Why Elon Musk is making a 'terrible' mistake with SolarCity: Strategist

Tesla's bid to buy SolarCity for $2.8 billion is a "terrible" deal, according to one strategist.

Since announcing the offer Tuesday, shares of the electric automaker have fallen more than 10 percent as Wall Street has tried to make sense of Elon Musk's proposal to acquire the embattled solar company.

"This is a company that Goldman Sachs said is the single weakest competitor in its entire sector," Eddy Elfenbein, editor of The Crossing Wall Street blog said about SolarCity on CNBC's "Power Lunch" on Wednesday. "The company is burning tons of cash."

Tesla's plan to takeover SolarCity is part of the company's efforts to become a one-stop shop for energy, from generation to storage, to transportation, Musk said after announcing the deal. Musk is the largest shareholder and chairman of both companies, and SolarCity CEO Lyndon Rive is his cousin.

Elfenbein argued that this move takes away from Tesla's most valuable asset — the fact that people trust Elon Musk.

"They see him as a visionary, they see him as being different from a standard businessman and somebody who is going to change the world, and when he does this he seems just like a regular businessman," Elfenbein said.

After the announcement, SolarCity said it is carefully evaluating the deal, which proposed a buyout offer between between $26.50 and $28.50 per share. The stock initially surged more than 12 percent off the news, but has since given back most of those gains.

Piper Jaffray technical analyst Craig Johnson said there has been a series of lower lows and lower highs in Tesla's chart for a number of years now.

"So the risk-reward on the charts clearly are not favorable, and that's in sync with what you've been hearing about on the fundamental side, so more downside yet to come," Johnson said on "Power Lunch."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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