2017 Investor Roundtable:General Discussion

[ValueAnalyst]

The SolarCity merger was in some ways an equity capital raise at a good price. As many have pointed out, selling all the existing leases raises a lot of cash; they weren't being valued at their cash sales value before the merger due to refinancing fears.

I haven't done the math but I believe that cash was worth more than the dilution.

Impossible to calc the value lost by SCTY dilution without future prices, and if one assumes TSLA is worth a lot more, then dilution > cash received.

SolarCity acquisition, even though it was not a financially smart move through a short-term lens, was necessary for many strategic reasons.

 

[Alketi]

SolarCity acquisition, even though it was not a financially smart move through a short-term lens, was necessary for many strategic reasons.

The most puzzling thing to me about the SolarCity purchase is the current lack of integration. Why aren't they advertising solar in every Tesla store? And more importantly, why aren't there solar + car + battery packages??

And, I don't buy that they're just waiting for the solar roof, because not everyone needs a new roof.

One of the biggest hurdles for solar is the fact that a buyer needs to be motivated and clever enough to spend hours researching, searching online, calling solar companies, setting up visits, gathering quotes, etc. etc. It's a horribly inefficient way to sell anything and immediately rules out the non-savvy.

Tesla has this tee'd up for an order of magnitude better simplicity and integration. But, we're still waiting ...

 

[Reciprocity]

is there a financial equivalent to jumping the shark?

York Capital's Jamie Dinan: Wait on Tesla bonds, they could get 'whacked'

You use that as proof of what exactly? Jamie Dinan says, Elon is a visionary and he wouldnt buy the bonds because he would not get enough interest (meaning Tesla is not paying a lot for the money), he would prefer equity because of the upside. Yes, everyone wants free equity, but that ship has sailed for Tesla, now they can get away with no equity debt issuance. I think you saw the dumb headline and thought it was bad for Tesla, foolish bear. I guess that's why Shorts have racked up >5B in market to market losses this year alone.

It is also clear, that the market LOVES the deal. Like a lot. Like enough to give you and your cohorts more losses this year.

 

[Reciprocity]

Impossible to calc the value lost by SCTY dilution without future prices, and if one assumes TSLA is worth a lot more, then dilution > cash received.

SolarCity acquisition, even though it was not a financially smart move through a short-term lens, was necessary for many strategic reasons.

I think people will better understand why SCTY was not an optional thing. It was mandatory. Once they proved they could not stay above water alone for Tesla to partner with, Tesla had to buy them or someone else. If Tesla does nothing more then supply itself with micro grid solutions for superchargers, it will be a huge win. Add in Solar roofs and traditional panels combined with PW and the business could be on par with Auto. I know, it seems impossible, but as a Utility supply only itself, they could be making as much NET profit from TE. Semis in particular could be 20B a year in Profits. Its as if Tesla is also becoming the Oil company, Gas station and Electric company at the same time. Utilities do very well in terms of cash flows and do well in during down times because people still need lights and in this case, they will still need to get from A to B and keep their lights on.

Edit: If Tesla does not want to build their own Solar + Battery supply adjacent to Semi superchargers, then I will. Who will loan me a billion $. Its for a good cause.

 

[electracity]

The most puzzling thing to me about the SolarCity purchase is the current lack of integration. Why aren't they advertising solar in every Tesla store? And more importantly, why aren't there solar + car + battery packages??

They will when the offering is better differentiated, organized, and more complete than it is today. If you follow Powerwall II installs you will find that they are still working out the details. The new solar roof is even further behind.

No reason to sell something you can't install for a long time.

Apparently their installers are busy enough installing panels without pushing solar products in stores.

 

[Waiting4M3]

They will when the offering is better differentiated, organized and more complete than it is today. If you follow Powerwall II installs you will find that they are still working out the details. The new solar roof is even further behind.

No reason to sell something you can't install for a long time.

Apparently their installers are busy enough installing panels without pushing solar products in stores.

Exactly. Tesla, Inc. Starts Selling Tesla-Branded Solar Panels in Its Stores -- The Motley Fool

Tesla explained the success in its first-quarter shareholder letter:

Recently, we tested sales of our solar and storage products in several Tesla stores, and saw sales productivity improve 50% to 100% relative to the best non-Tesla retail locations. Based on these results, we are working towards fully staffing more than 70 Tesla stores in the U.S. and abroad with dedicated Tesla energy sales people over the next two quarters.​

They're working on putting TE sales into Tesla stores in Q2/3, as we speak.

