So instead of issuing shares to raise capital for Tesla they are giving them to SCTY shareholders (of which Elon is the largest!) and then taking on Solar City's debts and hugely negative cash flow. As if that is not enough we're now back to Tesla needing more money and having to go raise it.
I think the thought process is if they needed cash so badly they shouldn't have just bought a bottomless money pit.
Do you think Facebook didn't buy WhatsApp either? Edit: there was a cash component, but it was 75% stock. The acquisition of Pixar by Disney is an example of a 100% stock payment.
Re:Cash Squeeze at Tesla, SolarCity
by dragontamer on Thursday September 01, 2016 @12:48PM
(#12406833)
> I don't think they're buying solar city, isn't it a pure stock swap?
Yes, but SolarCity is losing $300 million per quarter right now. Who do you think will pay that bill?
Tesla will, now that they "purchased" it. In fact, some companies sell themselves for for NEGATIVE dollars (aka, we'll pay you to take this failing business off our hands). Becoming the "owner" of a failing company means that you now have to pay for it.
TSLA stock is liquid, therefore Tesla giving away TSLA stock to SolarCity stock holders is buying SolarCity.
The big issue is that SolarCity is barely hanging on while Tesla has been on a tear (at least PR wise), so hanging an anchor around its neck seems silly. Everyone was expecting Tesla to need to raise cash to scale model 3 production, so this wouldn't have been news is SolarCity weren't in the picture.