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Tesla makes its case for buying SolarCity

The two Musk-owned companies are forming an "end-to-end clean energy" solution.
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Michael Nagle/Bloomberg via Getty Images

Tesla's been busy with more than the Model 3 in recent months. In August, founder and CEO Elon Musk announced that Tesla would join with his other company, SolarCity, in a $2.6 billion merger. Musk said at the time that the melded company would serve as an "end-to-end clean energy" solution. And just last week, he unveiled the company's new solar roof and Powerwall 2 home battery which, taken together, would harness and store the sun's energy to both the house and the electric car in its garage. On Tuesday, Tesla clarified what it expects to come from the merger and how the two companies will function as one.

Simply put, Tesla figures that SolarCity has a lot to bring to the table. "We also expect SolarCity to immediately account for 40% of the assets of the combined company on a historical cost basis," the company wrote in a Tuesday blog post, "to contribute $1+ billion in revenue in 2017, and to add more than half a billion dollars in cash to Tesla's balance sheet over the next 3 years." What's more, the combined companies will reportedly save on marketing and sales costs, overhead and R&D efforts. Whether those changes will result in layoffs has yet to be determined.

Tesla also defended SolarCity's balance sheet, citing the latter's $5.2 billion in assets and pointing out that the 300,000-plus solar roofs it has already installed will generate over $8 billion in customer payments over the next two decades. This rosy outlook is based on a number of societal and regulatory factors, specifically the American people's willingness to adopt solar power. The fact that Congress extended the Investment Tax Credit, which gives homeowners a tax credit for 30% of the roof's installed cost, to 2021 doesn't hurt either.

For its part, Tesla touted its own impressive growth over the past few years, including Q3 2016's whopping 145 revenue growth over the previous year. Furthermore, the company reports that it is sitting on $3 billion of cash plus another $750 million of liquidity as working capital. Together, Telsa hopes to strengthen its position within the $12 billion American solar energy market and maintain an annual 15 to 20 percent growth rate over the next five years.

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