In 2016, Tesla acquired SolarCity in an all-stock deal worth $2.6 billion.[1] Tesla reported that a benefit of the deal would be that the new company could “create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.” Now years later, the company reported gross profit of $18 million in 2020, ($129) in 2021, and $288 million in 2022 for their Energy Generation and Storage Segment. This segment includes legacy assets from the SolarCity acquisition and the Megapack and Powerwall products, which were not developed by SolarCity. Tesla’s automotive and services segments, which accounted for over 95% of the company’s revenue and over 98% of gross profit in 2022, have since grown dramatically. The company’s stock price has increased by over 1,500% between the date the merger was announced in 2016 and the end of 2023. Therefore, the $2.6 billion in shares Tesla exchanged for SolarCity is now worth over $42 billion. 1) What is a sunk cost? Use your own words. 2) What is an opportunity cost? Use your own words. 3) Does the $2.6 billion in stock paid to acquire SolarCity represent a sunk cost, opportunity cost, or neither for Tesla shareholders? Why?
In 2016, Tesla acquired SolarCity in an all-stock deal worth $2.6 billion.[1] Tesla reported that a benefit of the deal would be that the new company could “create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed.” Now years later, the company reported gross profit of $18 million in 2020, ($129) in 2021, and $288 million in 2022 for their Energy Generation and Storage Segment. This segment includes legacy assets from the SolarCity acquisition and the Megapack and Powerwall products, which were not developed by SolarCity. Tesla’s automotive and services segments, which accounted for over 95% of the company’s revenue and over 98% of gross profit in 2022, have since grown dramatically. The company’s stock price has increased by over 1,500% between the date the merger was announced in 2016 and the end of 2023. Therefore, the $2.6 billion in shares Tesla exchanged for SolarCity is now worth over $42 billion.
1) What is a sunk cost? Use your own words.
2) What is an opportunity cost? Use your own words.
3) Does the $2.6 billion in stock paid to acquire SolarCity represent a sunk cost, opportunity cost, or neither for Tesla shareholders? Why?
Step by step
Solved in 4 steps
