What Tesla Motors, Inc. Wants You to Know About Its SolarCity Acquisition

By Markets Fool.com

On Tuesday afternoon, electric-car maker Tesla Motors (NASDAQ: TSLA) provided a more detailed look at its plans for its pending SolarCity (NASDAQ: SCTY) acquisition, which the two companies hope will be completed before the end of the year.

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Here are some of the biggest takeaways from the update.

Rendering of a home equipped with Tesla products, including Model 3, the company's just-announced solar roof, and a Powerwall. Image source: Tesla Motors.

SolarCity's assets will generate cash

As SolarCity continues its recent transition to emphasizing loans and cash transactions over leases with customers, Tesla said it expects the acquisition of SolarCity to be "additive to Tesla's cash balance," Tesla's Tuesday report about the acquisition reads.

Specifically, Tesla anticipates SolarCity assets to add more than $500 million in cash to Tesla's balance sheet over the next three years. And this figure doesn't factor in potential synergies from combining the two companies, SolarCity CEO Lyndon Rive clarified during a question-and-answer session with analysts about the report.

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Tesla expects cross-selling to be a significant driver

During Tesla's Tuesday conference call, one analyst asked for management to expand on expected cross-selling of Tesla vehicles, energy storage products, and solar roofs mentioned in the report.

I think "most customers [who buy a Tesla vehicle] will opt for all three," Musk said.

Rive, however, was careful to emphasize that the specific timing of customer purchases of Tesla's just-announced solar roof shingles will likely be tied to when customers need a new roof.

Tesla believes SolarCity will be able to cross-sell by leveraging Tesla's retail footprint, tapping into the electric-car maker's brand power, and by creating a single ordering experience for the two companies' products.

Tesla store. Image source: The Motley Fool.

In addition to the incremental revenue opportunity from cross-selling, the two companies expect sales and marketing efficiencies enabled through cross-selling to help drive $150 million in cost savings for the company when including cost synergies expected to be achieved from the elimination of overlapping R&D and product development efforts and from reduced overhead costs.

More energy products to come

Beyond its existing Powerpack, Powerwall, and the solar roof developed in partnership with SolarCity, Musk said he has other energy products in mind that could come out of the acquisition.

"There are additional products I'd like to bring out that will be counterintuitive at first, but then will be obvious," Musk said.

Tesla will tap into SolarCity's acquisition of Silevo

Despite Tesla's October announcement that it will be collaborating with Panasonic for photovoltaic cell and module production at SolarCity's Buffalo, New York solar production facility (contingent on the SolarCity acquisition closing, of course), Tesla and SolarCity management still plan to put SolarCity's 2014 acquisition of solartechnologyand manufacturing company Silevo to work.

Image source: Tesla.

SolarCity's acquisition of Silevo is still integral to the New York manufacturing plant even after the Panasonic deal, Tesla emphasized during the call. Indeed, Tesla said it is already planning to tap into some of Silevo's manufacturing strengths for its collaborative photovoltaic cell production with Panasonic.

Investors of both Tesla and SolarCity should take management expectations for the merger with a grain of salt. Mergers often pan out to be better in theory than in reality. Investors, therefore, should assess Tesla and SolarCity's optimistic outlook for the combined company with a skeptical eye.

Tesla's Tuesday update on its plans for its SolarCity acquisition come just a few weeks before shareholders of both companies are set to vote on the acquisition. The vote for both Tesla and SolarCity shareholders will take place on Nov. 17.

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Daniel Sparks owns shares of SolarCity and Tesla Motors. The Motley Fool owns shares of and recommends SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.