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Tesla-SolarCity deal makes sense, two experts say

While many on Wall Street have expressed skepticism over Tesla's $2.8 billion bid for SolarCity, Tesla shareholder Joe Dennison isn't one of them.

For him, the deal makes sense for Tesla's long-term strategy.

"If you think that energy and transportation are moving towards a sustainable basis, then why wouldn't you want to own all the different parts of the ecosystem? Make it as easy as possible and as simple as possible for customers to adopt that under one brand that people already trust," the Zevenbergen Capital Investments portfolio manager said in an interview with CNBC's "Power Lunch" on Wednesday.


A SolarCity employee carries a solar panel on the roof during installation at a home in Kendall Park, N.J.
Michael Nagle | Bloomberg | Getty Images
A SolarCity employee carries a solar panel on the roof during installation at a home in Kendall Park, N.J.

On Tuesday, Tesla announced it made a bid for the solar company, a move Tesla CEO Elon Musk called a "no-brainer." On Wednesday, Musk, who is also chairman of SolarCity, said the deal would eventually push the electric carmaker's valuation to $1 trillion.

News of the proposal sent shares of Tesla sliding, with some analysts viewing it as a negative for the company.

Ben Kallo, senior research analyst at Robert W. Baird, said the proposed deal has many investors scratching their heads, trying to figure out where the synergies are. About 80 percent of the institutional investors he's spoken with bought Tesla because of the company's vision on batteries and cars, and don't want anything to do with the solar industry.

"It has a lot of volatility and a lot of ins and outs that make it a difficult place to analyze and now that's being forced up on them in this deal," he told "Power Lunch."

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.

However, Dennison doesn't think the proposed acquisition is a risk for Tesla, noting that SolarCity is expected to be cash flow positive by the end of the year.

"Elon obviously has a lot of his plate but no one asks if CEO of GE has too much on his plate."

Michael Morosi, senior research analyst at Avondale Partners, noted that this is a deal that Musk has wanted to do for years.

"In many respects, he's channeling his inner Warren Buffett here by buying SolarCity at a time when sentiment with respect to residential solar has been pretty negative," he said. "I think he's buying an attractive asset at an attractively valued price."

Morosi believes if Tesla acquires SolarCity, it would "certainly" position SolarCity to succeed.

In fact, he sees other companies competing for the same share of this mobility/sustainable home energy platform.

"Homes spend up to $20,000 a year between transportation and energy and that's just a large amount of spend for one company to go after," said Morosi.

He envisions a future where companies compete for durable, high-value, lifetime customers through a subscription model.

Reuters contributed to this report.

Disclosures: Avondale Partners makes a market in the securities and/or ADRs of SolarCity. Zevenbergen Capital owns shares of Tesla.