LOS ANGELES/DETROIT(Reuters) - Elon Musk on Tuesday sought to build a clean energy powerhouse as his electric car maker, Tesla Motors, made an offer to buy his solar installation firm SolarCity in a stock deal worth as much as US$2.8 billion (S$3.76 billion).
Tesla shares plunged more than 13 per cent to US$189.99 in extended trading - amounting to a loss in value of about US$4.3 billion, or more than the value of the offer for the other company.
Shares of SolarCity rose about 18 per cent to US$25.02.
Musk, who is the chairman of SolarCity, chief executive of Tesla and the largest shareholder of both companies, described the deal as a"no brainer" in a call with reporters. The company could sell customers an electric car, a home battery and a solar system all at once, he said.
"Instead of making three trips to a house to put in a car charger and solar panels and battery pack, you can integrate that into a single visit," Musk told reporters. "It's an obvious thing to do."
Tesla investors punished the company's shares, however.
"Ideally you want to see Tesla focus on Tesla - building Teslas and expanding the cars," said Ivan Feinseth, an analyst at Tigress Financial Partners. "Maybe the feeling is that this takes away focus, and it could financially strain Tesla, which is going to continually need a lot of cash."
SolarCity has about US$6.24 billion in liabilities, including debt. Tesla executives said its predictable cash flow in the form of payments for its solar systems pays for the debt.
Although it is the US market leader in residential rooftop solar systems, it regularly posts quarterly losses and the stock has fallen nearly 60 per cent so far this year, pummeled by investors who see its business model as too complex in a market that has become increasingly competitive.
Musk said Tesla did not know how many of its customers have solar panels, but guessed that most of them were likely interested in solar.
In a blog, Tesla described the deal as a way to expand both companies' markets. The solar systems will be sold under the premium Tesla brand, which is seeking to expand its target market with a US$35,000 electric vehicle called the Model 3 that it will begin delivering late next year.
Musk, who owns 19 per cent of Tesla and 22 per cent of SolarCity, said he would recuse himself from voting on the deal.
He could not say how soon shareholders could vote on the deal, as due diligence needs to take place first.
SolarCity CEO Lyndon Rive, Musk's first cousin, said he supported the deal but would also recuse himself from voting. Rive's brother, Peter, is also a founder of the company and its chief technology officer.
Musk and Lyndon Rive hatched the idea for SolarCity during a trip to the Burning Man desert festival in 2004.
Over a decade later, SolarCity has become the top US residential solar installer thanks to a no-money-down financing scheme that allows homeowners to pay for their solar panels through a monthly fee that is less than what they would pay their local utility.
Tesla said it offered US$26.50 to US$28.50 per share for SolarCity, which represents a premium of about 25 per cent to 35 per cent to the company's Tuesday close of US$21.19. That values the deal at about US$2.6 billion to US$2.8 billion overall.