Tesla Motors Inc (TSLA.O) Chief Executive Officer Elon Musk said on Wednesday that the proposed acquisition of SolarCity Corp (SCTY.O) could eventually push the electric car maker's valuation to $1 trillion, but investors were skeptical.
Shares of Tesla were down nearly 7 percent at $204.50, putting its market capitalization at $29.8 billion. The much smaller SolarCity was up nearly 9 percent at $23.01, valuing the U.S. market leader in residential rooftop solar panels at $2.2 billion.
Related: Tesla offers $2.8 billion for SolarCity in 'no brainer' deal for Musk
Tesla on Tuesday offered to buy SolarCity in a stock deal worth as much as $2.8 billion.
"I have no doubt about this - zero," Musk, a major shareholder of both companies, said on a conference call with analyst before markets opened on Wednesday. "We should have done it sooner."
Barclays auto analyst Brian Johnson disputed that view in an overnight note to investors, saying the proposed merger had "little in the way of synergies (and) much in the way of cash burn," with "uncertain growth/cash prospects" for the combined companies.
"It is even more clear that Tesla will need additional cash raises" to continue its expansion of electric car and battery production, Johnson said.
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Musk, however, said the combination of SolarCity's solar panels with Tesla's electric vehicles and stationary storage batteries was "what the world needs, the ultimate solution" to a sustainable-energy future.
"As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company," he added.
The two companies already are intertwined. Musk owns 19 percent of Tesla and 22 percent of Solar City, and he sits on the boards of both companies. SolarCity founder and CEO Lyndon Rive and his brother Peter, the company's chief technology officer and co-founder, are Musk's first cousins.
SolarCity regularly posts quarterly losses, and its stock has fallen more than 50 percent this year in a highly competitive market. The company has more than $6 billion in liabilities, including debt.
Musk said SolarCity would post positive cash flow in the next three to six months and would not have a material impact on Tesla's future cash needs or expectation to be cash-flow positive by year-end.
Musk said costs for both companies would go down significantly after the merger, but he did not give specifics.
Among the expected synergies, he said SolarCity stores could display Tesla electric cars and storage batteries but probably would not handle vehicle sales.
Tesla General Counsel Todd Maron said he expected shareholders of both companies to vote on the deal in the next few months.
