Tesla Has Already Admitted That Its Merger With SolarCity Makes No Sense

Investors wondering about the logic of the proposed Tesla Motors Inc TSLA-SolarCity Corp SCTY merger can rest their hats on this: The deal just does not make sense.

Gordon Johnson, one of the Street's biggest solar analysts, said exactly that Friday morning on Benzinga's PreMarket Prep. According to Johnson, not only did SolarCity flat out deny that anything like this could happen, but Tesla has already admitted that the companies' best interests don't even line up.

Here's Johnson:

"We had spoken to SolarCity and asked them if something like this was possible. and they vehemently said 'No.' Look at the comments from September, where you had a Tesla executive...basically admitting that it doesn't make sense to combine Tesla and SolarCity. The key driver of SolarCity's business, or among the key drivers, is net metering policies. Essentially, what net metering does it allows you to take the excess power you generate that you're not using and essentially sell it back to the [power grid], effectively storing it in the grid. So you don't need battery storage [to do that]. And the whole benefit that Elon Musk has been talking about has been marrying the solar technology with the battery technology. And with net metering, that doesn't make any sense. His company has essentially admitted that a number of times."

Related Link: Tesla Falls 4% Early Friday, Company's Autopilot Feature Linked To Death Of Model S Owner

Johnson said the deal is simply a defensive move by Musk, who has to protect the premium associated with his name.

"SolarCity is tumbling towards what we think could be a liquidity event. That would be a black eye to Elon Musk and potentially limit his ability to raise billions he needs for Tesla. We think the attempts to take it private are to lift something from that from happening. We think that's the real impetus. There is a premium associated with Elon Musk. If one of those companies were to sell, there would be risk to that premium."

"SolarCity is tumbling towards what we think could be a liquidity event. That would be a black eye to Elon Musk and potentially limit his ability to raise billions he needs for Tesla. We think the attempts to take it private are to lift something from that from happening. We think that's the real impetus. There is a premium associated with Elon Musk. If one of those companies were to sell, there would be risk to that premium."

Johnson added that many Tesla drivers are probably already fluent in green energy, and questioned the size of the customer base for solar power.

"[Musk] talked about expanding the customer base. But how big is that base? By the time the deal closes they'll have sold 100,000 cars, if that. We'd be surprised if the customer base was 10,000. This idea that they're going to create this customer base is fictitious," Johnson concluded.

Catch the full interview with Johnson in the clip below.

For more trading ideas check out PreMarket Prep LIVE every morning from 8–9:30 here. You can also listen to complete episodes on Soundcloud, iTunes and Stitcher.