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SolarCity Could Push Tesla To New Heights

Summary

Tesla has the potential to transform the energy industry with a SolarCity acquisition.

Even if Tesla integrates SolarCity flawlessly, long-term success in the distributed solar arena is far from guaranteed.

SolarCity will likely become an integral component of Tesla's long-term vision.

Tesla (NASDAQ:TSLA) recently announced its plans to acquire SolarCity (NASDAQ:SCTY) for $2.6 billion. Despite the generally bearish views of investors and analysts regarding this deal, such an acquisition makes sense for both companies. Tesla should be able to establish a dominant foothold in the burgeoning distributed solar industry at a relatively cheap price with SolarCity under its wing. Meanwhile, SolarCity will likely benefit tremendously from Tesla's enormous brand popularity and engineering capabilities.

The solar and storage synergies that will occur will be particularly beneficial for both companies. Given the importance of energy storage in solar, Tesla's lithium-ion technology should be a huge boon for SolarCity. While Tesla will also benefit from SolarCity's large demand for energy storage, SolarCity is undoubtedly the biggest winner in this acquisition. Of course, this ultimately means that Tesla will be a large winner as SolarCity is expected to become a part of the company. As energy storage is arguably the largest roadblock to mass-scale solar adoption, a Tesla-SolarCity combination could be a game changer for the energy industry.

Large Differentiator

The US rooftop solar industry has experienced a general downturn over the past few quarters. SolarCity, along with other major rooftop solar companies like Vivint Solar (NYSE:VSLR) and Sunrun (NASDAQ:RUN), are facing major growth issues as a result of policy roadblocks. By combining with Tesla, SolarCity should be able to better withstand such industry headwinds compared to its competitors. In addition to major cost synergies, which will reach approximately $150 million in the first year...


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