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Wall Street’s reaction to Tesla’s proposed buyout of SolarCity

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Since the proposed deal of Tesla to acquire SolarCity in a stock exchange with no cash involved was announced, a flurry of reports flooded the Internet, pretty much with many Wall Street reporters and pundits decrying the proposed deal as “crazy”, “not a no-brainer”, an “eclipse”, “plot of video game”, “sounds nuts”, but also with a few noting that Elon was “creating a clean energy empire” or “offering a one-stop shop.”

At the same time, the after-market reaction was swift: TSLA stock plunged 12% and SCTY stock rose 18%. This action was predictable. Since the Tesla – SolarCity deal is an exchange of stock, no cash deal, when adding about 12 million new shares, an 8% dilution of TSLA stock will occur.  This dilution covers the majority of TSLA stock drop. Another negative factor is going from $2 billion of TSLA cash flow losses to $4.8 billion of cash flow losses of the combined companies, an increase of over 130%. Thirdly, TSLA debt will double after the deal. So a 12% drop should not leave anyone surprised.

Similarly, the assured “premium of approximately 21% to 30% over the closing price of SolarCity’s shares,” as stated in the letter to Lyndon Rive, pretty much matches the 29 percent rise of SCTY in extended trading, also matching SolarCity’s average 12-month price target of  $29.82 among analysts surveyed by Bloomberg. So the stock action of both TSLA and SCTY was completely predictable.

Looking at the reporters / pundits comments, Bloomberg was the outlet with the most reports, 4 in all.

Tom Randell of Bloomberg reported in “Musk Buys Musk: Tesla’s SolarCity Deal by the Numbers”, that “ either Musk is bailing out a beleaguered company that’s run by his cousin, Lyndon Rive, or he’s consolidating a clean-energy empire at rock-bottom prices. Or both.”

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Tom is one of the most bullish on the deal, saying that “It allows Musk to integrate the three-legged stool of clean energy in a way the world has never seen: electric cars, solar power, and grid battery storage all in one place. If so inclined, you could provide for all of your energy needs without ever leaving the Tesla family.”

Chris Martin of Bloomberg reported in “In SolarCity Bid, Tesla’s Musk Targets Customer Who Wants It All” that “Tesla Motors Inc.’s offer to buy SolarCity Corp. would combine two already deeply linked companies to offer clean energy enthusiasts a one-stop shop” and  that “the challenge I see around this for both companies is that they’re kind of strapped for cash,” quoting Hugh Bromley, an analyst for Bloomberg New Energy Finance in New York. “They both need cash injections to fuel their growth.”

Dana Hull of Bloomberg reported in “Tesla Takeover of SolarCity Not a ‘No-Brainer’ for Investors” that “Oppenheimer & Co. analysts including Colin Rusch downgraded Tesla to perform from outperform in a research note published late Tuesday, saying they expect “a robust shareholder fight over this acquisition centered on corporate governance” and that “Credit Suisse Group AG analysts including Patrick Jobin said in a separate note that they expect “resistance from Tesla shareholders” and warned of “many corporate governance challenges.”

Lastly Liam Denning of Bloomberg reported in  “Tesla’s SolarCity Eclipse” that “the timing is odd, to say the least. Tesla’s all-stock offer is pitched as providing SolarCity’s investors with a premium of 21 to 30 percent, based on a proposed valuation band that’s subject to completing due diligence (itself an unusual proposal)” and “Tesla is jumping in as SolarCity’s entire business model is being openly questioned amid rapid cash burn and stubbornly high overheads.”

Ominously he also reported that “Tuesday evening, not long after news of the offer broke, Tesla’s valuation had dropped by $3.8 billion in after-hours trading — 1.8 times the entire market capitalization of SolarCity before the announcement. Awkward, much?”

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Ary Levi of CNBC reported in “Elon buying Elon: Sounds a lot like the plot of a video game”  that this was “potential deal in which one of the country’s best-known tech billionaires will effectively transfer cash from one of his pockets to another – sounds nuts.” and joked about that “even if we all exist in a simulation, as Musk suggested at the Code Conference this month, he still has to obey securities laws.”

Christine Wang of CNBC reported in “Bid for SolarCity may mean Elon Musk doesn’t see Tesla as an auto company” quoting trader Karen Finerman saying that “Tesla’s offer, valued up to $28.50 per share, doesn’t seem like a gigantic price for a company that was trading significantly higher not that long ago.”

