Short-Term TSLA Price Movements - 2016

[neroden]

Most these abs come up in 2020+ timeframe

Helpful. I still want to see a schedule of borrowings by duration and interest rate, matched up with a schedule of homeowners' contracts by remaining duration and effective interest rate. This would allow me to evaluate SolarCity's exposure to refinancing risks.

SolarCity has failed to present one.

Remember, I think Silevo and Zep are great acquisitions for Tesla... it's entirely the financing side which I dislike.

New York is another key state in this way

I live in New York. Right now, SolarCity is completely uncompetitive in my part of upstate. Solar panels are going up all over and they aren't the ones installing them. There's some evidence that there are *diseconomies* of scale in the solar installation business and that a local installer can be "leaner and meaner". The panel + racking business is where the economies of scale might be.

 

[Runarbt]

I'm starting to warm up to the deal. I think the liquidity concerns of SolarCity are overblown. I believe them when they say they will be cash-flow positive. The only thing I'm worried about (other than my Sept '16 options) is the sales culture of SolarCity.

I belive sales cost is 30% of scty expenses, and where savings are (cut the scty sales force completely) when they move sales over to Tesla stores. = Tesla sales culture and cash flow positive

 

[neroden]

Adding: For those who got in at IP or shortly there after, is what Elon is trying to attempt now any different/harder/more unrealistic than way back when?

Well, in a certain sense, yes.

What he's trying to do with *products* is not *per se* harder.

But he's now trying to do it with a gigantic financing and securitization operation hanging off the back of his company, which I think is a drag on his ability to do what he wants to with products. Like I said before, GE Capital almost took down GE, and GE is a great business. I think adding SolarCity's "finance and securitize" business is adding a large and dangerous risk factor which was not previously present.

Did you simply get comfortable with the secret master plan flowing along at measured pace?

Hell yeah.

 

[FluxCap]

TSLA is screwed is Solarcity fails. No one needs a $100K electric vehicle. Sales may decrease dramatically if the viability of Tesla is doubted. A failure wouldn't destroy interest in Tesla vehicles, but many people would likely decide to "wait and see". This does not work for Tesla.

Tesla purchasing SCTY is like buying off a hooker to keep her from showing up at the family barbeque.

400,000 people, less a few recently burned options traders on these forums, still very much want their Model 3's. I suspect thousands of customers still want their large PowerPack / solar installations as well.

So much hatred, so much fear, and shorts dancing with joy...my contrarian indicators are beginning to light the buy signal.

 

[neroden]

SolarCity Kauai solar+battery project is 14.5c/kWh for 20 years, and there was no Tesla Energy in 2012 when UK negotiated the deal.

Sure, maybe the Hinkley C deal seemed to make sense in 2012. But the person I was quoting was claiming that the UK's really bad Hinkley C deal (which they still can and should back out of) was an indicator of future utility costs. It is not. It is way out of line, and we're already seeing that future utility costs will be lower than that.

 

[Gerardf]

I've slept on this TSLA buying SCTY a few nights, and have come to the conclusion that this SCTY purchase is not good for TSLA. I will vote NO.
I do have one possible counter proposal: < snap>

That all sounds nice.. However both the Tesla and SolarCity boards have decided positive on the offer. That is the situation as it is now.
The only votes possible are YES or NO.

IMHO :

- Bringing forward anything else here brings nothing. Maybe if done by one of the very large shareholders, but I even doubt that. In fact such large shareholder will probably simply offer his/her shares to the market.

- a NO could very well have quite negative consequences on TSLA (you might not agree on that),

- if you lost confidence in the Tesla board you should consider to decide selling your TSLA shares (selling immidiatly or at a moment you feel might fit you better).

- All shareholders who put their trust in the Tesla management should simply not sell and vote yes. Anything else will just cause you frustration.

Edit: Correcting typo

 

[ggies07]

Why wouldn't this work well with SCTY as is and a contract to buy from TSLA and have TSLA engineer storage to SCTY's needs? This "arm's length" argument is dumb as far as I'm concerned. If they want to merge later when both are doing well financially, then that's fine.

Elon said this on the call. It wouldn't feel ethical to give SolarCity a special deal and not other companies. So they want to bring SolarCity under their arms and have the best deal in the industry.

