Tesla–SolarCity Acquisition Call 22 juin 2016 Musk anime l'appel avec les investisseurs exposant la justification du projet d'acquisition de SolarCity par Tesla et sa vision d'une entreprise unique et intégrée d'énergie durable.
Musk anime l'appel avec les investisseurs exposant la justification du projet d'acquisition de SolarCity par Tesla et sa vision d'une entreprise unique et intégrée d'énergie durable.
Transcription Operator
Good day, ladies and gentlemen, welcome to the Tesla Motors conference call. At this time, all participants are in
Analyst
a listen only mode.
Operator
Later we will conduct the question and answer session and instructions will follow at that time. If anyone should require assistance during the call, please press Star then zero on your touchtone telephone. As a reminder, this conference may be recorded. I would like to introduce your host for today's conference, Mr. Jeff Evanson, Investor Relations, Tesla Motors.
Elon Musk
So you may begin.
Jeff Evanson (IR)
Thank you Terea and good morning everyone. Welcome to Tesla's call to discuss the rationale for our offer to acquire SolarCity. I'm joined today by Elon Musk, Tesla Chairman and CEO Todd Marin, Tesla General Counsel J.B. strabo, our CTO and CFO Jason Wheeler. Yesterday we announced our offer to acquire SolarCity in filings with the SEC and through a blog post available at www.tes. during our call this morning, we'll discuss some of our business outlook and make other forward looking statements. These are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent Form 10Q filed with the SEC. We're going to start today's call with some comments by Todd and then Elon, followed by Q and A. So go ahead and press Star one now to get into the queue to ask a question. And with that I'll pass it over to you, Todd.
Tesla Advisor
Good morning everyone. Thanks, Jeff.
Elon Musk
So I just wanted to briefly touch
Tesla Advisor
on some of the process points and
Todd Maron (General Counsel)
why yesterday's announcement might have looked somewhat different to people who normally see these kinds of announcements. It's actually somewhat of an easy explanation, but it is somewhat of a unique situation. So usually I know that everyone is used to seeing an announcement when there is actually a definitive agreement that is reached and not just simply an offer. And obviously in our situation, we were only announcing an offer and then as a result, you didn't receive the same kind of information that you would receive when an agreement is reached, such as the agreement itself and detailed financial information about the combined company. The reason for that is that Elon is a 5% stockholder in SolarCity and he's required by the securities laws to keep the market informed through a Schedule 13D filing about his plans with respect to those holdings. And because of Tesla's decision to make an offer to SolarCity and Elon's support for that decision, it was appropriate to amend his schedule 13D to update the market even though no definitive agreement had yet been reached. It's obviously our hope to engage in a due diligence process with SolarCity and ultimately reach that agreement. And all that information that you would customarily see at that time, including the agreement itself, and detailed financial information about the combined companies would be provided then. But the result of this is that this is actually a more transparent process because you're essentially seeing behind the curtains more than you would ordinarily see in a transaction because you're actually getting additional information up front at the offer stage and getting an advanced look at the strategic business rationale for the deal. And so with that, I'll actually pass it over to Elon so that he can speak more about the strategic rationale for the deal and why we do think that combining the two companies makes sense here.
Elon Musk
Sure, I did touch on most of this yesterday, but I think what this call is mostly going to be about is getting into maybe some of the detailed questions that people have.
Elon Musk
as I said yesterday, there's kind of three parts to, and as I said at the actually powerwall presentation last year, so just as part of why I think this is really quite an obviously correct move, is that in order to solve sustainable energy question, we need sustainable energy production, which is going to come primarily in the form of solar, overwhelmingly in the form of solar in our view. Then combine that with stationary storage and electric vehicle and you have a complete solution to a sustainable energy future. Those are the three parts that are needed and, and those are the three things that I think Tesla should be providing. And it just became increasingly obvious that as we're developing the powerwall and new versions of the powerwall, as we integrate more of the inverter, electronics and intelligence in the powerwall, it really, you really need to take the solar panels and the solar system into account when doing that. Otherwise you duplicate a lot of hardware that doesn't work together as well. It's more expensive, the installation cost is substantially higher. You've got to put the installer power wall, install the solar panels. If you've got an electric car, you've got to install the wall connector. And at home charging system, there's potentially three visits. There's at least two visits. And then in terms of the sales process itself, when we're selling somebody the powerwall, very often, if not almost always, they're curious about solar and want to do the same thing. So then not being able to sell them Solar directly at SolarCity, sorry, Tesla through our stores, is pretty inefficient. But as you look ahead to say Model 3 and a $35,000 car, well that same person at the same moment we could sell them roughly an equivalent amount value of solar panels and a powerwall, effectively doubling, almost doubling the sale at that time and then putting it all in at the same time. So I think the, the word synergy is bad, it's like almost sort of a dirty word. But I think it's, I think these synergies are really just common sense. Like obviously it's more efficient to do this as an integrated system at the sale and at the installation and in terms of just general maintenance and managing the customer relationship. And yeah, I think that makes it kind of a pretty obvious thing to do. And it's quite difficult to create integrated product if you're forced to be at an arm's length and be two different companies. So. If we give a special deal to SolarCity and SolarCity is not part of Tesla, then why are we doing that? So we can do that if SolarCity is part of Tesla. We can't do it if a separate company. So it just makes things, the execution I think a lot easier and cleaner and more effective. So that's why I said yesterday, I think it's really kind of a no brainer if we didn't do this, it would make Tesla's execution harder and worse. And I think the tide of history very strongly supports will be a sustainable energy future, primarily solar and virtually entirely electric vehicles. And there'll be things that temporarily interrupt that type of industry but in the long term it will overwhelm everything. And our goal is to accelerate the advent of that future as fast as possible and this helps us accelerate it. So that's the reason. And yeah, so yeah, and I think there have been some questions about like does this sort of really increase our debt position or lever up the bank our balance sheet. It really doesn't, I think really encourage people to take a close look at SolarCity. What really matters is the recourse debt. Obviously the non recourse debt is, is not what matters and the cash flows generating that solicitity will generate it covers what's required with the recourse debt. So they are headed to cash flow positive situation for the next three to six months at the outside. And that's where the company's been steering itself, reducing their growth rate to some degree to achieve that cash flow positive position. But they're very clearly on their way to getting there in short order. So actually we expect it to be a net cash generator, not a user of cash, particularly when taking into Account the dramatic reduction in the cost of sales of source systems sold through our store. Through our stores. The biggest factor in SolarCity's increasing cost per watt in Q1 was their sales cost. So as soon as you they quite a big increase in sales cost that'll go radically another direction with sales through Tesla.