Charley Grant and Spencer Jakab of The Wall Street Journal reported in “Tesla Buying SolarCity: This Deal Defies Common Sense” that “just a day after Tesla boss Elon Musk made the odd boast that one of its cars “floats well enough to turn into a boat,” he did something even odder. Tesla’s bid for solar panel installation firm SolarCity on Tuesday afternoon is the sort of move that, even for the most Panglossian Silicon Valley investor, stretches the bounds of industrial logic” and that “as Mr. Musk warned about his amphibious wonder car, such harebrained schemes can only float “for short periods of time.”

Mike Ramsey, Lynn Cook and Mike Spector of The Wall Street Journal reported in “Tesla Offers to Acquire SolarCity”, quoting Elon saying that “the acquisition aims to create a company employing nearly 30,000 people with all products renamed “Tesla” that will package electric cars, batteries and solar panels for customers.” They also warned that “it would also add to the growing complexity and vertical integration of Tesla and add an unprofitable operation to its already-strained finances.”

Nichola Groom and Paul Lienert of Reuters reported in “Tesla offers $2.8 billion for SolarCity in ‘no brainer’ deal for Musk”, quoting Elon saying that  that “instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit. It’s an obvious thing to do.” But they noticed that “Tesla investors punished the company’s shares, however.”

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Tesla Board member and Airbnb co-founder loads up on TSLA ahead of robotaxi launch

Tesla CEO Elon Musk gave a nod of appreciation for the Tesla Board member’s purchase.

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(Credit: Tesla)

Tesla Board member and Airbnb Co-Founder Joe Gebbia has loaded up on TSLA stock (NASDAQ:TSLA). The Board member’s purchase comes just over a month before Tesla is expected to launch an initial robotaxi service in Austin, Texas.

Tesla CEO Elon Musk gave a nod of appreciation for the Tesla Board member in a post on social media.

The TSLA Purchase

As could be seen in a Form 4 submitted to the United States Securities and Exchange Commission (SEC) on Monday, Gebbia purchased about $1.02 million worth of TSLA stock. This was comprised of 4,000 TSLA shares at an average price of $256.308 per share.

Interestingly enough, Gebbia’s purchase represents the first time an insider has purchased TSLA stock in about five years. CEO Elon Musk, in response to a post on social media platform X about the Tesla Board member’s TSLA purchase, gave a nod of appreciation for Gebbia. “Joe rocks,” Musk wrote in his post on X.

Gebbia has served on Tesla’s Board as an independent director since 2022, and he is also a known friend of Elon Musk. He even joined the Trump Administration’s Department of Government Efficiency (DOGE) to help the government optimize its processes.

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Just a Few Weeks Before Robotaxi

The timing of Gebbia’s TSLA stock purchase is quite interesting as the company is expected to launch a dedicated roboatxi service this June in Austin. A recent report from Insider, citing sources reportedly familiar with the matter, claimed that Tesla currently has 300 test operators driving robotaxis around Austin city streets. The publication’s sources also noted that Tesla has an internal deadline of June 1 for the robotaxi service’s rollout, but even a launch near the end of the month would be impressive.

During the Q1 2025 earnings call, Elon Musk explained that the robotaxi service that would be launched in June will feature autonomous rides in Model Y units. He also noted that the robotaxi service would see an expansion to other cities by the end of 2025. “The Teslas that will be fully autonomous in June in Austin are probably Model Ys. So, that is currently on track to be able to do paid rides fully autonomously in Austin in June and then to be in many other cities in the US by the end of this year,” Musk stated. 

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Tesla hints at ‘Model 2’ & next-gen EV designs

Tesla’s Q1 2025 update confirms new models this year, with production tied to existing factory lines. Could it be time for the Model 2 debut?

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(Credit: Tesla)

During its Q1 2025 earnings call, Tesla executives hinted at the much-rumored “Model 2” and other next-gen EV designs.

Tesla slightly addressed whether or not it will be pushing forward with the debut of new models later this year in its latest earnings call. The company’s product development executive, Lars Moravy, shared some details about Tesla’s design process and the upcoming affordable models.

“We’re still planning to release models this year. As with all launches, we’re working through, like, the last minute issues that pop up. We’re knocking them down one by one. At this point, I would say that the ramp might be a little slower than we had hoped initially…But there’s nothing that’s blocking us from starting production within the next, within the timeline laid out in the opening remarks.

