NEW YORK (TheStreet) -- The Tesla (TSLA) - Get Report acquisition of SolarCity (SCTY) announced on Monday has an equity value of around $2.6 billion, but when considering the costs of SolarCity's balance sheet, the deal has a total cost of about $5.2 billion.
Oppenheimer Senior Research Analyst Colin Rusch believes the acquisition hurts Tesla and does not make sense for its financials.
"We don't like this deal in terms of return on capital for Tesla shareholders. We think Solar City was running into a challenge from financing standpoint and they obviously have an issue with their sales program seeing what they did with guidance today and for us we are not a fan of this deal," Rusch said on CNBC's "Closing Bell."
SolarCity's underlying issues lie in its operational inefficiency and the lack of opportunities for return on capital. Rusch noted that Oppenheimer is bullish on solar but he is "not convinced this is the best use of cash for Tesla."
"When you look at the utility industry, we are not seeing the growth that Elon talked about. Low single digit growth for electricity sales and regulated return on capital," Rusch stated. "I think they should be separate companies. Tesla's bringing more to the table, especially on the technology side."
Consumer Edge Senior Automotive analyst James Albertine also commented that he agrees with Rusch's evaluation, saying Tesla has "a tremendous amount to overcome with respect to the Model 3 launch."
"From our perspective, if the automotive business works and the Model 3 works, it's going to render this complete discussion perhaps moot," Rusch added.
Shares of Tesla closed down by 2.04% to $230.01.
Separately, TheStreet Ratings team rates Tesla as a "sell" with a ratings score of D+.
This is driven by multiple weaknesses, which TheStreet Ratings believes should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks TheStreet Ratings covers. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: TSLA