Elon Musk
I'd love to talk more about what's going to happen on the product side. Obviously that would be. I think that would shed a lot of light on this deal and why. I think it makes total sense and really is a no brainer. But I can't talk about material non public plans except that I'm very optimistic about those plans and that While to date SolarCity has not been significantly differentiated on the product side to the solar panels themselves, they certainly will be in the fairly near future. And actually if you just listen carefully to what Solisa has been saying in its earnings calls and its announcements that I think should be also pretty clear like that Solsay is saying that there's going to be significant product differentiation. There's the Slivo acquisition, which we think is the best technology out there for high efficiency, low cost solar panels
Elon Musk
at the same time very significantly improving the aesthetics of the solar panels. I think there's quite a radical difference between having solar panels on your roof that actually make your house look better versus ones that do not. I think it's going to be a night and day difference and the slow Sleevo development allows for that. So. We can't go into the details of those because making future product announcements that are really exciting obviously affect future product sales and the full extent of that is not yet public information. But I do believe it fits together very well with Tesla's plans on the Powerwall and power pack side. So we can turn it over to questions at this point.
Jeff Evanson (IR)
All right, thanks, Elon. Terea, why don't we go to the first question please?
Operator
Certainly our first question comes from the line of Brian Johnson of Barclays. Your line is now open.
Analyst
I have about three questions.
Elon Musk
One for Elon, we started the general
Analyst
counsel and Jason for Todd. You talked in the letter about two of the directors not voting.
Elon Musk
Can you give us a sense? Because this will come out in the
Analyst
proxy eventually of the discussions between the two companies. Is there actually a committee of independent directors? How independent do you consider the remaining directors? Do they have any personal ownership of SolarCity and the other things that are
Elon Musk
likely to relate to the board issues? So this is.
Tesla Advisor
Todd, this is a little bit tracks back to what I was saying earlier about the stage of the process that we're in. But when a deal is announced, if that happens, all this stuff will come out in terms of exactly what the process was at every point. The key points now are that Elon and Antonio, since they're on both boards, have recused themselves from the board process of voting on the transaction. And they've also committed to if there's a deal that the disinterested shareholders would vote on that deal, with the majority of those disinterested shares determining the outcome of the vote. But beyond that, it's really too early in the process to get into all
Todd Maron (General Counsel)
the different details, but rest assured, that
Tesla Advisor
will all come out once there's actually a definitive agreement that's reached. At this point, it's probably more appropriate to just focus on the business rationale
Elon Musk
for why this deal makes sense.
Analyst
And just when you say recruits from voting to the that also mean recused from discussion and not present in the room when this was brought up.
Tesla Advisor
No, it was recused from voting.
Analyst
Okay, for Jason, given your talk earlier in the year about kind of focusing on cash and even stipulating perhaps that SolarCity could reach some sort of cash breakeven by fourth quarter, how does this change your view of the pro forma company in terms of their cash usage and their need to potentially go back to the capital markets, either debt or equity, to finance the ongoing business? Yes, sure.
Elon Musk
On the Tesla side, I stick with the statements that we made on previous earnings calls. On the SolarCity side, as Todd has laid out, we're just at the beginning
Analyst
of the process now, and the only
Elon Musk
information, you know, I've had access to is what's publicly available.
Analyst
So I don't have anything to say
Elon Musk
about the pro forma combined entity at this point. And we'll start to look at that as we get into the full due diligence now.
Analyst
And I guess due diligence question, it was probably scoped out before you did the deal. You know, when you survey Tesla owners, you know, what percent have solar already, what percent are in states where solar would make sense and sort of just what are some of the basic kind of merger synergies in terms of customer overlap and customer potential that you guys look at?
Elon Musk
I think the way to think about this is not to kind of look in the rearview mirror, but to look through the windshield. Only about 1% of U.S. homes have solar. So you have a massive addressable market that's unserved. At least 40 to 60 million households that were solar. Where they could do solar if they wanted to. So if the economics were right and they liked the aesthetics and it was easy to do, then they would do it. So the future market there is really gigantic. And yeah, on the cash front, we don't expect SolarCity to have a material impact on future cash needs. Yeah, don't think it's going to make much of a difference, really. Positive cash flow really by the end of the year.
Analyst
And just final. You talked a little bit yesterday, but how does this affect the, how do you make sure that your personal time between this and of course a rocket business, given the MA synergies that you're trying to get, given the sales, the service overlap, that's kind of a whole separate line of processes and kind of grunt work on the ground from launching a new model car. How do you actually get both the integration of a sales and service system for solar and cars and batteries done at the same time? You've got a, by your own admission, aggressive launch schedule for the Model 3.
Elon Musk
Well, I mean my intuition about this could be wrong, but from my standpoint, this makes Tesla's future execution easier, not harder because it's just getting increasingly unwieldy. To work with SolarCity on an arm's length basis, we really need to have an integrated product. The powerwall and the power pack need to be designed together with the solar system. So it's a one piece thing and we really can't do that if we're two separate companies. We've got to then to treat SolarCity like they're any other company, which is extremely unwieldy. So from my standpoint, this makes the execution easier, but not harder. And I think Solid City's got a great future independent of Tesla, but it obviously Tesla does, but being able to integrate things at the product level, at the consumer experience level, the utility level, the commercial level, actually, it makes it easier, not harder. That's why we're doing this. You can select why. Why should companies exist at all? What's the point of having companies? The point is that a given company is going to create a more compelling good or service. For the end customer and then so should the companies be two separate containers or one container? And if there is one container, we can make a more compelling product and work together easier. So that's the reason for it. So I think that speaks to the sort of fundamental economic goodness of the transaction and it will be harder if we remain two different companies. Okay, thank you,
Operator
thank you. And our next question comes from Charlie Anderson of Daugherty and Company. Your line is now open. Okay, and our next question comes from the line of Brian Johnson of Barclays. Your line is now open.
Analyst
Well, I already asked a question.
