Shares of Tesla Motors (TSLA) were falling pre-market Wednesday, Nov. 2 after the company gave investors little clarity as to how its deal with SolarCity (SCTY) , would pan out in a call with investors and analysts Tuesday evening.
Shares of Tesla fell $6.94 per share, or about $3.5%, in pre-market trading Wednesday to $190.79. SolarCity shares fell by 2.7%, or 53 cents, to $19.07.
TheSixteen days ahead of a shareholder vote on the acquisition of residential solar panel installer SolarCity, Tesla held a Q&A to discuss the deal. But, much to the chagrin of some investors, the call left many with more questions than answers.
Tesla's Elon Musk in effect urged shareholders to vote for the deal, claiming that a partnership between the two companies (the option if a merger does not get approved) will not result in the same ability to deliver products to consumers, commercial customers and utilities.
Musk said any partnership between the two would force the companies to do deals at an "arms-length" approach, creating less of a benefit to customers.
Part of the way it seemingly intends to make this happen is to transition SolarCity's transactions from primarily zero-down leasing agreements to loans and cash purchases.
As for how Tesla plans to sink its teeth into SolarCity, the company had only this to say: "With Tesla executing well on its existing goals, it can successfully integrate SolarCity and realize the financial benefits that come from the acquisition."
The call comes days after Tesla released its solar roof vision, which failed to wow the market, and was prefaced by a release entitled "Tesla and Solar City" in which the company attempted to outline the strategic rationale behind the merger.
"The acquisition of SolarCity will create the world's only integrated sustainable energy company, from energy generation to storage to transportation," Tesla said in its release. "Just as Tesla has demonstrated the superiority of electric vehicles, the solar roof and Powerwall 2 will transform energy generation and storage."
Tesla said that the deal, initially valued at $2.6 billion, is expected to add to its cash balance, adding that SolarCity increased its cash between the second and third quarter and expects to do so again between the third and final frame of the year.
"We expect SolarCity to add more than half a billion dollars in cash to Tesla's balance sheet over the next 3 years," the company asserted.
But Tesla and SolarCity management did not do much to explain how SolarCity, which is expected by a consensus of analysts surveyed by FactSet to post a third quarter loss of $2.32 per share on $170 million of revenues, will contribute to the cash balances of Tesla.
They did, however, say the $500 million in cash SolarCity will add to Tesla's balance sheet is conservative, as it only includes SolarCity's cash generation, not the potential synergies from a combination.
Those synergies seemingly will come from the ability to offer a triple-pack product including Tesla's electric car, SolarCity's solar panel or solar roof options, and the combined entity's Powerwall 2, an energy storage device.
Ahead of the call, SolarCity followers believed one of the major topics of discussion would be how picking up a debt-intensive business like SolarCity, which pays the cost of installing solar panels on customers' roofs up front and is paid back for those costs through 20-year to 30-year lease agreements, would affect Tesla's balance sheet.
"Because SCTY's solar leasing business model has resulted in high leverage, there is a concern that taking on this debt will pressure TSLA's own balance sheet," Raymond James analyst Pavel Molchanov warned ahead of the call.
The effort to assure investors of the deal's reasoning comes as Tesla's shares have plunged more than 10% in the four days since it reported third quarter earnings from $213 to $190.79 apiece.
But it appears to have fallen short as in aftermarket trading following the call, Tesla shares continued to tumble.
Shareholders from both companies are set to vote on the deal on Nov. 17, and with Musk and other key insiders not voting due to potential conflicts the Tesla, market activity seems to indicate a vote could be close.