One year ago Tesla Motors announced plans to build its Gigafactory to produce huge numbers of batteries, giving life to the old saying, “if you want something done right, do it yourself.”

By making electric car batteries that Tesla used to buy from others, CEO Elon Musk adopted a strategy made famous by Henry Ford – build a vertically integrated company that controls the many stages of production. By integrating “backward” into its supply chain, Musk is betting Tesla can improve the performance and lower the costs of batteries for its vehicles.

Now, Musk wants Tesla to acquire SolarCity for similar reasons, but with a slightly different twist.

SolarCity is one of the largest installers of solar photovoltaic panels, with some 300,000 residential, commercial and industrial customers in 27 states. The proposed merger with SolarCity would vertically integrate Tesla forward, as opposed to backward, into the supply chain. That is, when people come to Tesla stores to buy a vehicle, they will be able to arrange installation of solar panels – and potentially home batteries – at the same time.

This latest move would bring Tesla one step closer to being the fully integrated provider of sustainable energy solutions for the masses that Elon Musk envisions. But does it make business sense?

The real issue in my mind comes down to batteries and innovation.

Creating demand and scale

Although installing batteries is not a big part of SolarCity’s current business, the company is a potentially large consumer of Tesla’s batteries from the Gigafactory. Tesla makes Powerwall batteries for homes and larger Powerpack systems for commercial and industrial customers.

Any increase in the flow of batteries through the factory gives Tesla better economies of scale and potential for innovation. Innovation comes with the accumulated experience gained from building a key component of its electric vehicles as well as Tesla’s energy storage systems. As the company manufactures more batteries, it will find ways to innovate around battery design and production.

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Elon Musk via Insider Monkey/Flickr

By now you’ve probably heard of the big merger between automotive innovator Tesla and rooftop solar guru SolarCity. Elon Musk, CEO of Tesla, claims that the integration will create “the world’s first vertically integrated energy company,” set to offer the full spectrum of clean energy products to customers.

While both companies have gotten a lot of attention from investors over the years, there has been a lot of skepticism when it comes to the financial future of the joining of these two companies.

First, neither companies have made any money independently last year. In fact, combined they lost $1.7 billion.

But the financial losses are not the real concern. As MIT Technology Review points out, the technology that would make an end-to-end clean energy system feasible has not yet been developed by either company.

Musk’s vision for the newly integrated company is to set up consumers to solely utilize renewable energy. That would mean electric vehicles, rooftop solar panels, and of course, a battery to store energy when the sun goes down.

Although Tesla has already premiered their home Powerwall battery, it fell short of expectations. The seven-kilowatt-hour battery was expected to be able to store enough energy to power your home and send energy back to the grid (converting homes to microgrids) for a flat rate of $3,000, but the actual cost turned out to be closer to $10,000.

Pair that cost with SolarCity panels and analyses show that you’ll be paying over double for your electricity than a typical rate user.

“At the end of the day, the Powerwall has the same Li-ion battery cells in it as any other Li-ion-based storage product: Asian-sourced batteries that are arranged in packs,” Jay Whitacre, ECS member and professor at Carnegie Mellon University, told MIT Technology Review. “It’s basically off-the-shelf cell technology.”