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Elon Musk Gambles His Subsidy Empire On Solar Subsidies

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Charley Grant and Spencer Jakab, The Wall Street Journal

Just a day after Tesla boss Elon Musk made the odd boast that one of its cars “floats well enough to turn into a boat,” he did something even odder. Tesla’s bid for solar panel installation firm SolarCity on Tuesday afternoon is the sort of move that, even for the most Panglossian Silicon Valley investor, stretches the bounds of industrial logic.

It also stretches some ethical limits given the fact that Mr. Musk is the largest, albeit a minority, shareholder in each firm. He also has borrowed personally to buy SolarCity shares, which are down by 58% in the year to date.

Although the offer is for shares, not cash, meaning that Tesla won’t have to go back to the capital markets well quite yet, the deal is far from the “obvious thing to do” that Mr. Musk says it is.

Both businesses, for different reasons, are cash hungry. In the past four quarters  alone, Tesla burned up nearly 50 cents of cash for every dollar of sales it made. But it was practically the U.S. Mint compared with SolarCity which burned nearly $6 for each dollar of sales.

Tesla may be the less sustainable of the two because SolarCity auctions off the tax breaks it gets for installing solar panels on suburban rooftops to outside investors. The auto maker, meanwhile, is about to ramp up spending for the project that will make or break the company—its mass-market Model 3 sedan. Its market value—some 3½ times that of far larger Fiat Chrysler Automobiles —already assumes wild success.

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