Yesterday afternoon, Elon Musk announced that Tesla, a company he co-founded and currently runs, was offering to buy Solar City, another company he founded, and where he is currently chairman of the board. In a conference call with investors this morning, Musk rationalized the roughly $2.86 billion purchase like this: "When we’re selling someone the Powerwall very often, if not almost always, they are curious about solar," Musk said. "So then not being able to sell them solar directly at Tesla stores is quite inefficient. As you look ahead to [selling] the Model 3, a $35,000 car, well that same person at the same moment we could sell them roughly an equivalent value of solar panels and a Powerwall, effectively doubling the sale at that time, and then putting it all in at the same time."

This is why Musk sees Tesla buying SolarCity as "common sense/blindingly obvious." In his mind, the two companies’ customer bases overlap. People who want the Model 3, Tesla’s first mass-market electric vehicle, would presumably also want to trick out their homes with solar panels to charge the car’s battery, thus creating a totally green, totally sustainable feedback loop of self-righteousness. Customers strolling through Tesla’s gleaming showrooms will soon be able to browse the solar options while deciding whether to get Autopilot installed in their Model 3.

"not being able to sell them solar directly at Tesla stores is quite inefficient"

But the acquisition could be incredibly dangerous for Tesla, and Musk himself. It’s a long-term investment with no real short-term payoff, and both Tesla and SolarCity will need a lot of cash to stay operational until this deal starts to bear fruit.

Just look at the numbers: Musk is the largest owner of SolarCity’s "solar bonds" after his other company, SpaceX, purchased $90 million of a total $105 million sold last March, according to The Wall Street Journal. SolarCity has more than $6 billion in liabilities, half of which is debt. A research note released by Goldman Sachs just minutes before the news of the deal broke called SolarCity "the worst positioned name" in the residential solar industry. Musk has used both his personal fortune and Tesla shares to help secure this debt.

Wall Street was quick to pounce, with several analysts expressing "skepticism" that the deal was the best use of Tesla’s capital. "The rationale for this purchase, supposed to create an integrated clean energy company, seems somewhat tenuous to us," said Emmanuel Rosner, analyst at CLSA. Colin Langan from UBS speculated the deal could be an "unneeded distraction" for Tesla’s management, especially as it ramps up production for the release of the Model 3 in 2017. Gordon Johnson from Axiom Capital Management said bluntly that the announcement "suggests SolarCity has very little value."

And both companies burn through cash like they print it themselves. As noted by The Wall Street Journal’s Heard on the Street column, Tesla torches 50 cents for every dollar in sales, while SolarCity burns nearly $6 for every dollar in sales. The columnists called the merger of two cash-hungry businesses a "hairbrained scheme."

Market experts were surprised by the level of skepticism leveled at the deal.

It's pretty rare to see Wall Street analysts this consistently negative about anything. https://t.co/GLRCT3AggI — Joe Weisenthal (@TheStalwart) June 22, 2016

And it’s clear to see that its incredibly risky for Musk and Tesla to buy SolarCity. Solar installations have gone up in recent years — the company says it now has 275,000 customers, up from 168,000 over a year before — but SolarCity has missed its growth targets and its debt is among the highest in the industry. As Bloomberg notes today, Tesla’s desire to buy the company could be viewed by some as a bailout.

But what if it pays off like Musk envisions? If we are heading toward a more sustainable future, where all our homes are solar and all our cars are electric (and self-driving), then Tesla would be perfectly positioned to capitalize on that future. To those who have been paying close attention to Tesla and SolarCity over the years this deal may seem entirely inevitable. SolarCity is run by Lyndon Rive, Musk’s cousin. Musk chairs the company’s board and is its largest stockholder, albeit a minority. And the Powerwall, Tesla’s home battery, generates electricity produced by — you guessed it — solar energy.

But what if it pays off like Musk envisions?

Demand for the Powerwall is high, though not as large as the Model 3. After the Powerwall was announced last year, Tesla quickly racked up some 38,000 preorders and declared that the product was sold out through the first half 2016. If he could bring that kind of consumer demand to solar through the Tesla brand, the boost to Solar City’s business would be tremendous. "By attempting to produce a full suite of consumer products that produce, store, and consume energy," said Alexander Potter, analyst at Piper Jaffray & Co., "[Tesla] is demonstrating once again how ambitious its long-term strategy really is."

As has been reported, Musk stands to personally profit by as much as $140 million from his share of SolarCity’s stock. But he’s also the largest shareholder of Tesla stock, which is down 9 percent as of 12PM today. Which means so far, Musk is losing money on the deal to the tune of hundreds of millions of dollars.

As noted by Bloomberg, purchasing SolarCity allows Musk to complete his Holy Trinity of clean energy: electric cars, solar panels, and home battery storage. To some, that’s just smart branding. And Musk, whose combined businesses are worth $50 billion, is very conscious of the fact that much of his success depends on his own cult of personality, as well as his willingness to leverage his companies against each other. This is far from the first time he has tried to prop up one of his ventures with another. The question now is how far his charisma will carry a very dangerous deal.

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