Tesla Motors Inc (NASDAQ:TSLA) Rebounds After Three Red Sessions

tags: SCTY,TSLA

Is Tesla Motors Inc (NASDAQ:TSLA)’s proposal to acquire SolarCity Corp (NASDAQ:SCTY) a good move or a bad one? A very good question indeed.

The fact that TSLA wiped out more than 12% of its value in a matter of just three days shows that some investors aren’t terribly happy with the proposed deal. And it must be said that there is some strong logic behind the bears’ arguments.

On its own, Tesla is still a long way away from reaching profitability despite the fact that thanks to the Model X and the upcoming Model 3, deliveries are expected to grow quite a bit. Like Tesla, SolarCity is also losing money and acquiring it means that the most successful electric car manufacturer will have to deal with quite a lot of additional debt. There is also the matter of conflict of interest.

SCTY is run by Lyndon Rive, Elon Musk’s cousin, and Mr. Musk himself acts as Chairman of the Board. Because of this, many people think that the acquisition is simply a way for SolarCity to be bailed out at the expense of TSLA shareholders. Predictably, Elon Musk and Lyndon Rive won’t take part in voting for or against the takeover, but some investors still remain skeptical.

Basically, there are many arguments against the proposed deal. Despite them, yesterday, TSLA managed to stop the red streak and after gaining almost 3%, it reached a close of $198.55 per share.

In light of the rather painful drop, a rebound was to be expected. Having said that, the technical setup might not be the only reason for the bounce.

It would appear that more and more people are starting to see what Elon Musk wants to achieve with SolarCity’s takeover. They firmly believe that the acquisition is about much more than basic balance sheet figures and the amount of debt that TSLA shareholders have to swallow. They reckon that acquiring SolarCity is the next logical step in Tesla’s transformation from a car manufacturer to a holding company that provides a variety of renewable energy solutions – something Mr. Musk always wanted it to be.

In theory this sounds brilliant. But will Elon Musk’s vision turn into reality? And will Tesla manage to cope with the burden of SolarCity’s debt?

These are questions you need to ask yourself before making your final investment decision.