Form 8-K filing.
Investor Presentation
In the slide presentation titled Tesla to acquire SolarCity, the company provided details for the proposed transaction.
Tesla would acquire SolarCity in an all-stock transaction valued at $2.6 billion. SolarCity shareholders will receive 0.110 shares of Tesla stock for each share of SolarCity valued at $25.37 per share. The transaction is expected to close in Q4 2016 and subject to the approval by a majority of disinterested shareholders at both SolarCity and Tesla, to be voted upon at each respective shareholder meeting.
The Tesla SolarCity “strategic” combination would:
- Accelerate the transition to sustainable energy
- Create world’s only integrated sustainable energy company
- Drive products development and innovation
- Catalyze solar energy adoption
- [Provide] substantial cost efficiencies.
The presentation stated that SolarCity provides best-in-class rooftop solar installation costs of $1.92 per watt as of 4Q15, and is America’s #1 vertically integrated provider of residential and commercial solar, with a 35% share of the residential market and 14% share of the commercial market in 2015. Tesla is the world’s fastest growing car company, with an 18% market share of the “large Luxury sedans” in 2015 with its Model S.
The combined company would leverage Tesla’s design and manufacturing expertise:
- Speed development of beautiful, differentiated and technologically superior products
- Improve solar value proposition by integrating storage, reducing system cost and improving reliability
- Fully integrate product suite for a seamless user experience, delivering an improved, lower-cost product for customers
- Develop products for residential, commercial and grid-scale applications
- Take advantage of SolarCity’s industry-leading project finance capabilities
One of the major points of the slide presentation is that the combined companies would provide “substantial cost efficiencies”, with $150 million of direct cost synergies expected to be achieved in the first full year after closing the transaction.
The cost synergies would be driven by sales and marketing efficiencies, and corporate and overhead savings. The value proposition is improved by lowering hardware costs, reducing installation and service costs, improving manufacturing efficiency, reducing customer acquisition costs, and cutting capital costs.
Form 8-K Filing
The very long document filing includes the usual boilerplate for merger transactions, but also reveals quite a few interesting tidbits, buried into the document. These are quotes from the document.
Stockholders of SolarCity will be asked to vote on the adoption and approval of the Merger Agreement and the Merger, and stockholders of Tesla will be asked to vote on the approval of the Merger and the Share Issuance, at special meetings of the stockholders of SolarCity and Tesla, respectively, that will be held on dates to be announced.
“The Merger Agreement and the Merger be adopted and approved by stockholders of SolarCity, including by the holders of a majority of the total votes of shares of SolarCity common stock […] that are not owned by Mr. Elon Musk and the other directors. other than Nancy E. Pfund and Donald R. Kendall, Jr.”
Similarly, “the Merger and the Share Issuance be approved by the stockholders of Tesla, including by the holders of a majority of the total votes of shares of Tesla common stock […] that are not owned by Mr. Elon Musk and the other directors and the named executive officers of SolarCity and certain of their affiliates.”
This means that the approval will likely rely on mutual fund managers and banks that hold large chunks of both Tesla and SolarCity stock.
As part of the agreement, SolarCity has a 45-day period known as a “go-shop”, which runs through September 14, 2016. This means that SolarCity is allowed to solicit alternative proposals during that time.
The all-stock transaction, with an equity value of $2.6 billion, is based on the 5-day volume-weighted average price of Tesla shares as of July 29, 2016. Under the agreement, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of July 29, 2016.
The “Excluded Company Parties”, i.e. the directors and named executive officers other than Nancy E. Pfund and Donald R. Kendall, Jr., that will not be able to vote at the Company Stockholders Meeting include Lyndon R. Rive, Peter J. Rive, Tanguy V. Serra, Hayden D. Barnard, Seth R. Weissman, Elon Musk, John H.N. Fisher, Antonio Gracias and Jeffrey B. Straubel.
While most stock options equity awards of each company will be automatically converted into stock options of the “merged” company, the stock options set forth in a “Company disclosure letter” shall be cancelled for no consideration. It turns out that these options are the ones that were granted by SolarCity to Lyndon and Peter Rive, the CEO and CTO of SolarCity. These options amounted to about $128 million, and would have been earned over a 10 year period, based on achieving a set of goals of SolarCity stock price and operational results. For some unknown treason, Elon Musk’s cousins will get the shaft in the merger transaction related to their stock options.
But do not feel too bad for the cousins. According to a research report from Reuters, that analyzed the results of the merger, “three of Musk’s relatives, including brother Kimbal Musk and cousins Lyndon Rive and Peter Rive, will own a combined stake of 0.5 percent in Tesla. Kimbal Musk is a director of Tesla.”
According to Reuters “Elon Musk and key institutional investors will probably tighten their control over electric car maker Tesla Motors Inc after it acquires sister company SolarCity Inc.” “The largest institutional shareholder, Fidelity Management and Research, will see its stake grow from 12.2 percent to 13.4 percent. Two Fidelity-managed funds, Fidelity Contrafund and Fidelity OTC, together will control another 7.3 percent, up from 6.5 percent.”
Musk will remain the largest individual shareholder, boosting his stake from 23.2 percent to 25.0 percent according to Reuters.
Note that Fidelity has already come out in favor of the merger.
“Musk, eight major institutional investors and the two Fidelity funds control 45.7 percent of Tesla. After the merger, the same group’s combined stake will rise to 49.0 percent.” “Other major institutional shareholders include Scottish investment manager Bailie Gifford & Co, which will maintain an 8.9 percent stake in the combined companies; T. Rowe Price Associates, 5.5 percent, and Vanguard Group, 3.6 percent. Big banks, including several Tesla lenders, also will maintain significant stakes after the merger: Bank of Montreal, 4.1 percent; Morgan Stanley, 3.0 percent; Goldman Sachs, 2.2 percent, and J.P. Morgan Chase, 1.0 percent.”
