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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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The Solar Roof: Can Musk Succeed Where Others Have Failed?

This past Friday, Elon Musk captured public attention with another of his innovative ideas. From the back lot at universal studios, he announced SolarCity Corp.’s latest upcoming project, solar roofs along with the Powerwall 2.0. Musk plans to make roofs entirely out of solar panels instead of installing them on top of buildings afterward. This inadvertently reiterated Musk’s desire to merge Tesla and SolarCity, a notion many are skeptical on.

The solar roof idea isn’t completely original. Other companies have attempted such a feat before but most have been unsuccessful. Near the end of June, The Dow Chemical Company made the decision to halt production of their Powerhouse that used solar roofs. Their stock dropped over $5 per share in the weeks to follow. Musk has always set high goals for his businesses but overcoming the same obstacles where previous companies have failed could prove a challenge.

Musk highlighted the fact that these projects are necessary in today’s world. During his presentation was a graph from NASA showing how CO2 levels are now climbing vertically. If there is hope for our future then changes need to be made with how we use energy. Musk hopes to make solar roofs as appealing as Tesla’s cars have now become. Shareholders and supporters recognize this issue and understand something must be done. In the interest of the allied companies, hopefully, this will help adopt the merger. Related: DiCaprio’s New Film Portrays Canada’s Oil Sands As “Terryfying”

A merger between Tesla and SolarCity would mean two companies that manufacture batteries and solar panels combine. As a society, individually storing solar energy in batteries wouldn’t make sense when solar panels have traditionally been used to produce electricity for the use of the grid. The concept is counterproductive to the grid system we commonly use today. Alternatively, the merger makes sense because Musk hopes to power homes in the day with his solar roofs and then charge Tesla cars at night, all using the Powerwall 2.0. Musk’s vision isn’t to simply redesign one or two houses, he aims to transform every house and likely abandon the conventional power grid.

Tesla is teaming up with Panasonic Corp. to help create the parts to be used in the solar roofs. The deal will be accepted upon successfully merging Tesla and SolarCity, encouraging further support. By creating solar roofs, SolarCity would be entering the roofing business. SolarCity predicts they could acquire at least 5 percent of the roofing market share within a few years, potentially hurting typical roofing companies. By investing in SolarCity, investors have the opportunity to indirectly short the predominately private industry of roofing.

Shareholders are to vote on November 17th to decide if the merger is to occur. If they vote yes then owning shares in either company prior would likely be highly advantageous. On the other hand, if a merger doesn’t transpire then both companies would falter. Musk hopes to begin creating these roofs by the end of next year so investors should keep an eye out for this as well. Last week, prior to the announcement, Tesla stock grew $10.75 per share and SolarCity jumped $1.33 per share, both moves over 3 percent.

By Michael McDonald of Oilprice.com

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