Elon Musk, the billionaire CEO of Tesla Motors Inc (NASDAQ:TSLA), wants SolarCity Corp (NASDAQ:SCTY). But given the Tesla’s high cash burn rate, the market doesn’t believe electric car company can afford SolarCity, which is pressuring SCTY stock.
And even if Musk had the cash, there’s still the question of how he can make SolarCity a profit-generating asset under Tesla.
And it would seem, these concerns are now pressuring SCTY stock, which continued to plunge Thursday. SCTY stock has fallen as much as 5.2% to a session low of $17.12 on already more than half of its average daily trading volume.
The Impact of TSLA Cash on SCTY
It’s bad enough the alternative energy company, which is backed by Elon Musk, is struggling to make money. Weaker-than-expected growth, combined with financials that are seemingly hard to understand, has spooked investors into dumping SCTY stock.
But while there’s an argument to be made that Elon Musk and Tesla are the reasons for SolarCity’s recent decline, the trend has shown to be more than just a one-day phenomenon. Consider, SCTY stock has traded in a range of $16.31 to $58.87 in the past 52 weeks.
With SCTY stock now around $17, this means the shares have plunged more than 70% over the past twelve months.
Tesla, meanwhile, offered to buy SolarCity in June. In fact, since the announced deal, SCTY stock had risen some 30% from around $21 per share to as high as $28, which was around the buyout price.
The anticipation of the deal’s closing sent the SCTY stock higher. This means that, the reason that SCTY stock has fallen nearly 30% over the past month is because the deal, which both boards have approved, is no longer a certainty. And Tesla’s cash situation has a lot to do with that.
To be sure, on Wednesday Tesla secured a $300 million credit line by Deutsche Bank, which Tesla will use for the leasing program, among other operational needs. Still, that’s not nearly enough to offset the $600 million Tesla has burned through in the first half of the year.
Even if Tesla does close the SolarCity deal, there’s the thought that it will be “business as usual” — meaning lack of fiscal awareness to make SolarCity and SCTY stock a worthwhile holding today.
At the time of publication, Saintvilus did not hold stock in any of the company’s mentioned.