What this all means is that individual investors will have no say in the approval of the merger, and only a few more institutional investors are needed, besides Fidelity, to approve the merger. The only thing that could derail the merger is a third party bid for SolarCity, during the go-shop period. Given how debt ridden is SolarCity, the chance of of such a bid are fairly remote.
Market Reaction
The initial market reaction to the details of the merger agreement was mixed, but eventually turned negative. On Monday the stock reached $236, but closed at $229. On Tuesday the stock initially sold off even more to $221, closing the session at $227.
Looking at the chart, The MACD has started pinching, indicating a possible end of the MACD-run that started on July 1st. Anyone selling today would have had a nice $11 gain, over a 1-month period, a very nice return. I personally closed my July 1st call option trade (I was long Sept 230 calls) when TSLA reached $236 on Monday. I was planning to close my trade before the Quarterly report is released on Wednesday, and the high point of Monday made it a perfect exit. Notice that I never hold options or stock before a quarterly report, especially for a volatile stock as TSLA, as the post report swings are so wide that one can easily lose their shirt in the the span of a few hours.
Source: Wall Street I/O
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
Tesla (NASDAQ: TSLA) stock received a price target update from Pierre Ferragu of Wall Street firm New Street Research, citing the company’s growing lead in self-driving and autonomy.
On Tuesday, Ferragu bumped his price target from $520 to $600, stating that the consensus from the Consumer Electronics Show in Las Vegas was that Tesla’s lead in autonomy has been sustained, is growing, and sits at a multiple-year lead over its competitors.
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“The signal from Vegas is loud and clear,” the analyst writes. “The industry isn’t catching up to Tesla; it is actively validating Tesla’s strategy…just with a 12-year lag.”
The note shows that the company’s prowess in vehicle autonomy is being solidified by lagging competitors that claim to have the best method. The only problem is that Tesla’s Vision-based approach, which it adopted back in 2022 with the Model 3 and Model Y initially, has been proven to be more effective than competitors’ approach, which utilizes other technology, such as LiDAR and sensors.
Currently, Tesla shares are sitting at around $433, as the company’s stock price closed at $432.96 on Tuesday afternoon.
Ferragu’s consensus on Tesla shares echoes that of other Wall Street analysts who are bullish on the company’s stock and position within the AI, autonomy, and robotics sector.
Dan Ives of Wedbush wrote in a note in mid-December that he anticipates Tesla having a massive 2026, and could reach a $3 trillion valuation this year, especially with the “AI chapter” taking hold of the narrative at the company.
Ives also said that the big step in the right direction for Tesla will be initiating production of the Cybercab, as well as expanding on the Robotaxi program through the next 12 months:
“…as full-scale volume production begins with the autonomous and robotics roadmap…The company has started to test the all-important Cybercab in Austin over the past few weeks, which is an incremental step towards launching in 2026 with important volume production of Cybercabs starting in April/May, which remains the golden goose in unlocking TSLA’s AI valuation.”
Tesla analyst breaks down delivery report: ‘A step in the right direction’
Tesla has transitioned from an automaker to a full-fledged AI company, and its Robotaxi and Cybercab programs, fueled by the Full Self-Driving suite, are leading the charge moving forward. In 2026, there are major goals the company has outlined. The first is removing Safety Drivers from vehicles in Austin, Texas, one of the areas where it operates a ride-hailing service within the U.S.
Ultimately, Tesla will aim to launch a Level 5 autonomy suite to the public in the coming years.
Investor's Corner
Tesla Q4 delivery numbers are better than they initially look: analyst
The Deepwater Asset Management Managing Partner shared his thoughts in a post on his website.
Longtime Tesla analyst and Deepwater Asset Management Managing Partner Gene Munster has shared his insights on Tesla’s Q4 2025 deliveries. As per the analyst, Tesla’s numbers are actually better than they first appear.
Munster shared his thoughts in a post on his website.
Normalized December Deliveries
Munster noted that Tesla delivered 418k vehicles in the fourth quarter of 2025, slightly below Street expectations of 420k but above the whisper number of 415k. Tesla’s reported 16% year-over-year decline, compared to +7% in September, is largely distorted by the timing of the tax credit expiration, which pulled forward demand.
“Taking a step back, we believe September deliveries pulled forward approximately 55k units that would have otherwise occurred in December or March. For simplicity, we assume the entire pull-forward impacted the December quarter. Under this assumption, September growth would have been down ~5% absent the 55k pull-forward, a Deepwater estimate tied to the credit’s expiration.
“For December deliveries to have declined ~5% year over year would imply total deliveries of roughly 470k. Subtracting the 55k units pulled into September results in an implied December delivery figure of approximately 415k. The reported 418k suggests that, when normalizing for the tax credit timing, quarter-over-quarter growth has been consistently down ~5%. Importantly, this ~5% decline represents an improvement from the ~13% declines seen in both the March and June 2025 quarters.“
Tesla’s United States market share
Munster also estimated that Q4 as a whole might very well show a notable improvement in Tesla’s market share in the United States.
“Over the past couple of years, based on data from Cox Automotive, Tesla has been losing U.S. EV market share, declining to just under 50%. Based on data for October and November, Cox estimates that total U.S. EV sales were down approximately 35%, compared to Tesla’s just reported down 16% for the full quarter. For the first two months of the quarter, Cox reported Tesla market share of roughly a 65% share, up from under 50% in the September quarter.
“While this data excludes December, the quarter as a whole is likely to show a material improvement in Tesla’s U.S. EV market share.“
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