How does it make sense? SolarCity is losing an extraordinary amount of money and is heading toward a bankruptcy. Tesla does not have the free cash flow to stop the bleeding.
Elon is a very large (~20%) SolarCity shareholder and this is pretty much a bailout for him.
Elon will end up with about one Tesla share for every ten SolarCity shares he previously owned. How does this in any way bail him out or save him? Save him from what, exactly?
Now Tesla is "burdened down" by SolarCity, if you prefer to think of it that way. If anything it's liable to hurt Tesla's stock while SolarCity gets its feet under it. As Tesla's stock drags down, Elon will lose more money than the 20% of $2.1 billion that his SCTY stake was worth today. That's a $420 million stake, and Tesla just dropped $3.2 billion in market cap when this news came up.
I'm totally guessing, but it seems to me this move protects SolarCity from the danger it was in. If SolarCity can make it a bit longer, a couple more years, which they will with no trouble (they were not on the verge of bankruptcy whatsoever), soon Tesla will have all the revenue they need to help SCTY grow. And that's Elon's gamble, as has it all been.
Amusingly it was Elon's other other company that was buying SolarCity's bonds--SpaceX. I love Elon, but man he gets creative with financing. Makes me nervous that it could all blow up.
Can you explain why you're worried about Solar City bonds when they have the same risk as high yield corporate bonds? Are people going suddenly stop paying for electricity?
If the risk-adjusted return on those bonds is fair for their price then why wasn't there an independent third party buyer at that price? Isn't it more likely that SpaceX has overpaid for the bonds due to Musk being overconfident in Solar City?
Elon is a very large (~20%) SolarCity shareholder and this is pretty much a bailout for him.