“And I will say it’s important to emphasize that, as we’ve said all along, the full utilization of our factories is the primary goal for these new products. And so the flexibility of what we can do within the form factor and, you know, the design of it is really limited to what we can do on our existing lines rather than building new ones. But we’ve been targeting the low cost of ownership. Monthly payment is the biggest differentiator for our vehicles, and that’s why we’re focused on bringing these new models with the, you know, the lowest price, to the market, within the constraints I just highlighted.”

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In January, Tesla’s Chief Financial Officer Vaibhav Taneja teased several new product introductions for this year. There is at least one product that most Tesla supporters and investors are hoping to see: the company’s affordable vehicles, which have been dubbed by the EV community as the “Model 2” or “Model Q.”

Before Tesla’s Robotaxi event last year, many speculated that the company would also unveil its affordable next-gen vehicle. Gene Munster from Deepwater had expected Tesla to release a stripped-down version of the Model 3 as its affordable vehicle during the Robotaxi event. In the end, Tesla unveiled its Robotaxi vehicle and its Robovan design.

It’s been a while since the Robotaxi event, and Tesla has kept mum about its affordable vehicle. Considering its Q1 2025 performance, TSLA investors look forward to catalysts that could boost the stock.

The “Model 2” has been labeled a potential catalyst for Tesla. As such, TSLA investors and supporters have been itching for news about the new affordable vehicle. The main questions surrounding the “Model 2” revolve around its design and price. Based on Moravy’s statement, the “Model 2’s” design will heavily depend on Tesla’s current assembly lines and supply chain structures.

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Tesla regains Piper Sandler’s confidence with Robotaxi plans & Q1 Results

Piper Sandler says Tesla delivered the best-case scenario for bulls. $TSLA has catalysts ahead to silence the bears.

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tesla-model-y-delivery
(Credit: Tesla)

Tesla gained Piper Sandler analyst Alexander Potter’s confidence following its Q1 2025 earnings call. Piper Sandler reaffirmed its Overweight rating and $400 TSLA price target, signaling optimism for the company’s robotaxi and affordable vehicle launches expected this year. The firm’s stance reflects Tesla’s resilience amid market challenges.

Despite expectations of weak Q1 financials, Tesla’s stock edged up in after-hours trading, defying skepticism. Piper Sandler’s Alexander Potter noted that the results met the hopes of Tesla supporters, particularly as the company held firm on its timelines. Potter emphasized that anticipation for robotaxi details and new vehicle launches should keep critics at bay, supporting the $400 target.

“In our preview last week, we predicted that (at best) Q1 would be a non-event. With the stock trading up slightly in the after-hours session, it appears our best-case scenario has materialized. Considering generally weak Q1 financials, we think this is the best result that TSLA bulls could’ve reasonably hoped for.

“In our view, the most important Q1 takeaway is this: Tesla didn’t hedge expectations re: launching Robotaxis or lower-priced vehicles in 1H25. With <2 months until the end of June, investors can look forward to some interesting catalysts in the weeks ahead. In our view, this alone should be enough to keep the bears at bay, at least until we have a better idea re: the details of Tesla’s new products, as well as the scale/scope of the Robotaxi launch,” wrote Potter.

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Wedbush Securities’ Dan Ives, a longtime TSLA bull, echoed Potter’s optimism for Tesla. Ives raised his price target for Tesla stock from $315 to $350 with a BUY rating. His Tesla upgrade came after Elon Musk’s announcement during the Q1 earnings call that he would reduce his involvement with DOGE, signaling a sharper focus on Tesla.

Tesla’s steady Q1 performance and unwavering commitment to its 2025 roadmap, including the Robotaxi launch and lower-priced models, bolster investor confidence. Piper Sandler’s analysis underscores Tesla’s ability to navigate a competitive electric vehicle market while advancing its technological edge. The upcoming Robotaxi launch and affordable vehicle introductions are pivotal, with analysts expecting these initiatives to drive stock value through 2025.

As Tesla prepares for these milestones, its stock movement reflects market trust in Musk’s vision. With Piper Sandler and Wedbush reaffirming bullish outlooks, Tesla’s strategic moves will remain under close scrutiny, positioning the company to capitalize on its innovation pipeline in a dynamic industry landscape.

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