Bank of America’s Merrill Lynch decreased its price forecast on Tesla shared due to the risk of the acquisition of SolarCity.

The investment firm believes its Stock will lose half of its value over the next year becauseĀ “positive earnings and cash flow are now even more elusive” in light of the combination. Which is a fair analysis as SolarCity was bleeding cash under its own operation while Tesla was cash flow positive.

“We believe the SolarCity acquisition introduces material risks to the longer-term viability of TSLA, while the recent capital raise only serves to further dilute potential shareholder value,” research analyst John Murphy said in a note to investors. He has an under perform rating on the stock.

Murphy forecasts a 45% percent drop in the stock to about $165 a share and the stock currently sits around $308.

Here are some of Murphy’s other concerns about the combined Tesla-SolarCity:

  • The solar company acquisition should “exacerbate TSLA’s serious cash burn problem, at least in the near-term.” Similarly, Murphy anticipates “the SolarCity business burning cash through our forecast period.”
  • The combined company likely depends heavily on the automotive business: 84 percent of total revenue and 97 percent of gross profit, he estimates.
  • The “Model S may be experiencing a typical spike and burnout” and “without an all-new or next-generation Model S, we think TSLA could see Model S volumes fade, even if prices are lowered.”
  • “Shareholders seem to come second” as Tesla pursues its mission of vertical energy integration because the company has raised capital every year since 2008, Murphy said.
  • Those shareholders may eventually lose confidence in the stock: “While we recognize that TSLA is a growing top-line business, we think it is unlikely that investors would continue to supply the company with incremental low cost capital in perpetuity if investments fail to generate return.”

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