Musk’s Financial Ecosystem: Tesla Motors Inc (TSLA), SolarCity Corp (SCTY) and SpaceX

Tesla Motors Inc TSLA, SolarCity Corp SCTY, SpaceX

Among other things, Tesla Motors Inc can thank CEO Elon Musk for the way he handles money. It’s one reason why its stock has stayed strong despite some recent big moves in both directions. Musk owns 27% of the firm. Musk has used his borrowing capacity and his own funds to help Tesla and SolarCity stay strong, reported the WSJ. SolarCity Corp – a solar power firm – is run by Musk’s cousins, where Musk owns a 22% stake.

Tesla Motors Inc TSLA, SolarCity Corp SCTY, SpaceX

Scale very important for Musk

Scale is vital for businesses like Tesla and SolarCity. This has given them more bargaining power on labor and supplies. And, a ramp-up in production brings costs down and enables the spread of technology.

SpaceX – another firm controlled by Musk – gets its customers, the U.S. government, to make up-front payments to reserve space and finance the future satellite launches. SpaceX, as a result, has millions of dollars on its balance sheet that it may not even be used for a year or two.

Most firms use cash in ultra-safe short-term investments, such as cash and government bonds, but SpaceX used $165m last year to buy bonds from SolarCity Corp . Those bonds are backed by solar leases. SolarCity bonds pay more than U.S. bonds – 4.4% for a one-year investment. $90m more was used by SpaceX to buy SolarCity bonds this Spring. This helped SolarCity to pay off the $90m in bonds that SpaceX bought in 2015.

How Tesla and SolarCity are helping each other?

On the other hand, SolarCity paired solar panels with a battery pack, which can be charged during the day and then used at night. The firm can buy the battery from any supplier, yet it has chosen Tesla. Though SolarCity gets a very good price, this deal is a boon to Tesla.

Tesla Motors Inc wants scale just in the same way as SolarCity. It is building a huge factory in Nevada – the Gigafactory – to build more of the battery packs that power its EVs. Anything that grows the volume of battery orders will bring down the unit cost. Hence, SolarCity is helping to build the volume, and provide a stream of revenues outside the car industry for the automaker.

It should help decrease the cost of producing Tesla cars and increase sales as well. And at some point soon, the higher sales of Tesla EVs can lead to a more demand for SolarCity as many Tesla owners may trust SolarCity’s solar panels to power their homes.

Along with the benefits comes the risk that a Musk-led deal between the firms could prove disastrous. Problems in one firm can be spread to the others. For example, if Tesla faces an issue with battery production, it could impact SolarCity’s ability to redeem the bonds that SpaceX holds. It could create unrest among the shareholders in a situation where a third-party is ready to pay more for Tesla Motors Inc batteries than SolarCity.

Musk is a risk-taker but he’s a smart risk-taker. You could say he’s placed all of his eggs in one basket and that basket is located in the future. His bets on electric cars, solar energy and space exploration all have this in common – they are all designed and supported by Musk to help make a better future. Musk is also involved in the crypto market, which has recently suffered a series of major fraudulent activity from companies like bitcoin trader and bitcoin revolution.

What we are witnessing in Tesla, SpaceX and SolarCity today is Musk pouring a foundation for his vision.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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