Jeff Evanson (IR)
Yeah, Treea, why don't we go to the next caller, please try Charlie again.
Operator
Okay, our next question comes from the line of Charlie Anderson of Daughterly and Company. Your line is now open.
Analyst
Yeah, good morning. Thanks for taking my questions.
Elon Musk
So I wondered if shareholders of Tesla will have a synergies number in mind
Analyst
when they vote and if you guys have any early look at what synergies could be and are you expecting much in the way of cost and just thinking about the incremental cost of combining
Elon Musk
the products, what will that be? It sounds like some of the work has already been done to combine the products, but just any thoughts on that would be helpful.
Elon Musk
We can give estimates because obviously this is still the early stages and there are estimates based on kind of what stands to reason. But, but looking ahead, particularly to next year, selling Model 3 something on the order of a $35,000 car. If we're selling powerwalls and solar systems of comparable value and doing so in the same sales footprint with the same person, the first order approximation, our cost of sales should drop in half, as would solar cities correspondingly. Maybe it's not entirely in half, maybe
Elon Musk
30 to 40%, but it's a pretty, I think a very substantial drop on solar cities side and also a drop of a material drop on Tesla's side because you're basically selling, let's say almost twice as much in a single transaction as you otherwise would. And then on the installation setup side, it's one crew and one visit instead of two to three visits. The ongoing maintenance is kind of one point of contact and not sort of two or three points of contact. And the cost of the system itself is lower because we're not duplicating hardware, the hardware level. So I think that all makes a lot of sense. Yeah. So the fundamental cost for both companies would go down maturely and yeah, it's, I mean, I think it's. One can argue about like, you know, is it sort of 20% reduction, 30% reduction, 40% reduction. But it's pretty significant and for sure better than if the companies were separate. Great. And then just another quick one from,
Analyst
from me, I wondered why now versus two years ago versus two years from now?
Elon Musk
Yeah, the reason now is because we've got, we're really ramping up powerwall and power pack, developing version two. And then we have our plans for version three, version four and so forth. SolarCity also is preparing to come out with the solar panels that as a consequence of the Salivo transaction a couple years ago, that significantly improved the efficiency and the aesthetics of the roof.
Elon Musk
I think the aesthetics matter a lot. As you know, Tesla were super sensitive to aesthetics and I think solar cities, I think they're going to get there on their own, but I think that journey will be accelerated as part of Tesla as well. It just sort of makes sense that if you had a solar system that made your house look better, lowered your cost of electricity and then gave you security against a power outage with the power pack and allowed you to go potentially completely off grid, then it's kind of a no brainer, like why wouldn't you do that?
Operator
Thank you. Our next question comes from Stacy Cha of Albert Freed. Your line is now open.
Analyst
Hi, good morning. Congratulations on the offer. A couple questions I think that people are kind of trying to digest. I think strategically elon that you've made your point clear, but I think the valuation is what the market is having issues with. You know, there are some questions about SolarCity's balance sheet and you mentioned about the debt. So how do you put that into context with the exchange ratio that you've offered, kind of not jeopardizing kind of the future of Tesla while you make this offer?
Elon Musk
Well, I think Tesla's getting a pretty good current share price. I mean, Tesla doesn't decide what a company's share price of like market should be, the public market does. So we're just obviously keying off of what the public market price is, which is decided by people other than ourselves. And then there's I think quite a reasonable, neither high nor low acquisition premium that is being put forward subject to further diligence.
Elon Musk
I think it's, I think every element of it is very reasonable, like something that's out of whack about the proposal. It's sort of extremely normal to have an acquisition premium of that size. Certainly quite a bit lower than for example, say LinkedIn. LinkedIn I think had a 50% premium. Here we're talking about a sort of low 20s to maybe 30% premium. So it's more or less in line with the average acquisition premium for any given public market company. Like I said, extremely normal. And then just overall these, I think when people, when we're down the road, not even far down the road next year, particularly as you go further into the future, these numbers are going to seem like very small Very small numbers. I think as a combined automotive and power storage and power generation company, I mean the potential is there for Tesla to be a trillion dollar company, a market cap company. If we play a major role in transitioning the world to a new form of energy generation and storage and transport, that's what kind of happens. So that's one isn't going to be worried about whether it's a few hundred million dollars one way or the other here down the road, it's not really going to make a difference.
Analyst
Okay, I appreciate your candor about the trillion dollar market cap. I think that leads to the future value of SolarCity. But I guess the near term, because you're not voting your shares both on Tesla and SolarCity from, from my understanding of the how do you expect the near term kind of shareholders or near term focus shareholders to kind of vote this in, vote in favor of this? I'm assuming it's a simple majority. And so it's kind of a chicken and egg thing where your future, your expectation of the future is probably correct strategically. But near term people are having more time to digest this, not enough time to digest this and kind of looking more near term. And that's what the concern is, is getting to the finish line. So how do you see this getting to the finish line where you see shareholders on the SolarCity side being receptive to the exchange ratio, you reach a merger agreement and then further along Tesla shareholders being receptive to voting in favor of this because ultimately it's these two or three ducks, valuation of the exchange ratio and then understanding the future opportunity that will get this to the finish line on the shareholder side.
Elon Musk
Shareholder vote. Yeah, I mean the exchange ratio, obviously there's some bounds on the exchange rate here that if we exceed the bounds of reasonableness for any party, obviously it wouldn't happen. So the market cap of Seoul cities decided by the market, that's what it is, what investors think it is. And then the, the premium you don't get to acquire companies for zero premium, that's just not how it works. And so some reasonable premium is appropriate in a situation like this, as it always is. And we're kind of right where premiums normally are and actually lower than some recent prominent premiums paid like the LinkedIn one, which I believe was on the order of 50%. So I think that it's a reasonable market cap with a reasonable premium and maybe equivalent around the edges a little bit. But I don't think anything's like out of whack there. And at the End this will definitely be up to the, you know, you guys who own shares. Like I said, I'll recuse myself from the shareholder vote. It has to be a majority of non me shareholders. But like I said, I'm doing this because I think it makes things better in the future, not worse for everyone. And so I'd really recommend voting in favor of this because I think anyone who doesn't vote in favor of this is going to be voting against their best interests. But we will certainly abide by the shareholder vote. So if there's a great deal of unhappiness, we want to move forward. But I just really want to emphasize that I have zero doubt about this. Zero. Arguably we should have done it sooner, but I think doing it now is it gives us enough time to create a compelling integrated product, assuming it doesn't take forever to close. Give us time to create a, a very compelling integrated product and bring that to significant scale next year.
