Ever the company to shock the world with groundbreaking energy news (think Tesla Opens All Patents, Tesla Acquires SolarCity, Musk Proclaims His Employees Brain Dead) – Tesla Motors has done it again.
Subsequent to the acquisition of SolarCity, the new end-to-end clean energy company, Tesla Motors, decided to walk the talk…by powering the entire island of Ta’u in American Samoa with solar power.
“I recall a time they weren’t able to get the boat out here for two months. We rely on the boat for everything, including importing diesel for the generators for all of our electricity. Once diesel gets low, we try to save it by using it only for mornings and afternoons. It’s hard to live not knowing what’s going to happen. I remember growing up using candlelight. And in 2016, we were still experiencing the same problems.”
“This is part of making history. This project will help lessen the carbon footprint of the world.”
“Living on an island, you experience global warming firsthand. Beach erosions and other noticeable changes are a part of life here. It’s a serious problem, and this project will hopefully set a good example for everyone else to follow.” – Keith Ahsoon, local island resident.
The implications are tremendous.
Among the many challenges of living on a remote island is the lack of affordable, reliable power. Such a deficiency means that hospitals, schools, and police and fire stations are forced to worry about rationing energy and power outages.
Tesla Motors, with funding assistance from the Environmental Protection Agency (EPA), the Department of Interior, and the American Samoa Power Authority, has enabled this island, to run without sunlight for an entire three days. Ta’u island, located over 4,000 miles from the West Coast of the United States, is now powered by a 1.4 megawatt solar microgrid (comprised of 5,328 panels), along with 6 megawatt hours of battery storage from 60 Tesla PowerPack storage batteries. The solar switch took one year to complete, at an estimated cost of $8 million, and will offset an annual 109,500 gallons of diesel.
Tesla and Solar City have enabled energy independence for the 600 people living on Ta’u, an island that was previously fueled by carbon-guzzling diesel generators that arrived sporadically by boat. Irregular shipments to this island equated to severe power rationing. The hazards of power intermittency are a nightmare of the past.
An Imperfect Marriage?
On June 20th, 2016, Tesla (TSLA) made a $2.48 billion, all-stock offer to purchase all outstanding shares of SolarCity. This near-$3 billion offer represents an approximate 21-30% premium over the closing price of SolarCity’s shares, based on the closing price on June 20th and the 5-day volume weighted average price of TSLA stock. In November, the deal finally closed around $2.6 billion, with more than 85% of Tesla shareholders voting in favor. Tesla acquired nearly $3 billion of SolarCity’s debt.
Although Musk has described Tesla’s acquisition of SolarCity as “common sense” and “blindingly obvious”, some Wall Street analysts have been watching from afar with a wearier eye. Why? Musk is playing the long game here; the acquisition of SolarCity requires a substantial amount of cash to remain operational with no true short-term payback. SolarCity is not exactly the epitome of strong financials; the company posted an EBITDA of negative $507 million last quarter, equating to a net loss of 15 cents per every dollar of revenue. In fact, SolarCity is riddled with over $6 billion of liabilities, declared by Goldman Sachs just minutes before the deal broke, as “the worst positioned name” in the solar industry.
Musk has used both his own capital and Tesla shares to secure this debt, inducing a great deal of skepticism regarding the use of Tesla’s capital for this deal. “And both companies burn through cash like they print it themselves. As noted by the Wall Street Journal’s Heard on the Street column, Tesla torches 50 cents for every dollar in sales, while SolarCity burns nearly $6 for every dollar in sales” (The Verge).
Nonetheless, financial skepticism in 2016 is par for the course, and no merger in the history of financial engineering has been accepted with arms completely wide open.
“Tesla’s mission has always been tied to sustainability. We seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles. And in March 2015, we launched Tesla Energy, through which the Powerwall and Powerpack allow homeowners, business owners and utilities to benefit from renewable energy storage. It’s now time to complete the picture.” – Elon Musk
Should Elon Musk’s visions come true – and the genius “Iron man” has been known to be right once or twice before – Tesla would be perfectly positioned to capitalize on a future in which our homes are powered by solar power and our cars are electric. Not to mention the fact that SolarCity is run by Musk’s cousin, Lyndon Rive. Musk, while a minority owner, is still the company’s largest shareholder. Oh, and Tesla’s home battery, otherwise known as the Powerwall, generates electricity from – take a wild guess – solar energy.
A brief aside, to applaud the man who is tirelessly striving to bring sustainable transit to the masses – and who has truly revolutionized our world.
The real question is how Musk has time for all of his companies. He is human (we think) after all. A lesson: Musk doesn’t ask himself why, rather why not? “Creating a company is almost like having a chid. It’s almost like, how do you say your child should not have food? It’s actually been a very difficult journey. The first time I took a week off, the Orbital Sciences rocket exploded and Richard Branson’s rocket exploded. The second time I took a week off, my rocket exploded. The lesson here is don’t take a week off.” (Elon Musk)
Meanwhile, on Island T’au…
Regardless of the financial prudence (or lack thereof) of the Tesla-SolarCity deal, the fact that Tesla + SolarCity has powered an entire island is impressive, to say the least. Importantly, the powering of T’au is exemplary of solutions that are viable today – not “maybe solutions” to be considered decades down the road. Islands and other remote areas of the world that have conventionally relied on fossil fuels can seamlessly switch to renewable energy sources. Musk has, once again, helped us expand the boundaries of possibility.