SCTY Solarcity Corp.

By Cassandra Sweet 

Shareholders set to vote on Thursday over the merger of Tesla Motors Inc. and SolarCity Corp. have a new dilemma to consider: How Donald Trump's election will affect subsidies for green power.

The electric-car and rooftop-solar companies controlled by Elon Musk rely on federal clean-energy tax credits and rebates to drive down the costs of what they sell.

Buyers of Tesla cars can obtain a $7,500 federal tax credit for purchasing an all-electric vehicle, for example, while SolarCity customers are eligible for federal tax credits equal to 30% of the price of their solar energy system.

Mr. Trump's election, combined with Republican control of Congress, is likely to lead to federal policies that favor conventional energy over renewables, some analysts predict.

And current electric-car and solar subsidies are scheduled to decline over time and are unlikely to be renewed or extended under the Trump administration, said Jeffrey Osborne, an analyst at Cowen & Co. "Now, with the potential for the tax credits to go away, [SolarCity has] to accelerate their work on cost reductions and [reaching] grid parity," Mr. Osborne said.

Mr. Trump has vowed to repeal the Clean Power Plan, the Obama administration's main climate-change initiative that calls for a 32% reduction in power-plant carbon emissions from 2005 levels by 2030. The plan, which is on hold pending a federal court challenge by some coal companies and states, was widely expected to boost solar and wind power development nationwide.

Under the current federal electric-vehicle subsidy, the $7,500 federal tax credit for buying an electric vehicle is set to drop by half to $3,750 once an auto maker, such as Tesla, sells its 200,000th electric car in the U.S.

Tesla doesn't release data for its U.S. car sales. But it has delivered 160,000 vehicles world-wide to date, including more than 54,000 this year. Tesla said last May it planned to deliver between 80,000 and 90,000 cars this year.

The reduction of the tax credit is unlikely to damp consumer demand for Tesla's vehicles, according to the company.

Federal solar investment-tax credits that buyers of solar panels receive are scheduled to drop to 26% of the sales price in 2020 from 30% now. In 2022, they are set to fall to 10% for commercial customers and zero for residential customers. SolarCity said the solar industry is focused on reducing costs to offset the scheduled decline in incentives.

In addition to federal subsidies, Tesla and SolarCity also benefit from state-level programs to boost clean energy sources that are not directly affected by changes in Washington . Tesla for example recently reported that it eked out a third quarter profit of $22 million, thanks in part to receiving $139 million from zero-emission vehicle credits it obtained and sold to other auto manufacturers. California and nine other states offer the credits to makers of electric cars.

Since first proposing to combine Tesla and SolarCity in June, Mr. Musk has faced questions over whether the amalgamation in effect amounted to a bailout of the struggling home solar equipment installer and whether melding two money-losing entities made sense.

Tesla lost $889 million in 2015 and $294 million the previous year. The company's $22 million third-quarter profit compared with a loss of $230 million a year earlier. Still, analysts polled by FactSet are expecting the company to post another loss for all of this year.

SolarCity lost $769 million in 2015, after losing $375 million the year before. Analysts expect the company to post another net loss for this year. The company posted a third-quarter net loss of $225 million, 4% less from a year earlier and less than analysts had expected. However, it also cut its forecast for the volume of panels it expects to install this year to the equivalent of 900 megawatts from 1,250 megawatts earlier this year.

Shareholders will decide the merger's outcome in a meeting at 1 p.m. Pacific Time or 4 p.m. Eastern on Thursday in Fremont, Calif.

Cowen & Co.'s Mr. Osborne expects Tesla and SolarCity shareholders to approve the deal.

Two shareholder proxy services have differing opinions about the proposed merger. Institutional Shareholder Services Inc. endorsed it earlier this month, saying it was needed to create an integrated sustainable energy company. But rival firm Glass Lewis & Co., urged shareholders to vote no, calling it a "thinly veiled bailout" for SolarCity. Mr. Musk is the chairman and largest shareholder of both companies.

Shares of Tesla closed Wednesday at $183.93, off 23% this year. SolarCity shares closed at $19.83, down 61% this year.

Write to Cassandra Sweet at cassandra.sweet@wsj.com

(END) Dow Jones Newswires

November 17, 2016 10:14 ET (15:14 GMT)

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