Tesla Bulls' Confidence Increases In SolarCity Merger Approval Following Musk's Update

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Baird’s Ben Kallo expressed increasing confidence that the SolarCity Corp SCTY acquisition would be approved by Tesla Motors Inc TSLA shareholders.

Kallo reiterated an Outperform rating on Tesla Motors, with a price target of $338.

Convincing Shareholders

According to a Reuters report, the company posted an eight-page document on its investor relations site and blog in an attempt to convince skeptical shareholders ahead of their vote on the deal on November 17.

Reports also state Tesla Motors CEO Elon Musk is doing his best to convince shareholders to vote in favor of the merger.

Synergies And Benefits

Kallo mentioned, “[M]anagement indicated SCTY will add >$500 million in cash to the balance sheet over three years, and continues to expect $150 million in cost synergies in year 1.”

The analyst believes the merger would create a meaningful opportunity for the cross-selling of products, while lowering customer acquisition costs. In fact, Solar City is expected to add 300,000 customers to Tesla Motors’ existing base.

This would create cross-selling opportunities for vehicles, Powerwalls, PV systems and solar roofs.

Management expects SolarCity to contribute 40 percent of the assets of the combined entity, while contributing over $1 billion in revenue in 2017.

“The solar roof product, announced on Friday, can be sold to customers with atypical roofs, whom may not have been candidates for traditional PV systems. This should increase the addressable market for rooftop solar systems, and TSLA expects to ramp production of the solar roof in 2H:17,” Kallo stated.

The analyst also expects costs to continue to decline, as Tesla Motors scales production, allowing the company to expand into new markets and/or drive margin expansion.

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Posted In: Analyst ColorEarningsLong IdeasReiterationTravelManagementM&AEventsAnalyst RatingsTechTrading IdeasGeneralBairdBen KalloReuters
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