Analyst
Okay, so when you say you have no doubt, so you believe the special committee independent board, when they do their due diligence, you know, and reverse due diligence on both companies that they'll reach, you'll be able to reach your agreement. That seems very likely.
Elon Musk
Support level. Yeah, I mean, like the board opinion is unanimous in both companies. So I mean, unless there's something discovered that I have no idea about or, you know, just. Or that nobody on the board has any idea about, which is extremely unlikely,
Elon Musk
that the board would, or the impounded board members would recommend in favor of completing a transaction somewhere in the price range range that was mentioned, most likely. And then it would be up to the shareholder vote to say, excluding me to say yes or no. And yeah, so I think that's about as fair as one can make it.
Analyst
Thank you very much. Congratulations again.
Elon Musk
Thanks. Yeah, I mean, if anybody here thinks like, hey, there's some better way to do this, like morally better way to do this or better way to do this from an execution standpoint, like, let me know. And we've tried to do this in the way that's, in a way that's as fair as possible and really going beyond what's legally required and to make it as, you know, not just legally correct, but morally correct.
Operator
Thank you. And our next question comes from the line of Colin Rusch of Oppenheimer and Company. Your line is now open.
Elon Musk
At what point are we going to
Analyst
get financial details here? Clearly there's been an awful lot of cross pollination with the boards, former CFO of SolarCity is on the board of Tesla. JB is on the board of SolarCity. There's been a lot of sharing. To have a price year without some sort of scope of return on capital I think would be incredibly important for us. And so when are we going to get that information? And without you're begging off the detailing on synergies, but I think getting specific about return on capital for Tesla shareholders will be essential to getting this done. When are we going to get that information?
Elon Musk
Yeah, I agree, I agree. As Todd was saying, we kind of have to do this in a bit of an unwieldy way because I'm largest shareholder of both companies. If that wasn't the case, we could do a lot of this and kind of present you with like the full and final details of the proposed merger and what you know. But before we, since I'm larger both companies, we have to tell you at the beginning of the process, not the end. So we will certainly have all that done for you. But the reason it's not just all in a neat package is because this is sort of an odd case where we have to tell you at the start of the process before we have all the answers, rather than at the end of the process, but definitely get all that information. I'm confident it will be extremely compelling.
Analyst
Okay, and then the second question is around Salivo. So there's actually a lot going on in terms of manufacturing for solar at this point with Asian manufacturers reducing cost well in excess of what expectations have been been. And certainly there's folks that are getting around the import duties. You know, even with the potential savings on installation costs with the extra efficiency at Salivo, you know, it looks like, you know, there isn't going to be that much of a cost advantage. Just from a raw cost perspective, when you look at a price point for solar panels coming into the US that SolarCity would buy, you know, can you talk a little bit about, you know, you're begging off some of the product details here, but you know, what, what you're expecting Tesla to be able to bring to that engineering process to improve that cost trajectory. Because by the time you get that Salivo factory up and running, there's going to be, I think at least a 15 cent cost disadvantage for their target cost at this point. And I think there's something that needs to get done there to make that a compelling offering.
Elon Musk
Sure. So Tesla, we're putting a lot of effort into becoming the world's best manufacturer. And I really mean that. That's like I'm highly confident we will be the world's best manufacturer. Just as we, I said we would build the world's best car. We did that at SpaceX. I said we built the world's best rocket. We did that. We're going to be the world's best manufacturer, not by a small margin, but by a margin that people don't even think is possible. I believe in taking first principles physics based approach to analysis. And my analysis of the situation is that dramatic improvements are possible on the automotive side and on the photovoltaic side. An important advantage of the Slievo technology is that it has significantly higher efficiency than the very low cost Chinese panels. So on the same surface area roof, you can get as much as a third more power.
Elon Musk
then aesthetically speaking, the siva panels look better. They look a lot better. And if it's done right, we can make your roof look better with solar panels than without. This is a night and day difference. If you've got a, let's say somebody's got a $400,000 house, if you make the roof look ugly, then arguably you've made that house worth 5% less or some non 0% less valuable. On the other hand, if you make the roof look beautiful, you've made the house more valuable. And maybe that's plus 5% or some non zero plus percent in the value of the house. If it is something on the order of 5%, then the value delta there is called $40,000 or maybe it's only like 2 or 3% and it's 20,000. It's like there's. Quite a big value delta. So being able to have higher power, that looks great. And I think at costs that are at least as good, if not better than what's coming from anywhere else in the world, that's obviously a winning outcome. And that's the outcome that we will pursue and I think we'll get there.
Analyst
Okay, I'll follow up on that. I think my question was more around the process technology at Salivo than the ultimate
Elon Musk
fundamentals of the.
Analyst
Yeah, the fundamentals of the process technology, you know, and where you're going to get the cost out. I think there are a variety of detailed questions I can come back with you with, but my follow up question on that is just, you know, fundamentally solarcity is a specialty construction and specialty finance entity at its heart. And so as you look at Tesla being evaluated, manufacturer of a variety of products, and a technology company moving into what we see as a fundamentally different business. Where are you seeing the Synergies come back to Tesla other than the sales side, Is there something to do on that specialty finance expertise that you would be bringing in house and the actual boots on the ground? The footprint of SolarCity is incredibly important to actually closing sales and delivering things versus the footprint of Tesla's customer base, which is very different than the concentrated footprint at SolarCity. How are you seeing the value come back to Tesla other than just in the cost of customer acquisition?
Elon Musk
Yeah, I mean, I think the biggest asset that we'd be acquiring is the installers, the installation team of SolarCity and all the people trained in doing the permitting and the paperwork and all the complexities that exist in municipalities throughout the country and understanding how to deal with 37 different roof types and having efficient logistics infrastructure for doing the installations. And then I think there's some strengths in the cell city sales side that we can take advantage of and. Yeah, so, but I really don't. I do want to emphasize, like, I think the SLEVO technology is going to make quite a big difference. And I don't see any fundamental cost issues that prevent it from being at or lower cost per watt than any other panel in the world. Okay, thanks. I spent time in the, in the SolarCity Slivo pilot plant in the Bay Area and so I'm not familiar with this and my observation is there are dramatic improvements. If it's not some physical thing that's preventing it from being super competitive, it's actually a relatively straightforward manufacturing process. Okay, thanks a lot.
