Tesla gets a "Sell" from UBS analyst thanks to SolarCity deal
Mark Von Holden/AP Images for SolarCity
Main page Finance, Tesla
Hot topic
Nov. 21, 2016
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Although approved by 85% of shareholders, SolarCity deal is still not unanimously supported by the analysts that view the deal as a distraction from Tesla's main plan.

Last Thursday, Tesla (NASDAQ: Tesla Motors [TSLA]) announced that shareholders "overwhelmingly" supported the acquisition of the solar panel producer SolarCity (NASDAQ: SCTY) for $2 billion, even though the deal got thumbs down from several prominent analysts in the last months. 85% of shareholders supported Musk's plan to transform Tesla into a "one-stop shop" alternative-energy company offering electric cars, solar energy production and storage and more. Musk himself said that merging two large companies with thousands of employees and billions in debt is a "no-brainer".

Tesla finally gets a shareholder sign off on SolarCity acquisition

However, relatively unstable financial situation in both companies as well as a hefty $3 billion debt of SolarCity have alarmed the analysts. Right after the results of the shareholder voting were announced, UBS analyst Colin Langan issued a research note criticizing the deal, reports Investor's Business Daily. Langan said that buying SolarCity is an "unneeded distraction at a time when Tesla has many challenging targets ahead."

Indeed, Tesla keeps adding new aggressively ambitious targets to its to-do list, with producing over 370,000 pre-ordered Model 3 vehicles and finalizing the biggest-ever battery production plant Gigafactory being the most urgent ones. On top of that, adds Investor's Business Daily, Tesla also plans to boost its production volumes to deliver 500,000 cars per year in 2018. So, isn't buying struggling SolarCity right now a bit too much?

According to the analyst, Musk is reaching too high this time. Langan maintained the "Sell" rating on Tesla stock and set the price target at $160, which is significantly lower TSLA current value of $187.30. The analyst explains his negative projection by the combination of very challenging business goals and changed political situation in the United States. He said that Trump's administration mostly favoring fossil fuels over green energy "could create a new risk for Tesla". The president-elect is highly unlikely to support any federal subsidies for EV like the ones that are in place in Germany, as well. At the same time, investment tax credits that people could possibly use to finance SolarCity's solar roof installations are also likely to be out of favor, reported IBS.

Overall, the UBS analyst believes that the risks associated with SolarCity acquisition are higher than the bonuses Tesla expects to get from it. However, Elon Musk might prove everyone wrong again.

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