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Information specifically from TSLA conference call on SCTY merger

Discussion in 'TSLA Investor Discussions' started by neroden, Jun 22, 2016.

  1. neroden

    neroden Happy Model S Owner

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    OK, this is for tidbits of data straight out of the conference call. Pardon if I have transcription errors, I'm not that good at transcription.

    Musk starts by basically saying that Tesla customers ask about solar panels, he wants to sell them solar panels, and it's "inefficient" for the panels to be made/installed by another company.

    Musk said that the important debt measure for SolarCity was the recourse debt because the non-recourse debt, well, does not have recourse to SolarCity's balance sheet. (This is all true. We mere mortals, of course, do not *know* how much of the debt is truly non-recourse, since we haven't been able to read through all the contracts to look for putback clauses.) In this context he said Tesla would take a "closer look" at SolarCity.

    Musk specifically plans to cut SolarCity's sales costs in the case of the merger:
    "...dramatic reduction in the cost of sales of solar systems sold through our stores. The biggest factor in SolarCity's increasing cost per watt in Q1 was their sales cost.... That'll go radically in the other direction with sales through Tesla."

    Musk: "To date, while SolarCity has not been sufficiently differentiated on the product side, the solar panels themselves, they certainly will be in fairly near future." (Silevo Factory in Buffalo)

    "...the Silevo acquisition, which we think is the best technology for high-efficiency, low-cost solar panels."
     
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  2. neroden

    neroden Happy Model S Owner

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    "My intuition about this could be wrong, but from my standpoint this makes Tesla's future execution easier, not harder. It's just getting increasingly unwieldly to work with SolarCity at an arm's length basis. We really need to have an integrated product. The Powerwall and the Powerpack need to be designed together with the solar system. So it's a one-piece thing. We really can't do that if we're two separate companies."

    "Should the companies be two separate containers or one container? And if they're one container, we can make a more compelling product..."

    Soooo, Musk is basically talking about the solar panel/racking/installation business of SolarCity. Which is great, and I do see the synergies there, but doesn't address any of my concerns about the financial shenanigans at SCTY. Not reassuring.

    (Asked about integrated product)
    "Ongoing maintenance is one point of contact, and not two or three points of contact..."
     
  3. neroden

    neroden Happy Model S Owner

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    Musk spends a *lot* of time talking about the Silevo panels. He says they look better than typical Chinese panels, and waxes rhapsodic on the value of the aesthetics. He says (paraphrased) that they believe they can get the same price per watt as the cheap Chinese panels while having higher watts per square meter.
     
  4. neroden

    neroden Happy Model S Owner

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    (In response to a question which specifically excludes any sales synergies)
    "I think the biggest asset that we'd be acquiring are the installers, the installation team of SolarCity. All the people trained in doing the permitting, the paperwork, all the complexities that exist in municipalities across the countries. Understanding how to deal with 37 different roof types, having efficient logistics infrastructure".

    Then he goes back to talking about sales, and then he goes back to talking about the Silevo technology.

    The question he was asked specifically prompted whether there would be synergies from "specialty finance expertise", and Musk didn't respond to that, implying that he doesn't consider it valuable.

    So this is the picture I'm getting from Musk: he wants Tesla to own Silevo, and he considers the installers to be a bonus. I don't think he values the financing business at anything (the question I have is whether it's actually worth less than nothing).
     
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  5. neroden

    neroden Happy Model S Owner

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    Question: if the merger is consummated, will you give a segmented balance sheet to increase transparency?

    Vague answer. He does say, "We don't want to have an information discount to the stock because people are uncertain."
     
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  6. neroden

    neroden Happy Model S Owner

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    "It is interesting to look at the feedback that I've received since we made the announcement yesterday. Anyone who's product-focused sent me sort of a congratulatory note -- and like why didn't you do it sooner sort of message.
    And then people that are more sort of finance focused, they were like a lot more worried about it. But you know in the long run the value of the company is defined by the value of its products and services..."

    ( Elon is actually DEAD WRONG here when it comes to banks.

    The value of a bank is NOT defined by the value of its products and services, it's entirely about its finances. Bank of America has 100% crappy products, basically cheats its customers constantly, and has a pretty high valuation.

    This is showing that he doesn't understand banking, and doesn't understand the degree to which SolarCity has gotten involved in banking. I hope he wakes up to this quickly. )
     
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  7. neroden

    neroden Happy Model S Owner

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    Asked about SolarCity cash flow, Musk says that a lot of costs are duplicated and can be eliminated within six months. (Expect layoffs at SCTY, I guess!)
     
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  8. neroden

    neroden Happy Model S Owner

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    Musk says that SolarCity is constrained from raising capital in the current market. (He doesn't think they'll need to, but he specifically says that they're constrained.)
     
  9. neroden

    neroden Happy Model S Owner

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    Asked if SolarCity's stores are an end-run around the dealership battles (bonnie's idea), Musk says "That's an interesting question", and "Now that you mention it". (Implying that this is NOT something he was thinking about.)
     
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  10. neroden

    neroden Happy Model S Owner

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    Musk specifies that the Powerwall/Powerpack would still be sold to other solar companies, but that they'd have to match the design spec from Tesla which would be made to mate with the SolarCity panels. "We're not going to basically be a jerk to other solar companies."
     
