TSLA Tesla Inc

Tesla Motors Inc. investors dumped shares a day after the company unveiled a takeover offer for SolarCity Corp., fueling doubts over Elon Musk's plan to combine the electric-car and solar-energy companies he backs.

Tesla shares were off more than 8% in early trading Wednesday before recovering slightly after the Silicon Valley electric-car maker proposed an all-stock deal valuing SolarCity at up to $2.8 billion. Both companies are money-losing operations, with SolarCity's stock especially hard hit over the past 12 months, losing more than 60% of its value.

Wall Street analysts warned a Tesla takeover of SolarCity could prove a distraction for the electric-car maker and worsen both companies' strained finances.

Tesla, burning cash in a race to meet ambitious production targets for a more affordable Model 3 electric car and build a Nevada battery factory, isn't expected to be profitable until 2020 at the earliest. A deal could force the Palo Alto, Calif., auto maker to once again seek cash with no guarantees that capital markets will remain hospitable, analysts said.

SolarCity's shares, meanwhile, rose more than 8% in early trading Wednesday in the hopes the deal could provide a lifeline to the struggling San Mateo, Calif., solar-panel producer.

The early Tesla selloff augurs possible tough sledding for Mr. Musk when shareholders vote on the takeover plan. Mr. Musk, the chairman and largest shareholder at each company, has recused himself from those votes and each board's consideration of the deal. Mr. Musk and SolarCity Chief Executive Lydon Rive are cousins.

"The market obviously hates this," said Shawn Kravetz, a fund manager at Esplanade Capital in Boston who invests in solar companies and until recently owned SolarCity shares. "There are symbiotic relationships here, but cousins should not get married."

Mr. Kravetz fears SolarCity shares could plunge even further if the deal fails.

In addition to the familial ties, Mr. Musk has a history of borrowing money and buying shares in both companies when they have needed capital. Oppenheimer & Co. cut Tesla's rating to perform from outperform and predicted the deal would face resistance.

"We expect a robust shareholder fight over this acquisition centered on corporate governance," Oppenheimer analyst Colin Rusch wrote in a note. "We believe investors are likely to view this transaction as a bailout for [SolarCity] and a distraction to [Tesla's] own production hurdles."

Barclays Capital said the deal would add another $2.6 billion in debt to Tesla's balance sheet for a solar company with limited synergies and uncertain growth and cash prospects.

"While no doubt the Tesla bulls will hail this combination as visionary," the plan reinforces a negative view of Tesla, wrote Barclays analyst Brian Johnson.

The takeover plan aims to create a company employing nearly 30,000 people with all products renamed "Tesla" that will package electric cars, batteries and solar panels for customers, Mr. Musk said.

A deal could energize SolarCity's ability to sell its rooftop solar products by adopting the popular Tesla name, but at the same time hurt Tesla's finances.

Mr. Musk owns about 23% of Tesla shares, and roughly 22% of SolarCity. The next largest holder in Tesla is mutual-fund giant Fidelity Investments.

SolarCity is burning cash and has borrowed money in the form of solar bonds, most of which were purchased by Space Exploration Technologies Corp., a private company that Mr. Musk also controls.

Write to Mike Ramsey at michael.ramsey@wsj.com

(END) Dow Jones Newswires

June 22, 2016 12:15 ET (16:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.