Between Brexit and the election there are a few other headlines flooding financial news. Just a few weeks ago news broke that Tesla Motors Inc (NASDAQ:TSLA) made a $2.8 billion bid for energy company, SolarCity Corp (NASDAQ:SCTY). Both companies are the brainchild of serial entrepreneur, Elon Musk, who is the current CEO of Tesla and chairman of the board at SolarCity. In fact, Musk’s cousin is the current CEO of SolarCity, making this deal appear more self-serving.

Financial performance hasn’t been either company’s strongest suit. Tesla has fallen into a common trap in the technology sector; strong revenue growth coupled with mounting losses. That said, last quarter’s earnings were somewhat surprising, only falling 58% compared to a year earlier. SolarCity has fallen victim to similar patterns. Last quarter the company saw earnings drop 68% while sales were up 82%. The market hasn’t reacted well to mixed results with Tesla down 13% and SolarCity down 54% year to date.

Tesla is coming into its second quarter earnings with a full plate. Besides this looming deal, Tesla recently issued $2 billion in new shares to meet model 3 production and just last week we saw the first Tesla related death. If this wasn’t enough to scare shareholders, earnings estimates have plunged in the past 3 months. The Estimize consensus is currently calling for a 32 cent loss per share on $1.88 billion in revenue. Fortunately, the stock is a positive mover during earnings season making its biggest gains 30 days following a report.

Like Tesla, SolarCity continues to burn cash like nobody’s business. SolarCity’s business model is struggling as cheap energy shakes up the solar market. The company has relied too heavily on residential projects even though commercial endeavors generate the highest margins. It’s not surprising that expectations are muted this quarter. The Estimize consensus is looking for a $2.44 loss per share on $138.74 million in revenue. Compared to a year earlier this reflects a 52% decline on the bottom line with sales expected to grow by 37%. The stock typically reacts negatively to earnings falling by as much as 5% following a report.

Given the struggles of SolarCity, its appears as if Elon Musk is bailing SolarCity out while also profiting handsomely. The degree of nepotism involved in this deal is undeniable as SolarCity is hardly growing these days. Long term the merger could weigh down both companies from turning a profit.


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