Would Tesla Costs Increase if it Buys SolarCity?

Elon Musk, Tesla's (TSLA) - Get Report billionaire CEO, may be overlooking a conspicuous catch-22 in his ambitious plan to absorb SolarCity (SCTY) into his sprawling Tesla operations. According to analysts with Axiom, U.S. households who have adopted solar power, will need to forgo the cost-cutting practice known as 'net metering' in adopting Tesla's storage devices. Net metering, which pares away electricity bills by selling excess solar energy to public power grids, stands in opposition to the demand for Tesla storage products, and yet is the 'life blood' of solar energy providers such as SolarCity. Analysts say that Tesla's $2.8 billion offer to buy SolarCity will introduce more new costs to the combined company than it would provide savings, citing SolarCity as a potential 'kryptonite' to Tesla's business model. Tesla's cost of goods sold would rise by about 20 to 40 percent vs. the 20 to 40 percent savings that Tesla CEO Elon Musk is projecting, the analysts said, refuting Musk's claim that the deal equates to a 'no brainer.'

This article was written by a staff member of TheStreet.