Los Angeles billionaire Elon Musk has been lauded as an entrepreneurial mastermind, creatively wheeling and dealing to turn his flashy ideas into fully realized companies.
For years, fans and investors have been buying into Musk's unconventional approach to corporate finance.
He used his own money to help start Tesla Motors Inc. His rocket firm, SpaceX, bought bonds backed by rooftop panel sales of SolarCity Corp., of which he is the No. 1 investor. He took out $475 million in personal lines of credit to boost his investments in those companies.
But investors and analysts have grown wary of the latest plan. Musk's announcement Tuesday that he wants Tesla to buy SolarCity quickly raised concerns about conflicts of interest, unclear motives and shaky financials.
Before dawn Wednesday, Tesla stock was plunging as much as 12% in pre-market trading. It flopped around all day before closing at $196.66, down 10.45%, on a down day for the Nasdaq composite. And it edged down further Thursday morning: Shortly before 8 a.m. Pacific time, it had fallen 0.3% even as the Nasdaq climbed.
While Musk has crowed about how in sync the companies are -- SolarCity's rooftop solar panels, Tesla storage batteries, and Tesla electric cars make for a cohesive "end-to-end" sustainable energy company, he said -- several stock analysts said the plan looks more like a rescue effort for struggling SolarCity that could put Tesla at greater risk.
Oppenheimer & Co. analyst Colin Rusch downgraded the stock and said he believed investors were likely to view the proposed bid as a "bailout" and a "distraction" to Tesla's own production hurdles -- such as fulfilling the massive pre-order demand for the upcoming Model 3.
"While we remain bulls on the solar industry, we do not view this acquisition as the best and highest use of [Tesla's] capital and human resources," Rusch wrote in a note to clients.
Investors and analysts also note that Musk is the chairman and the top shareholder at both companies. He owns 21% of Tesla and 22% of SolarCity and is cousins with SolarCity's chief executive and its chief technology officer.
The latest plan is a clear conflict of interest due to Musk's position on both boards and his leading share ownership of both companies, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
"You're supposed to get the best deal for the company on whose board you sit, but if you're on both how does that work?" Elson said. "The bottom line is that investors of one company or the other will lose in the transaction."
As the chorus of critics weighed in, Musk held a hastily arranged conference call at 4:30 a.m. Wednesday to defend his plan, saying he has "zero doubt" about it and calling the proposed transaction a "no-brainer."
Yet neither company is particularly stable: Both are unprofitable and bleeding cash.
The automaker had $1.44 billion in cash as of March 31, down from nearly $2 billion at the end of 2014. Tesla lost $888.7 million on revenue of $4.05 billion in 2015, a year in which it delivered 50,580 vehicles, mostly its mainstay Model S sedan.
SolarCity lost $768.8 million on revenue of $399.6 million last year, and its cash on the balance sheet shrank to $361.7 million as of March 31 from $504.4 million at the end of 2014.
Tesla short sellers, who make money when a stock loses value, are ecstatic.
"You have two businesses losing a massive amount of money. When you combine them they'll be losing a massive amount of money together," said Mark Spiegel at Stanphyl Capital Management, who said he's been short on Tesla for two and a half years.
It's common, of course, for fast-growth companies in emerging industries to lose money for years until revenue growth makes up for upfront investment.
But that approach entails great risk -- especially in capital-intensive industries like solar panels and electric cars. Solar companies such as SolarCity are leasing out their installations to residential and commercial energy consumers and packaging the cash flows from those leases into securities sometimes known as "solar bonds."
Eventually, with sufficient market share, those dependable cash flows could become highly profitable. But building out the solar installations ties up a lot of money and leads to massive losses. In April, SunEdison, a SolarCity competitor, filed for bankruptcy protection.
Details on how the proposed combination of Tesla and SolarCity might avoid such a fate are scarce. Musk said the companies will be able to market their products together, leading to lower sales costs and thus better margins.
But he stuck mostly to ethereal, grandiose statements such as, "This is what the world needs; this is the Earth's solution" and "We're trying to have the non-weird future get here as fast as possible."
SolarCity, based in San Mateo, Calif., was tight-lipped on the Tesla offer.
In a short statement, Lyndon Rive, SolarCity's CEO, said there are "tremendous synergies between these two companies" but said ultimately shareholders will decide the company's future. He said he was "excited" by the proposal.
In a letter to employees, Rive asked workers not to talk to anybody outside the company about it.
Musk's convoluted financial dealings have become a core part of his business strategy.
Even if Musk recuses himself from voting on the deal, "he has significant influence on the boards of both companies and they can't help but feel that influence," Elson said.
But Jason Schloetzer, a Georgetown University professor and corporate governance expert, said that "while this situation appears to be a conflict of interest, market forces can certainly intervene if this conflict is too extreme."
For instance, activist hedge funds could intervene if Tesla is "meaningfully over or under paying for SolarCity," Schloetzer said.
"There is little doubt that Musk's shadow will influence the votes of other directors on this deal," he said. "But market participants are good at shining a bright light on questionable transactions and getting involved either with their money or through additional scrutiny when necessary."
Another governance expert, Jack Ciesielski, who publishes the Analyst's Accounting Observer, said that for investors of all three Musk companies, the "more related-party transactions there are, the more questions they should have" about the merits of those activities.
Aside from the increasingly interconnected corporate web that Musk has spun, analysts are also casting doubts on his ability to manage three closely watched companies.
"It's hard enough to run one company," Spiegel said. "He's trying to run Tesla and SpaceX and now he has to integrate Solar City."
Times staff writer Ivan Penn contributed to this report.