 

[Vitold]

Why wouldn't this work well with SCTY as is and a contract to buy from TSLA and have TSLA engineer storage to SCTY's needs? This "arm's length" argument is dumb as far as I'm concerned. If they want to merge later when both are doing well financially, then that's fine.

I think the issue is that SCTY cannot grow on it's own (due to financing getting expensive) but it can under Tesla's umbrella. I also suspect that Tesla Solar would offer loans a lot more than PPA while selling value added solar (storage, esthetics, integration). Tesla Solar to SCTY would be like Model S to Leaf.

 

[Cosmacelf]

Elon said this on the call. It wouldn't feel ethical to give SolarCity a special deal and not other companies. So they want to bring SolarCity under their arms and have the best deal in the industry.

Yeah, that made no sense at all. Why did they have to give SolarCity a special deal? We are talking product integration here - product interfaces are specified and any company can integrate. Much more complex industries do this all the time (like Intel CPUs and operating systems). Indeed at the end of the call, Elon said that the combined Tesla Energy/SolarCity product would have specified interfaces and other companies would be able to integrate to it. So, yeah, that justification made no sense at all.

 

[electracity]

I think adding SolarCity's "finance and securitize" business is adding a large and dangerous risk factor which was not previously present.

Which is why Musk explained yesterday that the concern should be focused on SCTY recourse debt. (Which was one of his few non-stream -of-consciousness moments in the call).

So Tesla tasks after purchase are to ruthlessly bring solarcity to cash flow neutral, and fund their recourse debt. This seems completely doable. This doesn't make solarcity a profitable purchase, and it doesn't fund ongoing solar sales. But it does keep SCTY from damaging Tesla.

One plus side of the purchase is using Solarcity sales and support staff to help the Tesla store growth that will be needed. Employees good at technical retail sales is capable of selling both solar and cars. More stores and store traffic for multiple Tesla lines should be beneficial to all lines.

 

[Jonathan Hewitt]

Assuming Musk is on point on his long term estimates, after the acquisition TSLA will have the potential it be a Trillion dollar company vice a ~$0.700 Trillion company (former AAPL market cap). This means there is potential to give investors ~50% more long term value from this acquisition. I feel that there is MORE than 50% extra risk, however. We know Elon likes to take risks (Mr. "if it's possible it is worth doing") and that in the end he pretty much wins but usually botches things up along the way. I think this acquisition will work out in the long run but it's not going to be as smooth and easy as he probably thinks it will be. I personally don't like the extra risk right as we are trying to get the Model III out the door. Is it really worth the extra potential profits, or from Elon's view, an easier deployment of Tesla Energy products due to better "synergy"? Maybe Elon has a top secret plan that will reduce most of the extra risk and all this consternation will be for naught. Time will tell and the investors that stick around will either reap the rewards or the repercussions.

With that said it doesn't matter what I think, it only matters what I do from here. I now feel like the deal HAS to go through now that the cat is out of the bag. To make up for the extra risk I will have to diversify my accounts more once there is an opportune time.

 

[electracity]

I live in New York. Right now, SolarCity is completely uncompetitive in my part of upstate. Solar panels are going up all over and they aren't the ones installing them. There's some evidence that there are *diseconomies* of scale in the solar installation business and that a local installer can be "leaner and meaner". The panel + racking business is where the economies of scale might be.

Exactly. Mature solar markets have nothing like solarcity. Here are Australian prices, which have incentives roughly equivalent to the U.S. ITC.

Residential solar PV system prices for June 2016 - Solar Choice

 

[Rarity]

One plus side of the purchase is using Solarcity sales. . . staff to help the Tesla store growth that will be needed.

They have incompatible retail sales cultures. If you have ever listened in to a SolarCity retail sales pitch and also visited a Tesla store, you will know this to be true.

 

[eloder]

4. As I said, I'm not familiar with the risk of SCTY's business and espcially financial model. But, assuming constant instrest rate environment and very low defaults from users, I see a possible silver lining here - whole sales team get laid off. SCTY stop growing as they were. The sales cost for SCTY in the latest Q was almost 30% of their total cost. Reduce this to 0, then you get positive cash flow for the next 20 years or so. Focus only on commercial/grid level and forget about residential solar. I think this is the only way to realize Elon's "significantly reduce operation cost" and "generate positive cash flow in 3-6 months". In this scenario, having SCTY within TSLA could be a good thing.