Jeff Evanson (IR)
All right, Elon and Todd, it's Jeff. I've had a number of people emailing in questions about process here, possible timeline. Todd or Elon, if you want to speak to. Kind of a recap of who needs to vote, who's recused and how and when. Diligence disclosure, the shareholder votes might happen. That might be helpful.
Tesla Advisor
Sure, I can take that if you want. So, on the Tesla side, the board has approved going forward with the offer, which is why we made the announcement
Todd Maron (General Counsel)
that an offer was made.
Tesla Advisor
Elon and Antonio, being directors on both boards, recused themselves from, from the vote on that. We're now in a stage where we've delivered the offer to SolarCity. SolarCity will set up their board process on their end and decide how to do this so that it's done, as Elon said, not only legally but morally correctly, I'm sure. And then we'll move into a diligence phase very quickly. Hopefully diligence can take place promptly so in the next two, three weeks and we can get to a place where everything makes sense, that there's a signed merger agreement. And at that point everyone would receive the merger agreement as well as the typical disclosures that would be provided at that time, combined financials, proxy statements and everything. And we'd move to a shareholder vote. We're now getting a little bit further
Elon Musk
out, so it's harder to predict with
Tesla Advisor
certainty, but the hope would be that there would be a shareholder vote on each side in the next few months.
Operator
Thank you. And our next question comes from the line of Joseph Spock of RBC Capital Markets. Your line is now open.
Analyst
Thanks. So I guess I just wanted to get your sense on how much of a play you think the SolarCity bet is on lower storage costs, meaning we've seen some proposed changes to net metering laws. And, and if that sort of continues or there's more of that, does how long does the business model work? Do you need to see the falling storage cost for it to work? And is your confidence in that the reason to go forward with the deal?
Elon Musk
Yeah, the storage costs are going to drop really dramatically with each passing year. And I think the. Exclusion of certain situations, like Nevada, maybe Arizona, which we're working to mitigate, it'll be ahead of the net metering situation. In New York, a reasonable deal has been arranged. And basically this gets ahead of the net metering situation, call it roughly the two to three year time frame. It's definitely important for long term. And although some utilities will exaggerate the impact of solar on the grid, ultimately the impact of solar on the grid beyond a certain localized percentage does have an impact and you do need to buffer the power. So they have a value argument. It's just exaggerated. So it's obviously very important for the long term and yeah, it's going to work together. Well, I mean, this is what the world needs. This is the ultimate solution for Earth. What we're talking about here, solar power, stationary storage, electric cars, this is Earth's solution and we're going to try to make that happen as fast as possible. And the fundamental good of Solar City and Tesla will be measured by the degree to which we accelerate that transition. So we're going to try to make it happen as fast as possible. And I think we'll have a meaningful impact on that time frame and then
Analyst
maybe just two real quick ones if the deal is consummated. Have you given any thought or plan to provide segmented balance sheet or cash flow just to provide a little bit more transparency on each line? And then on a Technical point, you will do that? Yeah.
Elon Musk
I mean, I do think it's valuable to have transparency. So. We will want to show that transparency as much as we can. For some cases it's going to be like, where exactly should the cost be allocated? But I do think it would be great if it's like a black box that people can't figure out and then have to like somehow parse out what pieces are what. So we don't want to have an information discount to the stock because people are uncertain. So I think that's having clearer information gives people a better understanding of the value of the company. Various pieces. It will inevitably lead some people to reach conclusions they maybe shouldn't reach or they're premature. But I do believe in transparency.
Analyst
And then from a technical standpoint, you talked about some greater seamlessness between entities. Would you also consider allowing vehicle to grid support?
Elon Musk
I think we've debated this since the early days of the roadster. I mean, very early proto roadsters that we had would do vehicle to grid. But you do get a lot of complications with that. If you backflow power through car into the wall, when is the car allowed to do that? When is it not? I mean, how much do you allow the car battery to be drawn down? And then people, I think were pretty upset if the lights are on in the house, but they can't drive their car because otherwise all the power in the house shuts down. So I think the right solution is to decouple it into vehicle, stationary battery and solar. And then some need to supplement that power at the grid level by having utility scale solar battery installations. Because you don't always have enough surface area on a house or certainly for an apartment building, you don't have enough surface area. So you got to kind of ground mount the utility scale solar battery system and feed that to the grid. But if anyone that's seen my powerwall presentation, it's remarkable how little land you need to power the entire United States. It's crazy. Like a little corner of Texas or Utah, that's all the United States power. And then there's like one pixel inside that box that I showed, which is the box of how much land area you need to power the United States. That was like a little box, like I said, fits into the little Texas panhandle or corner Utah. And inside that box is one pixel. That's the size, that's the surface area the battery packs needed to support the entire United States, one pixel. So anyway, we're going to try to build that as fast as we can the US but throughout the world.
Jeff Evanson (IR)
And that video, by the way, is available on our website of Elon's presentation on Tesla energy products. Elon, we are at the half hour mark here. We have nine more questioners in queue, so I'll defer to you as to
Elon Musk
determine how far along you want to go. Let's definitely, yeah, try to answer everyone's questions and like I said, I really would encourage people to think about the long term. Where is this all headed? And I think if you think about like the long term, there's really no question about the convergence of Tesla and SolarCity. It's really just a question of what timing is appropriate for that convergence. And the, you know, it's basically SolarCity's product roadmap and Tesla's product roadmap, which obviously, you know, very significant paramount product information which I wish I could tell you about.
Elon Musk
The timing is, if anything we're, you know, maybe we should have done this sooner, but I certainly don't think we're doing it too early. And then what, what's the long term picture? Long term picture is a world with sustainable power generation, with stationary storage to buffer that power and then electric cars. And Tesla is going to be the leader in all three. So if you believe that that's the future we're headed towards, which everything points to that being true. And really, like gasoline cars, we have to look back on gasoline cars like we look back on steam engines. It was like a phase, it was a bit weird. And we're going to look back on fossil fuel power generation the same way. It was a weird phase. Now we want to get out of that weird phase as soon as we can. And this is all about accelerating us getting out of this idiosyncratic moment in history when we were digging up sort of Cambrian level fossils and burning them, I think you'd be telling your grandchildren, like, yeah, you won't believe in what we used to do. It's like we used to dig up the liquidized remains of, of dinosaurs and old plants and put them in cars and burn them to move and did the same thing with the power plants. And like that sounds crazy. That's what it's going to be in the future, obviously. So we're trying to have the non weird future get here as fast as possible.
