NEWS New York Times: Testing the Clean-​​Energy Logic of a Tesla-​​SolarCity Merger

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Elon Musk, chief exec­u­tive of Tesla and chair­man of SolarCity, says he wants to cre­ate the “world’s only ver­ti­cally inte­grated energy com­pany” with the merger of the two com­pa­nies. CreditJustin Sullivan/​Getty Images 

Imag­ine a world in which every home and build­ing is a minia­ture power plant, with solar pan­els on the roofs and elec­tric vehi­cles and sta­tion­ary bat­tery banks in the garages.

Meters and soft­ware would man­age the flow of power, allow­ing home­own­ers and busi­nesses to seam­lessly buy and sell elec­tric­ity at the best prices, simul­ta­ne­ously low­er­ing their costs and rais­ing the amount of green energy on the grid.

That’s the long-​​term vision behind the plan that Elon Musk described late Tues­day, explain­ing the ratio­nale for Tesla to acquire SolarCity and cre­ate the “world’s only ver­ti­cally inte­grated energy company.’’And it may very well become real­ity, whether in years or decades, and whether Mr. Musk’s ver­sion of the vision is one that proves viable.

Still, if Mr. Musk and his cousins, Lyn­don and Peter Rive, can trounce the com­pe­ti­tion and sur­mount their finan­cial woes — and those are very big ifs — the inte­grated com­pany they are try­ing to assem­ble could be in a posi­tion to dominate.

This is an effort to build the Apple of clean energy,” said Daniel M. Kam­men, the direc­tor of the Renew­able and Appro­pri­ate Energy Lab­o­ra­tory at the Uni­ver­sity of Cal­i­for­nia, Berke­ley. “That really is part of the new wave of com­pa­nies that could make this decar­boniza­tion address­ing cli­mate change really work.”

Wall Street, at least for the moment, is not on board.

SolarCity’s stock, which has been trad­ing at roughly a quar­ter of its peak value in recent months, rose after the announce­ment. But Tesla’s has tum­bled. Sev­eral ana­lysts and investors have ques­tioned the wis­dom of adding to both com­pa­nies’ finan­cial pres­sures — between them the com­pa­nies lost more than $1.6 bil­lion last year — and poten­tially dis­tract­ing Tesla from build­ing its enor­mous bat­tery fac­tory in Nevada and bring­ing its first mod­er­ately priced car to mar­ket next year.

Even some energy ana­lysts say the pro­posed acqui­si­tion is at least as much about help­ing Mr. Musk’s per­sonal invest­ments as fur­ther­ing his green agenda. But, some energy experts and investors say, there is logic in com­bin­ing Tesla, where Mr. Musk is chief exec­u­tive, and SolarCity, where he is chairman.

Describ­ing Tesla auto­mo­biles as “bat­ter­ies wrapped in a car,” Shawn Kravetz, founder of the solar power invest­ment com­pany Esplanade Cap­i­tal, said that the energy stor­age busi­ness was likely to become colos­sal. “And so you can see,’’ he said, ‘‘how the elec­tric­ity to power those bat­ter­ies can be an essen­tial part of this.”

The two com­pa­nies have been mov­ing toward a closer part­ner­ship for some time. SolarCity began installing Tesla bat­ter­ies in pilot projects for res­i­den­tial and com­mer­cial cus­tomers about four years ago. Last year, Tesla announced its move to mar­ket recharge­able lithium-​​ion bat­tery packs that could mount to a home garage wall, as well as bat­tery blocks large enough to power com­mer­cial and indus­trial cus­tomers and serve in utility-​​scale instal­la­tions to smooth out fluc­tu­a­tions in the grid.

At the same time, SolarCity, after years of chal­leng­ing the util­ity indus­try to inno­vate or die, started act­ing more like a util­ity itself. It began a pro­gram aimed at cities, remote com­mu­ni­ties, cam­puses and mil­i­tary bases to design and oper­ate small, inde­pen­dent power net­works called micro­grids. At the time, Peter Rive, one of the company’s founders and its chief tech­ni­cal offi­cer, called the sys­tem “a tem­plate that can be scaled up to basi­cally be the next-​​generation grid.”

As the lead­ing rooftop solar provider in the coun­try, SolarCity is thought to have the largest col­lec­tion of data on how solar cus­tomers use energy at every minute of the day. With that data — espe­cially if com­bined with infor­ma­tion from elec­tric cars, charg­ers and sta­tion­ary bat­ter­ies — the com­bined com­pany could be well suited to cre­at­ing prod­ucts and ser­vices based on cus­tomer needs.

They deeply under­stand what the customer’s usage pat­terns are,” said Swap­nil Shah, chief exec­u­tive of First­Fuel Soft­ware, which pro­vides energy man­age­ment ser­vices to build­ings. He com­pared the poten­tial to Amazon’s abil­ity to adapt and cus­tomize online shop­ping to buyer’s behavior.

They’re cre­at­ing unique per­son­al­ized pro­files of your habits,’’ Mr. Shah said, “and they use that to iden­tify what is the next click for the next product.”

And yet, while SolarCity was build­ing the infra­struc­ture for a new, decen­tral­ized approach to power pro­duc­tion known as dis­trib­uted gen­er­a­tion, while earn­ing a rep­u­ta­tion for aggres­sive attacks on the old-​​school util­ity indus­try, Mr. Musk was turn­ing Tesla into “the brand that every­one wants to buy,” Mr. Kam­men said. That brand bur­nish­ing is some­thing that could ben­e­fit SolarCity, he said.

But a big chal­lenge for Tesla, said Shayle Kann of GTM Research, which focuses on clean energy indus­tries, is that it is not the only com­pany with such a grand vision. Util­ity indus­try stal­warts like Edi­son Inter­na­tional and Con Edi­son are devel­op­ing energy ser­vices and con­sult­ing divi­sions, while tech­nol­ogy giants like Gen­eral Elec­tric, Ora­cle, Google and even Apple are get­ting into the busi­ness of pro­vid­ing or man­ag­ing power.

Of course, the merger plan may not go through, if other investors balk and because of the cor­po­rate gov­er­nance and other issues aris­ing from Mr. Musk’s roles in both com­pa­nies. He also owns more than 20 per­cent of each. But maybe a merger isn’t nec­es­sary to achieve the larger goals.

Do you have to own things in order to lever­age or even to a cer­tain extent con­trol them?” Mr. Kravetz of Esplanade Cap­i­tal asked. “I think the answer is no. You don’t have to own the cow to get the milk.”

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