I think I agree with you--I can only see this being a good thing if SCTY's sales/marketing/acquisition force is almost completely disamantled.

1) It'll help reverse the highly negative customer perception of SCTY (this is TOXIC TOXIC TOXIC, and must be addressed severely in order to not drag Tesla down with it). This will ONLY happen if SCTY undergoes a major surgical alteration of its corporate structure and strategies now.

2) It'll help align cultures. SCTY and TSLA sales/acquisition/customer cultures are complete opposites of one another now.

3) It'll actually help reduce acquisition costs by moving to Tesla's model. SCTY products could be a peripheral add-on to buying a Tesla or Tesla Energy.

4) It'll immediately allow the financials to benefit Tesla, rather than harm Tesla--making near-term worries much less severe.

5) It'll help Tesla re-align SCTY's goals, such as being a top manufacturer of panels, provide super-cheap panels to superchargers and Tesla factories, and delve more heavily into the utility space which is where Tesla Energy dominates. Residential will still be there for Solar City, it just won't be its primary purpose in terms of acquiring customers.

 

[Jonathan Hewitt]

They have incompatible retail sales cultures. If you have ever listened in to a SolarCity retail sales pitch and also visited a Tesla store, you will know this to be true.

SCTY salesmen are heavily commission based. Take that away and I think that will make a world of a difference?

 

[Vitold]

Yeah, that made no sense at all. Why did they have to give SolarCity a special deal? We are talking product integration here - product interfaces are specified and any company can integrate. Much more complex industries do this all the time (like Intel CPUs and operating systems). Indeed at the end of the call, Elon said that the combined Tesla Energy/SolarCity product would have specified interfaces and other companies would be able to integrate to it. So, yeah, that justification made no sense at all.

If I had to guess: EM has no use for SCTY anymore since he feels Silevo project will pan out, while SCTY is having hard time accessing financial markets (on good terms), PPA business is shrinking and regulations are unpredictable.

In the end - would you consider buying solar system from SolarCity that lost 70% of it's market value and may not be here in 10 years or Tesla Solar offering panels in signature black?

 

[electracity]

They have incompatible retail sales cultures. If you have ever listened in to a SolarCity retail sales pitch and also visited a Tesla store, you will know this to be true.

Tesla won't do the solarcity thing in Tesla stores. I'm sure they are thinking about how to handle the current direct sales of solar.

If SCTY is being purchased now at $26-28, their business model is not working. Tesla will have a new, upscale model that likely de-emphasises growth for a few years. Likely much more emphasis on storage and home energy security.

 

[Chickenlittle]

From what I understand so far. This separation is not possible because the securitization combines the funds that pays for the system, the cash flow, the hardwares together. On top of it all. SCTY also funds the financing some times. WIthout having found the answer yet. I am guessing that if you separate the two entity, the securitization will have to be done on either Hardware or Either the Funding entities.

Very confusing to me what rules apply. For instance Alcoa splitting into two different companies their bonds will be assigned to one or the other. The upside (more profitable) will be assigned less debt and projected by company to have investment grade. The commodity side will get existing bonds which will remain junk rating. Why this is allowed isn't clear.

 

[Skotty]

This being a short term price movements thread, the short term price movements are probably not so good. However, long term might be just fine. Tesla may end up being more of an energy company than a car company, with Tesla Motors being one arm and Tesla Energy another. I've suggested before that Tesla Energy could end up being very big and important, and the SolarCity offer aligns with that. If nothing else, we can all be happy that a SolarCity acquisition will help quiet the extremely tired and annoying coal car arguments. After all, the cleanness of EVs is tied to the cleanness of energy generation. If Telsa has to do it all by themselves, so be it. I for one stand with them. They have my support and financial backing.

I'm personally curious if this buy could accelerate SolarCity opening up business in other states. I'm looking to install rooftop solar in the next couple of years, but I have not considered SolarCity because I am not in a SolarCity state. Could SolarCity coverage be quickly expanded by the merge? I would definitely consider them if they were actually available to be considered.

 

[ABCCBA]

I guess growth and profit are unnecessary when you have an seemingly endless supply of OPP? Tesla already has a storage solution, scty offers nothing but having TSLA shareholders as a current funding source for a broken business model.

If SCTY is being purchased now at $26-28, their business model is not working. Tesla will have a new, upscale model that likely de-emphasises growth for a few years. Likely much more emphasis on storage and home energy security.