Jeff Evanson (IR)
All right, Terrea, let's go to the next question please.
Operator
Certainly our next question comes from Tyler Frank of Robert Baird. Your line is now open.
Analyst
Hey guys, it's actually Ben Kala from Baird Elon, I was just wondering, I understand working together and being cumbersome by separate entities, but could you just talk us through what the difference is of actually owning SolarCity versus maybe doing some kind of JV or some other kind of entity like that to help you guys work through some of the issues?
Elon Musk
Yeah, I mean, the problem is that I think we just, we hit the, you know, it's like we don't have a good basis for doing some special deal with SolarCity because there's effectively a conflict of interest. Like, ironically, conflict of interest goes away for one company, but it doesn't go away for two separate companies. So, like, there's not really a good rationale for just offering a special deal and only working with one company that I also happen to own. You know, just, it's. I don't think we have a good moral legal basis for behaving in a special way to SolarCity unless we're. It's actually one company.
Analyst
Got it. And then one more, if I can, could you just rank some of the things that you talked about in the order you look at it as far as revenue synergies from cross selling, the technical synergies of being able to work with on both the manufacturer, the panel side as well as the battery side, and then maybe the third one bucket being cost synergies. And then if I forgot any out there, maybe list those as well in kind of the order that you're thinking of them. Thanks.
Elon Musk
Yeah, I mean, I think we'll have a more definitive answer for you once this process wraps up. So, I mean, I regard what I'm saying here as anecdotal, but it's kind of the way I think about it from a gut standpoint is first and foremost, do we offer what allows us to offer the most compelling product to consumers and businesses. And a seamlessly integrated product that all just works together that's better. Like, you don't want to have to have a heterogeneous systems integration problem. That's basically where the interfaces break down and then people are sort of pointing fingers like, this didn't work, no yours thing didn't work. If it's just one integrated system, there's no finger pointing. You can iron out all the bugs and it just works. And you're not wondering, should I blame the solar company or the battery company or the. Who knows? It's just like sort of a pain in the butt to try to figure that out if you're the end customer. And I think we can guide the integrated product to be the right to just be right to be better. So that's kind of from that standpoint more than anything else. And then in addition, there's just obvious cost savings to be had. If in the same store we can sell twice as much dollar volume, like, well, it's the same store not selling twice as much stuff. And if with the installation crew, if they're now able to knock out three things in a single visit rather than schedule two or three separate visits, that's also way better. You know, one can argue this sort of how much better is it? It's definitely some percentage better. That's material, which is kind of, I mean, that's kind of like the threshold for making a decision. It's obviously going to be a lot better. Like if you just cut the visits down to, you know, from two or three to one. Okay, you've probably cut your transport, labor and logistics cost maybe in half, something like that. And if you have a seamlessly integrated product, you can have less servicing costs and things are going to break down less. It's just the thing you'd want to buy. If you're the end customer, why would you want to buy anything else?
Operator
Thank you. And our next question comes from Brian Brinkman of JP Morgan. Your line is not open.
Elon Musk
This is Samik here on behalf of Ryan. Just a quick one from us. Have you had conversations about this offer already with the largest disinterested shareholders of Tesla? And what's your sense in terms of, do they see the same value in combining the two businesses as you do? And what's your sense about how they'll vote on this? Well, everybody, we wanted to make sure everyone heard about it at the same time. So we've not discussed it with anyone because we wanted investors small and large to hear about it at the same time. Now, Seva, apart from that, over the years, has this idea been bandied about with some of our largest shareholders, institutional shareholders? Yeah, I mean, there have been discussions and I think, I think some of them see it as like a natural thing to do and. But I mean, it's interesting to sort of look at the feedback that I've received since we made the announcement yesterday. Anyone who's product focused sent me sort of a congratulatory note and like, why didn't you do it sooner? Sort of message. And then people that are sort of more finance focused, they were like a lot more worried about it in the long run. The value of a company is defined by the value of its products and services. That's real Important to bear in mind that's why companies exist. They shouldn't exist otherwise.
Elon Musk
the value of the company will follow the value of the product. A company that starts making lousy products is pretty soon going to have a lousy valuation. A company that makes great products pretty soon going to have a great valuation because that's how the system is set up and it's how it should be set up. Great, thank you. Thanks.
Operator
Thank you. And our next question comes from Patrick Archambault of Goldman Sachs. Your line is now open.
Analyst
Great. Yeah, thanks a lot for taking my question. So look, I think a lot has been laid out about the strategic vision for this longer term, but I wanted to piggyback on one of the earlier questions and just get a sense of the possible financial sense it makes kind
Elon Musk
of in the shorter term.
Analyst
And correct me if I'm wrong, I don't cover SolarCity, but my understanding is
Elon Musk
the storage plus
Analyst
solar piece of that business is actually quite small. You've had places like the Rocky Mountain Institute put out fairly detailed studies on combining solar plus storage that suggests the levelized cost of energy won't be lower than the current available price for maybe
Jeff Evanson (IR)
call it five to 10 years.
Analyst
But you guys sound very confident that
Elon Musk
this makes sense sooner.
Analyst
So I just wanted to get your view on that.
Elon Musk
Yeah, I think the important thing is to bear in mind it's a big world out there and there are places where the cost of energy is much higher than other places. Like for example in Hawaii, energy costs are very high because they have to ship in all of the fuel for their power plants. So it's very expensive. And the economics of solar plus battery make overwhelming sense for places like Hawaii and a lot of actually island nations out there. And really any place that's got expensive energy costs or even moderately expensive energy costs, and it's going to make sense for many parts of Europe, many parts of the United States and yeah, so. And then over time it's going to make sense for everywhere. Everywhere is going to be. I mean, there'll be some wind, of course, some geothermal hydro, and there'll be some long tail of before the final coal plant finally stops operating, the final natural gas plant stops operating. I mean those might last, there'll be some long tailgate, it's going to look like an S curve as is typical for new technology adoption. So it's like in the beginning of the S curve people tend to under predict what's going to happen and then it goes through an exponential growth phase. Then an approximately Linear growth phase. Usually people over predict what's going to happen in the steep linear portion of the growth phase. And then it goes back into a logarithmic sort to complete the S shape. That's what happened with the Internet, for example, cell phones. Same thing will happen here
Analyst
and I guess within the United States. Do you think five years is a reasonable time frame for the economics to start to.
