Argus Downgrades Tesla Following 'Ill-Timed' SolarCity Bid

On June 21, Tesla Motors Inc (NASDAQ: TSLA) announced its bid to acquire SolarCity Corp (NASDAQ: SCTY) in an all-stock transaction that valued the latter at about $2.6-$2.8 billion. Argus’ Bill Selesky on Tuesday downgraded the rating for Tesla from Buy to Hold, terming the acquisition bid for the solar panel maker as “ill-timed.” The analyst also removed the stock from the Argus Focus List.

The deal values SolarCity at $26.50-$28.50 per share, representing a premium of 25-35 percent to the company’s June 21 closing price.

Related Link: 4 Reasons Tesla And SolarCity Are 'Not A Good Fit'

Concerns Over Timing

Selesky commented that there were near-term concerns around the timing of the acquisition being inappropriate for Tesla, since the company is still struggling to become profitable. He expects the deal to lengthen the time it takes for Tesla to generate an operating profit on a GAAP basis.

Selesky also expressed concern around the potential dilution that the acquisition potentially accompanies and the heightened risk profile of the combined entity.

“In all, while we believe that Tesla has made significant strides in addressing issues concerning high manufacturing costs, contracting gross margins and production shortfalls, we also believe that the proposed acquisition of SolarCity adds a new level of meaningful risk to the operations at Tesla Motors,” the analyst wrote.