 

[electracity]

I think people will better understand why SCTY was not an optional thing. It was mandatory. Once they proved they could not stay above water alone for Tesla to partner with, Tesla had to buy them or someone else. If Tesla does nothing more then supply itself with micro grid solutions for superchargers, it will be a huge win. Add in Solar roofs and traditional panels combined with PW and the business could be on par with Auto. I know, it seems impossible, but as a Utility supply only itself, they could be making as much NET profit from TE. Semis in particular could be 20B a year in Profits. Its as if Tesla is also becoming the Oil company, Gas station and Electric company at the same time. Utilities do very well in terms of cash flows and do well in during down times because people still need lights and in this case, they will still need to get from A to B and keep their lights on.

Edit: If Tesla does not want to build their own Solar + Battery supply adjacent to Semi superchargers, then I will. Who will loan me a billion $. Its for a good cause.

You would have loved the glory days of the SCTY thread.

 

[neroden]

I'm now seeing a rumor that Tesla is getting 4.875% on its bond issuance!

Lawrence McDonald on Twitter

This is honestly amazing. That's a super good rate.

------
I already said I expect them to retire the "secured revolving credit facility", the SREC loan facility, and the promissory notes, as well as most of the "vehicle and other loans", and most of the "solar bonds".

The 2018 Term Loan should get a better interest rate upon refinancing; although since its interest rate went up at the last refinancing, Tesla might just drop it and finance that subsidiary from corporate cash. (Probably before selling off the leases underlying it.)

I should note that the Revolving Aggregation Credit Facility had its interest rate lowered in June 2017. It may be lowered again.

If you asssume that this bond will be used to refinance the high-rate debt and that all the convertibles will convert (so they're equity, not debt), Tesla's debt will come out to about $4.8 billion, of which 2.4 billion is non-recourse; and the book value will come out to $9.3 billion (though mind the dilution). Interest payments will be roughly half a billion a year. This is a respectably low debt to equity ratio of 0.52.

Refinancing the 2018 Solar City convertibles with debt wouldn't make much difference (debt $5 billion, book value $9 billion). Refinancing the 2019s with debt would make more of a difference (debt $5.6 billion, book value $8.4 billion), but it would still be a debt to equity ratio of 0.66. Automotive companies generally have a debt/equity ratio higher than 1! (The other convertibles are going to convert, period.)

What this tells me is that Tesla can issue more debt next year.

 

[Reciprocity]

Exactly. Tesla, Inc. Starts Selling Tesla-Branded Solar Panels in Its Stores -- The Motley Fool



They're working on putting TE sales into Tesla stores in Q2/3, as we speak.

Model 3s are going to sell a crap load of Solar and some stationary storage. The math is simple. Lets say the average driver is spending $150 a month on gas and $150 a month on Electricity. When they switch to an EV, their monthly electricity goes up ~50% to $225. Amortized over 25 years gives you $67,500. That can buy a lot of Solar + Batteries. I know for me, my 8KW system will be roughly $30K, Panasonic 325 HIT panels, which should be very similar to what is being sold today by Tesla. $10k in Tax incentives and another $10k in SREC incentives (first 5 years, another $5k for the next 5 years). With 2 EVs It would be insane for me to not purchase solar. We have net metering and a generator here, so I dont need a PW yet. But if net metering goes away or my Generator dies, I would look at PW.

Edit: I would have bought Tesla branded panels, but they do not sell them here yet.

 

[neroden]

Solar and wind are already cheap enough imo (not that they can't get cheaper still), batteries are now the missing piece and they'll be there soon. These are exciting times.

I ran through the prices carefully. Solar and wind are cheap enough that a new coal plant is economically impossible. But there are still situations where it is cheaper to operate an old, existing coal plant during the day than to build a new solar farm. :-(

Solar and wind are cheap enough to shut down MANY of the old coal plants, but it'll probably take one to three years (counting from 2016, so 2019) before it becomes economically unfeasible to run any coal plant during the day.

Batteries are indeed the crucial piece. I have a rather complicated theory for how battery deployment will go, which I will not explain at this time, but I expect there will be enough to kill off coal plants by 2019.

 

[neroden]

The most puzzling thing to me about the SolarCity purchase is the current lack of integration. Why aren't they advertising solar in every Tesla store? And more importantly, why aren't there solar + car + battery packages??

They're just moving really slowly. Administrative disorganization. Mergers usually take time, but with Tesla's level of administrative disorganization, their merger takes longer.

