How a Combined Tesla & SolarCity Could Save $150 Million in a Year

Combining electric car maker Tesla and solar installer SolarCity could save $150 million or more in its first full year after closing, said the companies and Tesla CEO Elon Musk on Monday.

The $2.6 billion deal, which was first announced in late June and would create a company that sells solar panels, batteries, and electric cars under one roof, is still subject to a vote by the companies’ independent shareholders, as well as a regulatory review.

There’s also a 45-day period where SolarCity (SCTY) can receive and review competitive acquisition offers.

But on Monday, the companies said that their independent board committees had recommended and reached an agreement on the deal.

The agreement assumes that merging the two energy firms would reduce $150 million of costs within the first year due to combined sales and marketing, installers, retail locations, manufacturing assets, and software, as well as creating efficiencies in the supply chains of the companies.

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Tesla retail stores would sell solar panels, said Musk, and would help reduce SolarCity’s costs for customer acquisition. It can be an expensive and lengthy process to convince a customer to buy solar panels.

Musk said on a call on Monday morning that as the companies get integrated, he thought a savings of between $150 million and $200 million in the first full year after closing was “conservative.” “I think we will significantly exceed that [savings] even in the first year,” said Musk.

A combined company would have one sales process, one installation process, one services contact, and one phone app to monitor things, explained Musk. Tesla’s CFO Jason Wheeler described the combination as “one trip by one truck for three products,” including solar, storage, and home charging for vehicles.

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Tesla (TSLA) and SolarCity also share some common components, like for example inverters, which convert direct current produced by solar panels into alternating current to be used by a home or directed onto the power grid. When energy comes out of a battery it’s also in the form of direct current.

In addition, Musk and the team think that Tesla can help SolarCity reduce its costs through aiding the solar company in manufacturing.

Tesla has spent years producing its Model S and X cars, and is now building its massive battery factory outside of Reno, Nevada. In contrast, SolarCity has just started on trying to be a manufacturer through its planned factory under construction in upstate New York.

Last year Tesla officially launched its energy division, selling batteries that can be connected to buildings and the power grid. Before that Tesla and SolarCity had been experimenting with combining solar panels and batteries for years.

Musk has said that he thinks a combined Tesla and SolarCity could create a trillion-dollar company.

SolarCity CEO Lyndon Rive, who is Musk’s cousin, said on a call on Monday, that he predicts that in three to five years all solar systems would be sold with batteries.

If the deal is approved by independent shareholders, and regulators, it would be expected to close in the fourth quarter of 2016. SolarCity could also receive an attractive deal of over $2.6 billion within the next 45 days.

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