  11. surfside

    surfside Member

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    I think you got this one wrong -- he says that they could raise capital in the current market. However, the offer from Tesla and the process would obviously limit Solar City from accessing the capital markets (no one wants to do anything until the potential deal is sorted out). In this context the analyst asked if Tesla would provide capital to Solar City if it is needed, and while Elon commented that he doesn't think Solar City will need it, Tesla would consider providing a bridge loan to Solar City in this circumstance (citing "because it is the right thing to do").
     
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  12. neroden

    neroden Happy Model S Owner

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    Asked about exposure to clawback conditions on tax equity deals. (Good question!) Musk doesn't know yet, repeats that they had to go public early because of his stockholdings and that they will have much more information before the vote.

    Says he'll be talking to the lenders. (Meaning the financiers of SolarCity's structured finance products.)

    Asked about considering buying other solar panel companies instead, he says he thinks SolarCity is the leader, discusses Silevo again. (Musk really really wants Silevo! He mentioned earlier that he's gone into the details of the Silevo production process.)
     
  13. neroden

    neroden Happy Model S Owner

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    Got it, I think you're right.



    ...OK, I'm done listening through the conference call.

    I hope during the due diligence process, Tesla gets us a much better analysis of SolarCity's structured finance products, which can potentially be an albatross which can sink a much larger parent, but if they're OK, then I'd support the deal.
     
  14. surfside

    surfside Member

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    #14 surfside, Jun 22, 2016
    Last edited: Jun 22, 2016
    My favorite part of the call was when someone asked how the Silevo products are going to compete with the Chinese solar panels:

    "At Tesla we are spending a effort into becoming the world's best manufacturer. I'm highly confident we will be the world's best manufacturer. Just as we said we were going to build the world's best car; we did that. At Space X we said we were going to build the world's best rocket; we did that. We are going to be the world's best manufacturer. Not by a small margin, but by a margin that people don't even think is possible."

    Elon went on to talk later about how when Tesla becomes the best manufacturer in the world, the manufacturing plant / process is going to look like an Alien Dreadnought once it gets to version 3.0 of the manufacturing process. When pressed about whether or not Tesla's current factory would be able to implement some of these improvements, Elon mentioned that for the Model 3, they are targeting getting to version 0.5 (with version 3.0 being Alien Dreadnought level). He then commented that the efficiencies they are able to get are probably most evident in the cell production, where Tesla's engineers through working with Panasonic have increased the cell production manufacturing efficiency to the point where the Gigafactory will be 3x more efficient than the best plant in the world today. Elon commented that the exit rate of cells will be faster than bullets from a machine gun.

    Pretty interesting stuff if you ask me.

    surfside
     
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  15. SW2Fiddler

    SW2Fiddler Bannd Member

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    GF will achieve "efficiency of cell manufacturing 3x the best factory in the world."
    "Cells will exit the factory at a rate higher than bullets from a machine gun"
    "GF opening party will be a real eye-opener"
    3x
     
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  16. Alketi

    Alketi Member

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    Yup -- this was the hint to buy Tesla stock before the Gigafactory party at the end of July. Those quotes are pretty insane.
     
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  17. larmor

    larmor Member

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    Presumption: best manufacturer = lower costs
     
  18. adiggs

    adiggs Active Member

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    I haven't listed to the call, but when Elon says something like best manufacturer, I take him to mean having the best combination of quality, cost, waste, and throughput.

    Lowest cost could be obtained, but Elon will solve for a bit higher cost than could otherwise be obtained in order to also achieve better / best quality. That's how I interpret best manufacturer.

    I also interpret what he's going for and talking about, as being best by a wide margin. Maybe by a big enough margin that he could lower the cost further with lower quality, but he'll already be the lowest cost producer while also being one or THE highest quality producers.
     
  19. MitchJi

    MitchJi Active Member

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    I think assuming that demonstrates that he doesn't understand the financing is a pretty big leap. Remember that he founded Paypal and that he must've had conversations with Depak and Wheeler about this. I'd be shocked if he doesn't understand this much more throughly than most of the "experts " on this forum.

    Extremely important IMO. I think faster than a machine gun means faster than the rate of fire of a machine gun, about 500-3k rounds per minute, not faster than the muzzle velocity. It sounds like Elon was talking about seeing the actual production, which must mean that they're at least producing sample quantities and it sounded like they will show that at the party. I'm think that it's likely that they will produce about 3 GWh in Q3 for TE. Liftoff!
    In terms of manufacturing cells he has to mean cost. GM said that they have had zero bad cells from the LG Chem cells in the Volt, and have you ever heard of a bad cell in the MS-MX? How can they possibly improve on the quality?
     
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  20. neroden

    neroden Happy Model S Owner

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    Musk thought that PayPal would replace banks, IIRC, which indicates that he doesn't have clue #1 about banking. It never had a chance of doing that, because it wasn't in the same business.

    It is a mistake to assume that Musk understands banking. Maybe he does, but he's given zero evidence of it as far as I can tell. It's a freaking weird business and is not straightforward to get your head around.
     

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