 

[CHGolferJim]

What's going on with today's TSLA trading? Is it happiness about the debt raise = lower risk of near-term equity dilution? Couldn't find much in the news so far.

 

[DurandalAI]

I ran through the prices carefully. Solar and wind are cheap enough that a new coal plant is economically impossible. But there are still situations where it is cheaper to operate an old, existing coal plant during the day than to build a new solar farm. :-(

Solar and wind are cheap enough to shut down MANY of the old coal plants, but it'll probably take one to three years (counting from 2016, so 2019) before it becomes economically unfeasible to run any coal plant during the day.

Batteries are indeed the crucial piece. I have a rather complicated theory for how battery deployment will go, which I will not explain at this time, but I expect there will be enough to kill off coal plants by 2019.

Exactly. The utility sector doesn't react very fast. Even though solar and wind are cheaper, utilities are operating on 20-30 year timelines, and the drop in renewable energy prices has been amazing just over the past few years.

Listening to "The Energy Gang" podcast, they've discussed how utilities are trying to steer that very large boat called utility planning towards the lower cost options of renewable energy.

For anyone who's not familiar with the podcast, I'd highly recommend it from the perspective of keeping up to date where the renewable energy market is going, especially at the grid level. I love listening to it while driving my Leaf to work in the morning.
The Energy Gang | Solar Energy & Sustainability Podcast | Greentech Media

 

[tander]

What's going on with today's TSLA trading? Is it happiness about the debt raise = lower risk of near-term equity dilution? Couldn't find much in the news so far.

Pretty much, upgraded too.

 

[Fallenone]

I'm now seeing a rumor that Tesla is getting 4.875% on its bond issuance!

Lawrence McDonald on Twitter

This is honestly amazing. That's a super good rate.

------
I already said I expect them to retire the "secured revolving credit facility", the SREC loan facility, and the promissory notes, as well as most of the "vehicle and other loans", and most of the "solar bonds".

The 2018 Term Loan should get a better interest rate upon refinancing; although since its interest rate went up at the last refinancing, Tesla might just drop it and finance that subsidiary from corporate cash. (Probably before selling off the leases underlying it.)

I should note that the Revolving Aggregation Credit Facility had its interest rate lowered in June 2017. It may be lowered again.

If you asssume that this bond will be used to refinance the high-rate debt and that all the convertibles will convert (so they're equity, not debt), Tesla's debt will come out to about $4.8 billion, of which 2.4 billion is non-recourse; and the book value will come out to $9.3 billion (though mind the dilution). Interest payments will be roughly half a billion a year. This is a respectably low debt to equity ratio of 0.52.

Refinancing the 2018 Solar City convertibles with debt wouldn't make much difference (debt $5 billion, book value $9 billion). Refinancing the 2019s with debt would make more of a difference (debt $5.6 billion, book value $8.4 billion), but it would still be a debt to equity ratio of 0.66. Automotive companies generally have a debt/equity ratio higher than 1! (The other convertibles are going to convert, period.)

What this tells me is that Tesla can issue more debt next year.

If true it is a great deal. Much lower than most of the junk bonds.

 

[Oil4AsphaultOnly]

I think you misread my post. According to the person I spoke with, she paid $9k for a preowned Leaf with 25,000 miles on it. The price didn't drop $4-5k, but rather dropped $26k, or about 75% of its value within 2 years and 25,000 miles. That is indefensible in terms of value proposition. You can go on craigslist and check for the price on these leafs, many are selling at $6-8k, preowned everywhere across the nation.

I didn't misread it. A 2014 leaf SV already has an NMAC discount of ~$7k off of MSRP: Leaf Price / Discount discussion thread - Page 12 - My Nissan Leaf Forum

Which means the $35k leaf was really sold for $28k. Then deduct $10k for federal and state incentives, and it was effectively $18k brand NEW. So getting $9k for it after 2 years and 25k miles is a discount, but only of 50%, not 75%. Not saying this is much better, but just pointing out that $35k wasn't the real starting point for calculating depreciation.

 

[Reciprocity]

myusername: you're wrong. I'm quite sure energy storage has got positive gross margins.

I think Tesla is pulling an Amazon here, masking business details by failing to break out business segments. (Bezos hates to give details for some reason.) This doesn't mean the business isn't profitable. It's profitable. It means Tesla doesn't want you to know how profitable it is, and there could be several reasons for this. Tesla doesn't release monthly car sales because they were annoyed at how stupid the press were about it. They might not release quarterly battery sales for the same reason: it's lumpy and they don't want people to get the wrong idea.

