(Full Disclosure: I own stock in both TSLA and SCTY, because I think they have strong long-term competitive advantages and are leaders in bringing us into a cleaner, safer future. I do not intend to influence stock prices with this article or any others, and I do not anticipate that I will. My writing and the discussions our community bring forth are meant to add information, context, and perspective in order to contribute to a more informed and thoughtful citizenry and more informed and thoughtful consumerism.)
Tesla has had a complicated and controversial relationship with the media for years, basically since it unstealthed. That doesn’t seem to have gotten easier after publishing a proposal to buy heavily indebted yet market-dominating SolarCity.
Although cleantech enthusiasts who read CleanTechnica have heavily supported the acquisition, and many major investors do as well of course, some factions of the investment community have been livid about the potential merger of one indebted Elon Musk company and another. Further down, I’ll restate the obvious reasons these two companies are in debt but still have big market valuations, but first, the latest investment controversy….
There is a large number of TSLA investors, and SCTY investors, who specifically chose to invest in TSLA (and SCTY) because of Elon Musk. He is no comic-book superhero (as much as fans like to dream that he is), but he has apparently read/researched various topics like a fish swims in the ocean (i.e., a lot), he is obviously focused on and talented at thinking through problems from a base level and working up from there to solve them, and he has achieved (with his companies) several things that conventional wisdom said was practically impossible. So, despite Elon’s unconventional approach to many things (or perhaps because of it), a large number of the people and institutions invested in TSLA are largely invested in Elon.
… But not everyone. Automotive News (h/t Autoblog) reports that a medium-tier investor in TSLA, CtW Investments Group, which has over 200,000 shares (or ~$42 million worth of stock right now), wants to greatly weaken Elon Musk’s control over Tesla.
The desired changes include the following: “adding two independent directors to the automaker’s board, divorcing the roles of chairman and CEO, allowing shareholders to have a say in the annual election of board members, and banning immediate family of board members from serving concurrently on the board. CtW also wants two independent directors to form a committee to analyze the Solar City deal.”
I think there are basically going to be two groups with strong opinions on this matter:
- Opponents of making these changes, who see Elon and his family’s strong control over the companies to be instrumental to their success. (One of the arguments here would be that their independence and willingness to buck short-term “investor” concern regarding quarter-to-quarter profit, and make strong long-term decisions for the companies, would be counterproductively hampered. Another argument is the simple but important one I made above, that Elon — and perhaps his family members and early leaders at Tesla — are best equipped to lead the company without much interference.)
- Proponents of watering down Elon’s control, who see Elon as too much of a risk-taker and too subjectively tied to the future of SolarCity, as well as other members of the board — 6 out of 7 of whom also have strong ties to SolarCity.
Shall we get into the weeds a bit more?
“[SolarCity] is a company that Goldman Sachs* said is the single weakest competitor in its entire sector,” Crossing Wall Street editor Eddy Elfenbein recently claimed. This is one of the interesting and controversial matters about SolarCity. By many, it is seen as the market leaders — because it dominates the commercial and home rooftop solar installation markets. By many others, it is seen as lacking competitive advantages and in the worst situation due to a combination of relatively high prices, a bad reputation for its sales tactics (which many have argued are pushy and scammy), and all of the debt it is holding.
Elon has said that Tesla and SolarCity have gone above and beyond in order to remove subjectivity from the Tesla–SolarCity acquisition proposal. “We’ve tried to do this in a way that’s as fair as possible, and really going beyond what’s legally required to make it not just legally correct, but morally correct,” he said. But subjectivity is obviously there, even for the slim number of remaining board members and executives who don’t have direct ties to the sister-in-law company. Clearly, when most of your colleagues have direct ties, you are going to have a somewhat subjective take on things. Of course, that’s also one of the reasons Elon and the Tesla leadership team finally went ahead and said, “let’s just finally merge these companies” (not a direct quote).
Elon’s approach, in incident after incident, is “let’s go beyond what is required, and simply do what is right, do what is morally required.” But that line doesn’t go far enough for some of the more skeptical, cynical, and anti-SolarCity in the crowd.
Getting away from the personal matters and looking again at the pros and cons of the potential acquisition — oh, wait, readers and I already wrote that article together, so just read that one. But touching again on SolarCity’s debt, since that is the constant focus of the critics of this potential merger, I think it needs to be remember that SolarCity’s debt financed rooftop solar installations (at $0 down or something similar for the consumer) and that is supposed to be recovered, plus several billion dollars in profit earned, as customers with solar leases and PPAs making their monthly payments over the coming years. It is a tough model, especially for fast growth, from a short-term investor’s point of view, but it is what allowed SolarCity to become the largest solar rooftop installation giant in the United States, bringing along a customer base that is now itself a big competitive advantage for SolarCity … and maybe Tesla.
Do I think Elon should have less control over Tesla Motors (and Tesla Energy)? Nope. Does the majority think so? I doubt it. Will CtW Investments Group be able to get its way? We’ll see.
Update: I forget to include the simple explanation regarding why Tesla is in debt: Because it is growing like a bamboo forest on some form of bamboo steroids. In other words, it is investing as much cash as possible into rapid growth of its production, sales, service, and Supercharging. It’s also a key very Tesla is valued so highly.
*Update #2: See the comment below from Julian Cox on an apparent reason why Goldman Sachs is so anti-SolarCity.
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