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.
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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.
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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.
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“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
Elon Musk
SpaceX’s next trillion dollar bet has nothing to do with rockets, Musk tells staff
Elon Musk told SpaceX staff AI revenue will soon dwarf rockets and Starlink combined entirely.
Elon Musk told SpaceX employees this week that artificial intelligence, not rockets, will soon carry the company’s revenue. In a roughly 29 minute internal address posted on SpaceX’s X account on Tuesday, Musk said AI revenue will pass every other line of business at SpaceX “probably in September” and pull further ahead by the fourth quarter.
The numbers he gave are specific. SpaceX currently runs 1.4 gigawatts of AI compute capacity. Musk wants that at 10 gigawatts by the end of 2027, a jump he tied directly to revenue: “if we bring 10GW of AI online by the end of next year, it will be $300 billion to $500 billion a year in revenue.” He called those “big numbers,” which undersells a projection larger than what most countries produce in a year.
We made rockets reusable and are rebuilding the internet in space. The next challenge: making life multiplanetary and understanding the true nature of the universe
Watch @ElonMusk deliver a company update to @SpaceX employees pic.twitter.com/5c8rxoCQfu
— SpaceX (@SpaceX) August 11, 2026
Musk went further on where AI fits into SpaceX’s future. “Probably in four or five years, AI will be 99% of the value of SpaceX,” he told staff, adding that digital intelligence would eventually run “a trillion times” ahead of biological intelligence as computing scales. He tied that growth to the company’s founding mission, telling employees “we must win on AI, because the future is overwhelmingly AI and robots,” with the payoff meant to help fund Starship and a Mars program that increasingly runs through Terafab, the joint Tesla, SpaceX and xAI chip plant.
Elon Musk launches TERAFAB: The $25B Tesla-SpaceXAI chip factory that will rewire the AI industry
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None of this is entirely new territory. SpaceX told investors much the same story during its first earnings call as a public company on August 4, where Musk moved the company’s $1 trillion revenue target up a year to 2030 and said Starlink could someday carry a majority of the world’s internet. What the all hands video adds is a hard deadline and a specific power figure Musk had not given publicly before, along with a franker pitch to his own workforce that AI, not launch cadence, is now the thing SpaceX is betting its future on.
The AI revenue itself is not coming from SpaceX training its own models. It is largely Starlink acting as the network layer for xAI’s workloads, plus SpaceX renting out compute capacity directly, the same approach behind the roughly $16 billion the company spent on AI infrastructure in a single quarter.
Musk closed the video with a pitch aimed at recruiting and retention rather than investors, telling employees that anyone who helps SpaceX win the AI race will eventually get the chance to go to the moon or Mars themselves. Whether SpaceX can turn 1.4 gigawatts into 10 in seventeen months is the more immediate question, and one that will show up in quarterly numbers well before anyone leaves Earth.
In a new note to investors on Tuesday, Morgan Stanley analyst Andrew Percoco said that Tesla has one big financial question to answer for investors regarding its Robotaxi rollout, Full Self-Driving software, and Optimus.
Percoco said in the note that, for the most part, investors are still very positive about the direction the company is headed. However, there are some things the firm would like to see, and they have to do with financials.
Tesla (TSLA) Q2 2026 earnings results: miss on EPS, beat on revenue
Tesla bulls are more than convinced that the company’s Full Self-Driving software is proof it can develop physical AI. Financially, however, there are still some questions, especially on elevated spending, which CEO Elon Musk said would occur as the company works to roll out Robotaxi faster and continue developing its Optimus robot.
The latter two are where Tesla will have to prove progress to investors, as Percoco writes that both projects “will require clearer evidence that Robotaxi is scaling and more tangible Optimus proof points to support the ROI on elevated capex.”
Percoco said the second quarter earnings call did not change his long-term thesis of where Tesla is positioned in the AI race, which is out in front. However, there are concerns that weaker gross margins and higher R&D spend will stress financials, and that has “sharpened our (and investors’) focus on measurable progress across Robotaxi and Optimus.”
Additionally, Robotaxi still needs to be proven with more operation in existing cities while maintaining safety but improving how many rides it gives in any given time, he said. For Optimus, Percoco wrote that he is “still looking for evidence beyond commentary around SOP.”
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Morgan Stanley put Percoco in charge of covering Tesla after long-time analyst Adam Jonas transitioned to the automotive side.
Currently, Morgan Stanley has a $415 price target on Tesla and a ‘Hold’ rating on the stock. It is trading at around $330 at the time of publication, which was 2:30 P.M. on the East Coast.
SpaceX’s massive investment in AI will make it a big winner, Argus Research said after the company’s successful earnings call last week.
The firm also upgraded shares to a Buy from Hold and set a $160 price target.
SpaceX (NASDAQ: SPCX) is currently recovering from its heavy AI infrastructure investments, as it spent nearly $16 billion in Q2 alone. The company did this primarily by monetizing high-demand GPU compute capacity at a much faster pace than traditional data center economics would suggest.
Company CFO Bret Johnsen said that SpaceX would be able to pay back anything on new deployments within a year.
There are plenty of ways the company can do this:
Leasing excess compute capacity through contracts
SpaceX has already built Colossus and Colossus II, largely for its own model training. However, much of that capacity is already rented out to third parties. It already has major deals with Anthropic, Google, and Reflection AI. These partnerships are adding billions per month to SpaceX’s spreadsheet.
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High utilization driven by industry-wide scarcity
The demand for advanced AI training and inference capacity continues to exceed what is available for use. SpaceX can fill new racks quickly after they come online, so the capital deployed converts into revenue with minimal idle time.
Additionally, management and outside observers have described the new compute capital as behaving more like a cost-of-goods-sold than traditional multi-year capex, especially because of this rapid monetization pattern.
Capacity has already scaled from ~0.4 GW a year to 1.4 GW annually by the end of Q2. There are targets of more than 2 GW by year-end.
High incremental margins on the rental business once capacity is online
GPU cloud providers often operate at strong gross margins. SpaceX can monetize capacity that was already partially built or can be added efficiently. This means that incremental EBITDA margins on the rental revenue are usually high. This accelerates cash recovery relative to the gross capital outlay.
Parallel monetization of its own AI software and applications
Beyond pure infrastructure rental, SpaceX also generates revenue from Grok through subscriptions and usage, from X through ads, data, and other related services, enterprise APIs, and the planned integration of the Cursor coding tools acquisition.
These application layers ride on the same compute infrastructure and provide additional high-margin streams that could offset build-out costs. AI-segment revenue overall rose sharply to about $2.6 billion in Q2, according to Motley Fool. This was driven primarily by the infrastructure contracts, but the software side is also partially responsible.
Efficient, large-scale deployment and vertical integration advantages
SpaceX has emphasized the rapid construction of power and cooling infrastructure and favorable cost-per-megawatt economics relative to industry benchmarks in some disclosures.
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Combined with its ability to scale capacity aggressively and the fact that many contracts start generating revenue within months of capacity coming online, the effective payback compresses dramatically compared with more conventional multi-year data-center projects.
SpaceX’s dominant near-term recovery path will turn the AI clusters into a hyperscale-style compute rental business for other leading AI companies while still using a portion for internal models.
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