Two high-profile, energy-progressive companies, Tesla (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY), have much in common. Visionary CEO Elon Musk runs the former and sits at the head of the board of the latter. Musk's cousin, Lyndon Rive, is the CEO of SolarCity. Both companies are based in Northern California, and both aim to disrupt their industries – automobiles and the solar business. The two even trade in tandem on the Nasdaq exchange. An announcement this week involving the two companies shows an even closer relationship – Tesla may provide batteries to SolarCity. The concept could spell big benefits to both firms.
It only makes sense that Tesla and SolarCity would explore possible collaborations. SolarCity chairman Elon Musk need only to make a phone call over to Tesla CEO Elon Musk to discuss how the two companies can work together in their goals of redefining their respective industries.
As part of the agreement, Tesla is providing 8-kilowatt-hour batteries to SolarCity for testing purposes. The solar company's goal is to eventually use these batteries as part of an all-encompassing energy package for homes.
During the day, homes can harvest the sun's energy with solar panels. The batteries will store up energy throughout the day as well. The idea is that once night falls, those batteries will then power the homes until the sun rises again the next morning.
Pretty reasonable, right?
The strategy is part of SolarCity's effort to reduce its dependency on the traditional utility companies. Currently, the company sells the energy it captures via the solar panels to utilities, which then lease it back to consumers at night. So far, it's been a successful symbiotic relationship – SolarCity has seen tremendous growth since inception, continuing through its IPO late last year. The stock is up more than 200% since its market entrance in mid-December.
How will Tesla benefit from this? Beyond the free testing SolarCity will be doing, Tesla will show the world that its batteries have uses beyond powering the Model S sedan. With many investors and analysts concerned that vehicle production and sales will take too long to reach scale, any viable alternative revenue generator should be welcomed. Tesla's battery could be appealing to many solar companies in the future, not just its sister company SolarCity.
The news does not have an immediate effect on either company's prospects, but illustrates a very applicable, beneficial relationship between the two. At the forefront of either company's playbook is innovation, and this is prime example of simple yet effective collaborations.
Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.