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Elon Musk and SolarCity are buying solar panel producer Silevo

A SolarCity InstallationA SolarCity Installation
A SolarCity employee installs a solar panel. Photo by Bloomberg—Getty Images

SolarCity, one of the nation’s largest installers of rooftop solar power systems, is buying solar panel producer Silevo in an effort to become its own supplier.

Tesla Motors CEO Elon Musk is the chairman and biggest shareholder in SolarCity, which said Tuesday it will pay up to $350 million for Fremont, Calif.-based Silevo, according to a filing with the Securities and Exchange Commission. SolarCity will pay $200 million in stock up front for Silevo and could shell out as much as an additional $150 million for the company based on whether Silevo hits certain production milestones. The deal is expected to close in the third quarter of this year.

SolarCity (SCTY), whose stock jumped more than 15% following the deal announcement, currently offers rooftop solar power systems on a leasing system, where customers absorb no cost up front but agree to make monthly payments. By adding Silevo’s production infrastructure, SolarCity is looking to control its own supply line for photovoltaic panels and potentially lower its costs.

“Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power,” the company said in a blog post authored by Musk, along with co-founding brothers Lyndon Rive and Peter Rive.

In conjunction with the acquisition, SolarCity said in the blog post that it is currently in talks with the state of New York to build what would be one of the world’s largest solar panel production plants, with a production capacity of more than 1 gigawatt, within the next two years. The company said it also has plans for “one or more” subsequent panel production plants that would be even larger.

The three executives added in the post that the company’s plans to significantly expand its production is less a response to current needs in the industry – as they admit there is “excess supply capacity” – than it is a bet on future need. “Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed,” the company said.