Elon Musk
Oh yeah, absolutely.
Elon Musk
I mean it just needs to be on a scale that allows our factory to operate at maximum capacity. So we think the factory is going to be operating at maximum capacity as far into the future as we can see. Like it's, this is all about production. My meetings yesterday were all about guys, we need to figure out how to ramp up our production of cells, batteries, obviously cars faster. And addressing every limiting factor that we can. You know, I know I mentioned like this whole thing about manufacturing a machine that builds a machine. It's like, let me tell you, like order of magnitude improvements are what I think can be achieved. Won't get there right away, but by version 3 of the machine that builds the machine order of magnitude. That's the sort of, you know, compared to car manufacturing. You look at that and you're like, it'll seem like an alien dreadnought. You'll be like, what the hell is that? And it's just like it blows my mind that people don't realize just how much improvement potential is. And I mean this is thick. We're doing a high school level physics necessary to figure this out. It's not mega complicated. Just go to a factory and say do a volumetric density calculation. Say what percentage of volume inside this building is doing useful stuff versus either air or not doing useful stuff? You'll be shocked at how tiny that percentage is. Like low single digits. Then what is the velocity, what is the exit velocity of the product? How fast are things moving out the exit? You know, what's the sort of mass flow or the M dot of the factory? It's like whoa, it's really low. Like the fastest car finance in the world. The car exit velocity is basically grandma with a walker. That's real slow. 0.2 meters per second. That's really, really slow. So it could do way better than that. Like the fastest person can run 10 meters per second faster than 10 meters per second. So why, why is car exit velocity only 0.2 meters per second? That's ridiculous. And then why is the volumetric efficiency of a car factory? Usually it's in the mid to low Single digits. I mean, that's very low. Why shouldn't it be? At least volumetric density of 30 or 40%, maybe 30% seems very, very achievable. Nobody would design a chip that had volumetric efficiency of 2% would look ridiculous. And yet they designed factories that way.
Analyst
Are these efficiencies that you are looking to put in place for your next Tesla plant, or are these things we
Elon Musk
can see in Fremont? At some stage in the near future, you'll see things moving in that direction. I mean, with level three, I think we're, you know, we're aspiring to get to version 0.5 of Alien Dreadnought level of where alien driven level is like version three. So you'll certainly see that direction. Where it's most obvious is in the cell production. So, I mean, our engineering team has worked very closely with Panasonic to make dramatic improvements to the cell manufacturing efficiency. We think we're probably approaching 3x, the efficiency of the best plant in the world. So that's pretty good. A lot of room for improvement. Cells are going through that thing like bullets from a machine gun. In fact, the exit rate of cells will be faster than bullets from a machine gun.
Analyst
Well, we look forward to the next time you take us around.
Elon Musk
Yeah. Come to the Gigafactory party. It's an eye opener.
Operator
Thank you. Our next question comes from Colin Langland of ubs. Your line is now open.
Analyst
Oh, great. Thanks for taking my question. A lot of analysts that cover SolarCity are highlighting major liquidity concerns of the company. You sounded pretty confident that that was going to turn cash flow positive. What do you think they're seeing differently? And are you concerned at all that the cash burn may increase after the deal?
Elon Musk
Well, I think once the deal is done, the cash burn is likely to reduce because of reduced cost of sales and general operational efficiencies. There's a lot of things that's duplicated that are duplicated.
Elon Musk
we expect costs to decrease and to increase the positive cash flow from the Soul City acquisition. Yeah, I mean, might take like a few months for those to come into effect, but pretty short order, let's say six months after the acquisition is complete, I would expect those efficiencies to become. To be there and be significant,
Analyst
kind of. Actually, my second question. So in terms of the time horizon, in terms of delivering on goals and promises, particularly around this acquisition, you actually think the synergies would be achieved within six months of post closing? It would be that quick?
Elon Musk
Yeah, I think from the point at which it is Once the deal is done, yes. It should be meaningful and noticeable by the second full quarter after the acquisition is completed. I'm highly confident that that would be the case. Yeah.
Analyst
Okay. Well, thank you for taking my question.
Operator
Thank you. Our next question comes from Patrick Dobin of Credit Please. Your line is now open.
Analyst
Thanks for taking the questions here. I guess a question for Elon or Todd. Why not pursue a less capital intensive model, at least in the near term, and proceed with more of a marketing or sales relationship between the entities? I guess for the cross sell opportunity and installation efficiencies of the integrated systems, it seems like. I think you used the term special deals, but those seem to be the norm between entities. If they're beneficial for both, I guess. Are there any legal impediments to having approached some of these synergies in that fashion?
Elon Musk
I think we would certainly face them if we did that. I think. Yeah. I mean, I just don't think. I think morally and legally we find it very difficult to defend a unique relationship that just favored SolarCity. If we're separate companies, if we're one company, then obviously that's fine. But separate companies, we can't do that.
Analyst
Okay, my second question. Everyone's focused on capital and cash flow here, I guess. Elon, from your perspective, would Tesla be receptive or would there be any plans to provide capital to SolarCity in the interim during the kind of pending acquisition? Obviously I'm thinking about it more from the SolarCity side, but given what saw with Vivint and SunEdison, the pending acquisition disrupted some access to the capital markets in the interim. I'm just trying to understand SolarCity's near term path and what you'd be willing to do from a Tesla standpoint. Thank you. Yeah.
Elon Musk
Since SolarCity is constrained in the short term from just going out and raising equity itself, Tesla would provide branch loan if needed. I actually don't think it's going to be needed to be clear, because, I mean that's something, that's something appropriate to do. So we will be there if needed, but I don't think we'll be needed. Okay, thank you.
Jeff Evanson (IR)
We have three other callers with questions, so let's try to wrap them up quick. So if everybody can be brief, that would be great. We're coming up on 90 Minutes here.
