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Dear Tesla, about this proposed acquisition,

Discussion in 'TSLA Investor Discussions' started by SteveG3, Jun 23, 2016.

  1. SteveG3

    SteveG3 Active Member

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    in the many, many interviews of Elon Musk I've seen, several times he has been asked what advice he would give to someone starting a new business. Elon typically responds with two points, one of them always being (paraphrasing),

    seek out honest feedback about your plans and products, especially from friends

    with that in mind, I suggest we use this thread to offer Elon what he seeks. we can sum up here our take on the existing proposal, and/or suggest any alternative arrangements with Solar City we might find more promising after we've done our "due diligence" (we could probably use a separate thread for us to hash that due diligence out together).

    Tesla is known to look through TMC, and given the new format which allows posts to be rated, it seems anyone interested in Tesla could realistically work their way through the thread to seek the TMC crowd-sourced feedback we've voted to be most constructive (particularly if we make this a place to summarize our views after we've done our homework).
     
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  2. neroden

    neroden Happy Model S Owner

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    #2 neroden, Jun 24, 2016
    Last edited: Jun 24, 2016
    Thanks for this. So,

    Dear Elon Musk & Tesla Motors,
    I love the synergies between Tesla and Silevo and Zep. But I have major concerns about the merger with SolarCity and am currently inclined to oppose it. Here is what would convince me to support it.

    (1) SolarCity is currently financing installs (leases & PPAs, and perhaps loans) itself, rather than having its customers use outside banks to get financing. This has exposed SolarCity to a huge number of financial risks which are normally only taken on by banks. (This includes the need to refinance short-term borrowings repeatedly, risk of interest rates rising during refinancing, risk of failure to refinance, risk of failure to place asset-backed securities, risk of a spike in default rates, risk of interest rates being higher than planned converting profitable installs to unprofitable ones, etc.)

    As Tesla stockholders, these are risks we were not expecting to deal with. Since Tesla is focused on being the best manufacturing and engineering company in the world, we do not trust you to handle a very different bank-like business. It has similarities to the financial operations which caused many companies to go bust or need bailouts in 2008. How do you plan to get out of this financing business? We would be much happier if SolarCity, in the future, used straightforward arrangements with banks such as Tesla makes with banks for car loans, where SolarCity has zero or minimal exposure to refinancing and default risks.

    (2) How do you plan to address SCTY's existing mountain of recourse debt which needs to be refinanced in the next five years? A specific and realistic schedule of how the debt will be retired or refinanced, preferably without diluting TSLA stock again or threatening Tesla's financing for Tesla Motors expansion, would be reassuring.

    (3) Have you considered buying only the manufacturing operations of SolarCity, namely Silevo and Zep? Or only the manufacturing and installation operations, leaving the financing operation behind?

    (4) If you are insistent on retaining the direct financing operation, have you considered organizing a "captive" chartered bank subsidiary with access to the Federal Reserve to do the financing? This would reduce refinancing risk and make the balance sheet of SolarCity *much* clearer.
     
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  3. Ludus

    Ludus Member

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    Neroden, I think that all makes sense as a critique. Solar City started in an environment where Solar was harder to finance. The current environment seems to be shifting to a make that more normal and Solar City should have a business Model that works well with cash purchases and third party financing.
     
  4. 30seconds

    30seconds Active Member

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    Please go read the PPA investment ratings. I see nothing to think that undue risk is place on Solar City other than making sure the power is delivered and the bills are collected. I believe ABS structures are a brilliant part of the business model as SCTY will own the install once the ABS is mature. When batteries & smart inverters are added (in like 5-10 years for much cheaper) SCTY will be able to control timing and amount of power fed back to the grid, basically making themselves the countries largest power supplier to local utilities.

    Under customer financed model I believe the sales ramp is much slower and SCTY would be much more challenged to deliver a solution like this, especially as owners will need to replace inverters and may very well select solutions no longer compatible with the SCTY software controller
     
  5. dakh

    dakh Member

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    Oh no, another thread on the same topic. I have not seen a single message here that would constitute constructive feedback so far. Just short term concerns and attempts to understand what's going on.
     
  6. neroden

    neroden Happy Model S Owner

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    I'm a bit surprised nobody else other than me has constructed a "constructive feedback" letter. I guess my extremely specific concern is the only extremely specific concern anyone else has. Put it in an envelope and mail it to Musk? :D
     

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