When is that joker ever not wrong. Its pretty easy math on the stationary storage products and they could be an enormous cash cow. 14KWh at $150/KWh at the pack level, would be $2100 for a product that retails for $5500. Its a pretty simple product to see how profitable it could be. As prices drop to $100/KWh, it gets much more profitable.

 

[jbcarioca]

I ran through the prices carefully. Solar and wind are cheap enough that a new coal plant is economically impossible. But there are still situations where it is cheaper to operate an old, existing coal plant during the day than to build a new solar farm. :-(

Solar and wind are cheap enough to shut down MANY of the old coal plants, but it'll probably take one to three years (counting from 2016, so 2019) before it becomes economically unfeasible to run any coal plant during the day.

Batteries are indeed the crucial piece. I have a rather complicated theory for how battery deployment will go, which I will not explain at this time, but I expect there will be enough to kill off coal plants by 2019.

I agree with you. The crucial competitive advantage for batteries+wind is in capital cost and time. For peakers there is zero question for new plants because batteries alone can do the job with >6 months and modest cost, instant demand avalability. If teh peaker palnt already exists it's cheaper to use it. Coal is a really strange story, from my perspective. Only afew years ago China was building coal plants at almost one per day becasue tey were cheap to build and China has coal. Any other option costs more. Then they discovered pollution. Nobody sane wants more coal so demand is dropping everywhere. China does have a defifcit in petroleum, but solar and wind are easy for them. I doubt they'll eer lose their lead in deployment of new solar and maybe not even wind. Now they are engaged in a massive effort to clean up urban air so solar, wind and battereis are growing quickly. I think people misread teh changing regulatory incentives in various parts of China by assuming they're tryoing to slow adoption. Not at all, they're trying to weed out the poor BEV builders, deficient photovoltaic producers, etc while encoraging the good ones. At teh same time they are trying to reduce the total cost of incentives when they can.

China is taking twenty years to go through a process that took the old industrialists a hundred years or so. They quickly figured out the huge cost of subsidizing coal, then the equally huge cost of subsidizing petroleum. Some industrial countries still are resisting that realization.

On your last point, actually shutting down all daytime coal plants won't happen, IMHO, until the pollution costs drive it. Otehr things remaining equal coal plants take a log time to ramp up and a long time to ramp down so they're most efficient when they run at a constant 24hr load. The peaker competition is the more intersting immediate target, I think, because of capital cost for new plants. Otherwise natural gas is easy to shut off and restart and at the moment cheap to run. They aren't cheap or quick to build, though, so batteries win with capital cost+speed for new plants. As you state a new coal plant is really bad economics today.

 

[schonelucht]

myusername: you're wrong. I'm quite sure energy storage has got positive gross margins.

Read the 10-Q. Tesla energy storage is running at a whopping -90% gross margin last quarter. See here Q2 2017 Earnings Estimates

 

[neroden]

Read the 10-Q. Tesla energy storage is running at a whopping -90% gross margin last quarter. See here Q2 2017 Earnings Estimates

Excuse me, but as far as I can tell Tesla did not break out the energy storage numbers.

I see some "energy generation and storage" numbers in the 10-Q. I do not see any "energy storage" numbers, except in one section about leasing.

So I'm going to rate your claim "False".

You're attempting to subtract "SolarCity Energy Generation and Storage Costs" (notice the "and storage") from total "Energy Generation and Storage Costs" to get total "Energy Storage Costs".

You're attempting to subtract "Revenue from SolarCity" (including storage revenue) from "Energy Generation and Storage Costs" to get "Storage Costs".

I don't believe that this works.

SolarCity was previously selling Tesla's batteries through SolarCity with a SolarCity markup. It is logical to assume that some of the "SolarCity" revenue is for the batteries and that some of the "SolarCity" costs are related to the battery systems. Tesla may have been selling Powerpacks at a loss to SolarCity in the original deals with SolarCity before the merger, but there's insufficient evidence to show what you're claiming, namely that they're selling them at a loss today (now that they take SolarCity's share of the profit).

If you want real numbers you also have to back out the ****ed-up lease and PPA accounting, which make profitable PPA and lease deals look like losses. I can't be bothered due to the small quantities. This is supposed to get straightened out by the changes in GAAP in 2018 and 2019.

I will say this: most of the utility-scale and commercial-scale energy storage deals are "install now pay later" in one form or another. So the business should be cash-draining, although profitable.