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Tesla-SolarCity deal makes sense, two experts say

On Tuesday, Tesla announced it made a bid for the solar company, a move Tesla CEO Elon Musk called a “no-brainer.” On Wednesday, Musk, who is also chairman of SolarCity, said the deal would eventually push the electric carmaker’s valuation to $1 trillion.

News of the proposal sent shares of Tesla sliding, with some analysts viewing it as a negative for the company.

Ben Kallo, senior research analyst at Robert W. Baird, said the proposed deal has many investors scratching their heads, trying to figure out where the synergies are. About 80 percent of the institutional investors he’s spoken with bought Tesla because of the company’s vision on batteries and cars, and don’t want anything to do with the solar industry.

“It has a lot of volatility and a lot of ins and outs that make it a difficult place to analyze and now that’s being forced up on them in this deal,” he told “Power Lunch.”

SolarCity regularly posts quarterly losses, and its stock has fallen more than 50 percent this year in a highly competitive market. The company has more than $6 billion in liabilities, including debt.

However, Dennison doesn’t think the proposed acquisition is a risk for Tesla, noting that SolarCity is expected to be cash flow positive by the end of the year.

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