No one can ever accuse Elon Musk of not dreaming big enough.

Just more than four weeks after he first announced his grand plan to combine Tesla and SolarCity, the former company has agreed to buy the latter. The $2.6 billion deal still has to be approved by the government and shareholders, and is expected to close in the fourth quarter if it does.

An approved deal would mean that Musk would be one step closer to fulfilling the  second part of his "master plan": creating electric, self-driving cars that get their energy from solar-powered batteries. Musk first laid out the idea July 20 in a blog post on Tesla's site. If everything goes according to plan, the entrepreneur could be laying the groundwork for a brilliant long-term strategy. The problem is, Wall Street has a hard time not focusing on the fact that a lot could go wrong between now and then. 

Musk has received criticism ever since he first suggested in late June that Tesla should buy the solar energy company. The backlash largely stems from the fact that Musk is co-founder and CEO of Tesla, and also co-founded SolarCity, which is currently led by his first cousin, Lyndon Rive. Neither company is currently profitable--analysts project Tesla to lose $416 million this year and SolarCity to lose $851 million. Criticism has ranged from calling the deal a "conflict of interest" to "a brazen Tesla bailout of SolarCity." 

For his part, Musk writes in his blog post that it was always his intention to have the two companies operate as one, given their similar missions of providing sustainable energy, and that it was "largely an accident of history" that they were ever separate.

He makes the case that having the two companies operate as one should make the entire operation more efficient. Tesla's Powerwall and Powerpack home battery packs pull energy from solar panels and the power grid, storing it for use at night or on cloudy days. The idea is to create car batteries that receive and store energy in a similar fashion.

Tesla and SolarCity maintain that they'd save a combined $150 million in operating costs within the first year of finalizing the deal. Some analysts have also pointed out that Tesla's brand recognition should give SolarCity a boost.

Investors aren't convinced. Tesla's stock fell 2 percent while SolarCity's dropped by 6 percent after it was announced Monday morning. To be sure, the short-term outlook for the combined company isn't exactly reassuring. 

The company was on its way to an already hugely successful launch of the $35,000 Model 3 in 2017 that could finally make the company profitable. Tesla has received nearly 400,000 preorders, far exceeding most expectations. But the added cost of SolarCity's operations could water down how much impact those mainstream cars will have on Tesla's bottom line.

There are also worries about just how much debt the company can take on. "Separately, while we think Tesla's new master plan may build a long-term technological monument, we think it will create a short-term cash flow sinkhole," Efraim Levy at S&P Global Market wrote recently in a note to investors.

The thing is, Musk prefers to look far beyond these near-term details and results. It's his biggest strength as a world-changing entrepreneur--and his biggest weakness as a chief executive of public companies. In his mind, he's building a company that can hugely cut back on the world's reliance on polluting, nonrenewable fossil fuels. And it's hard to argue that that plan isn't a higher value proposition.

"To own a transportation company in isolation from an energy company maybe doesn't make strategic sense anymore," Michael Morosi, senior analyst at Avondale Partners, told the Los Angeles Times. If the future involves a million self-driving electric cars on the road, Musk wants to be involved in both the manufacturing side and the charging side. 

The question is, for how long are shareholders willing to go along for the ride to see if it pans out?

"The point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future and life is still good," Musk wrote in his July 20 post. "That's what 'sustainable' means. It's not some silly, hippy thing--it matters for everyone."

Published on: Aug 1, 2016