Operator
Thank you. Our next question comes from Dana hall of Bloomberg News. Your line is now open.
Analyst
Yes, good morning.
Elon Musk
Could you talk a little bit about
Analyst
how you envision this impacting Tesla's retail footprint going forward? And, and if The Tesla stores are now selling solar panels and power walls. Is this sort of an effective Enron around your dealership metals?
Elon Musk
That's an interesting question. Yeah, we're not limited in stores in terms of selling solar and station storage. We could do that and then potentially offer, just have the car there in a gallery format, something like that. So it does open up additional options on the retail front. Actually, now that you mentioned it,
Analyst
I'm just wondering whether a car dealer association can say that it's a dealership, if it's selling more than cars, if it's also selling solar panels and power walls, and if it's going to change the look of the stores significantly enough that helps you guys out with that.
Elon Musk
Yeah, I think we'll still be prevented from actually including a car transaction even if it's part of a broader store. But usually there's not a limit on having galleries where you simply display the car and have information about it. And we could still conclude transactions for solar and batteries. Yeah, so I mean, something like that. It does open up additional possibilities. Now that you mentioned it.
Operator
Thank you. Our next question comes from Station Shaw of Albert Freed. Your line is now open.
Analyst
Hi, I just have a follow up. So you mentioned the positives of rolling up SolarCity and you know, I think somebody earlier mentioned in so many words that, you know, the analysts have been saying that this is a bailout of SolarCity. So you know, can you just mention if shareholders don't vote for this, what happens? You mentioned that SolarCity in the next three to six months should be net cash generator. So it's not as bleak as some of these analysts have been saying. SolarCity would be in a position if they don't vote for the potential transaction with Tesla. And then secondly, what does this, you know, what does this deal mean for your gigafactory? Does it have any change? Timeline has changed because you're going to have more of a capacity or not. Thank you. Sure.
Elon Musk
I don't know where this bailout stuff comes from because I mean, Tesla's not the one deciding what the market value of Sol City is. It's, you know, the stock market is. So Seoul City could certainly raise capital equity on its current valuation without any problem. So. And Solid City is headed to like a very, very healthy place from a cash flow standpoint in short order. So, you know, next three to five months getting to cash flow positive. So if a company's around the corner from being cash flow positive and has the ability to raise equity capital on its own, I don't see how an acquisition is in any way bailout. That's obviously a false description. And then the gigafactory kind of proceeds independently of SolarCity. Except that obviously we would gear the product, the storage product would be geared towards a SolarCity type system. And this wouldn't be something that would be explicitly exclusionary to other solar companies, by the way. It would just be that other solar companies would have to match the SolarCity product in order to use our battery product most effectively. So it's not about sort of trying to shut up other solar companies. It's just about being able to guide the product to where it needs to go and then, you know, we'll do the right thing with other solar companies if they're also guiding their products to match. So we're not going to basically be a jerk to other solar companies. This is really about being laser focused on having the most compelling consumer solution. Yeah, that's I think the right thing to do.
Analyst
Okay, thank you very much. Congratulations, Gan.
Operator
Thank you. And our next question comes from Hank Elder of Goldman Sachs. The line is now open.
Analyst
Hey guys, this is actually Brian Lee on for Hank. I have just three housekeeping questions more along the deal itself and, and in the interest of time, I'll just run through these quickly. First is, given SolarCity's relationships with various lenders and tax equity fund structures, I was hoping you could talk to any visibility into potential change in control provisions and or exposure to clawback provisions on solar tax credits that might exist. Second question would be as part of the due diligence, will the board consider other alternatives to SolarCity? And that, and then third one, and I'll pass it on, is are there any collars or caps on the stock exchange ratio being proposed? And if not, what's the rationale for that?
Elon Musk
As to the beginning, really this is kind of the beginning of the analysis, not the end. And normally it would be a lot closer to the end because large shelter in both companies, it's, you know, it's something we have to talk about at the beginning where we don't have all the answers, but then we will compile those and present those to shareholders for their decision in the months to come. So obviously part of that diligence process would be talking to the lenders, making sure they're comfortable. I think it's a good idea. Pretty sure they will, but we got to talk to them and yeah, and then in terms of other companies, we did consider that and it's part of the initial diligence process. But we think SolarCity is the best company out there. And it's good, but it's sort of a leader in the field. It has this labo technology. The product direction, we believe, is correct in terms of making rapid progress towards a highly differentiated product. There's no other company out there that's like that at all.
Operator
Thank you. And our next question comes from Trip Chari of Global Equities Research. Your line is now open.
Analyst
Thank you. I have a quick question for Ilan. I was just wondering, like, how does
Elon Musk
this acquisition plays out with the opportunities that Tesla may find in micro grids and grid space? Yeah, I mean, we want to have. I think it's always good to like, productize things. So it's kind of like you can click here and buy your micro grid. Versus having a tailored situation all over the place. If you can productize can just happen real fast. And so I think like productizing microgrid, just click here and you get a microgrid. It just works. That's. I think that's a good way to go. You know, I think consumers obviously appreciate things that are easy, simple, fast. But actually corporate customers, utilities, they appreciate that too, because they don't have to go through this big, laborious process. And it's a pain in the butt for them. It blows their mind when they can just sort of click a button and then we installed their thing and it works. Just because the product's big doesn't mean that the whole process needs to be complex. Bigness and complexity are not the same thing. So I think some of our utility customers have been quite pleasantly surprised by just how easy it is to implement, and it's going to get a lot easier in the future.
Jeff Evanson (IR)
All right, I think that's the end of the questions. Thank you, Todd, Elon and the rest of the team. Thank you, Terea, and thank you, investors, for all the interest. If you have any closing remarks. Elon, otherwise we can end it there.
Elon Musk
No, I think those are a lot of great questions. And then obviously we'll have a lot more information as the diligence process concludes, hopefully reasonably near future. But I think it's easy to get sort of mired in the details. But if I think the right thing is to sort of look up into the future and say, where is this headed? What are the macro trends? Does this action match where the tides of history are going? And that's really what's going to make the difference in the long term. So I just encourage people to think in that way.
Jeff Evanson (IR)
All right, thank you.
Elon Musk
Everybody, have a great day.
Operator
Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone, have a great day.