The $2.1 billion merger of SolarCity (SCTY) and Tesla Motors (TSLA) - Get Report , while simplifying and advancing the strategic vision of Elon Musk, faces a level of risk not seriously contemplated when the deal was announced in August.
At the time, the election prospects of Donald Trump looked marginal at best, with pundits and mainstream media largely in accord that Hillary Clinton would waltz into the White House. A Clinton win would surely have ratified U.S. energy and environmental policy under President Barack Obama, including measures designed to stifle fossil fuels while providing taxpayer incentives for renewable energy.
One persistent criticism of the merger was its appearance as a financial bailout of SolarCity by the stronger Tesla. Musk denied this, explaining that he wanted to create a one-stop shop for renewable energy, a place where consumers could buy equipment that converted solar to electricity, stored electricity in batteries for a variety of uses, including to power Tesla electrical vehicles.
The success of the merged entity will hinge on profitable sales growth of Tesla vehicles and of solar panels. Both may face difficulties during the Trump administration, given the president-elect's skeptical statements regarding global warming. He is on record as claiming that global warming is a "hoax" perpetrated by the Chinese, a charge the People's Republic has rebutted.
One of the president-elect's first actions has been to appoint noted Washington D.C.-based climate change skeptic Myron Ebell to oversee the transition of the U.S. Environmental Protection Agency. What Ebell plans to do and whom he plans to recommend to run the agency aren't yet clear - though it's fair to assume the new agency will pursue a sharp break with "green" policies and thinking.
Will the new administration favor payment of $7,500 tax credits for purchase of battery-powered vehicles? If not, Tesla's vehicles would be effectively $7,500 more costly than they are now - or the automaker might be forced to lower prices, which would cut into potential profits. Solar energy has benefitted from various taxpayer-sponsored subsidies - SolarCity sales might suffer along with Tesla.
Will investors continue to buy the shares of a money-losing entity, as Tesla has been for its entire history.
Then again, the new administration might decide to move slowly and cautiously to dismantle the "green energy" initiatives of the past eight years. Who knows how much Trump's populist bluster accounts for his environment stance, as opposed to thoughtful ideological rationale?
What's sure is that the sales of battery-powered electric vehicles (EVs) have grown at a pace far slower than the conservative predictions of most auto executives. Low gasoline prices might be the culprit, making energy-saving vehicles uneconomic in the eyes of many consumers.
Whether because of the new president or the continued difficulty of selling EVs, the newly-merged company must be regarded as an investment only for the stout of heart.
Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.