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Long-Term Fundamentals of Tesla Motors (TSLA)
- Thread starter Robert.Boston
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- elon is an ass investing TSLA
mspohr
Well-Known Member
They also have this thing called "Partial Zero Emission Vehicles" PZEV which is an oxymoron. Lots of run of the mill Subarus have this badge (with a green leaf).
I'm reading between the lines...Jonas is ambitious and conveying to be a bigger fan of autonomous driving than solar at this time for better or worse. He sees the future with Uber and worries this puts it off into the future.
I'm more surprised about tftf. What is your take? Sorry if I missed it.
I'm more surprised about tftf. What is your take? Sorry if I missed it.
Here it is, in Feb 2014: http://seekingalpha.com/article/2049833-teslas-new-markets-pricing-utopia
Then, in Jan 2015: http://seekingalpha.com/article/281...ion-for-2025-is-next-to-impossible-to-achieve
Then, in Feb 2016:Tesla's Last Hype Bullet For Years To Come Is About To Be Fired: The Model3 Unveiling In March 2016 - Then Reality (Hard Numbers And Execution) Will Finally Take Over - Tales From The Future
Then, in May 2016: A Tale Of Two EV Battery Makers: Daimler Versus Tesla (Continued From BYD Versus Tesla) - And Revisiting Tesla's Crazy 2018 Plans - Tales From The Future
Same short thesis since 2013.
That's enough free SEO juice for a hypocrite.
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They were _never_ ZEVs. They were PZEVs. The key additional requirement for a PZEV is zero evaporative emissions. Since gasoline evaporates easily, eliminating them was seen as a big deal.
Or you could just have had a quick look at my signature instead of posting so many links not directly related to the topic (well my old February 2014 article is maybe useful concerning Tesla's long-term fundamentals).
But the question remains the same: Morgan Stanley's report note from 2/2014 added billions of $ in market value (while I'm just being sarcastic) instantly - based on proposed synergies between solar/distributed power, batteries and EVs/autonomous cars.
Now that TSLA is executing on this very strategy (proposed SCTY merger), MS is downgrading TSLA two years later.
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@9837264723849 - Yeah, I'm familiar and I have been reading tftf's comments that seem to be either dry sarcasm or maybe something else
@tftf - What is your take? Or are you still of the same opinion that 9837264723849 displayed?
@tftf - What is your take? Or are you still of the same opinion that 9837264723849 displayed?
If you read the note, it's clear that the concern is not the benefits of the merger itself, but because SCTY's current cash burn will add to TSLA's funding issues. That is, it's a downgrade on risk.
Cash burn is pure FUD. Listen to the conference call:
SCTY will be cash-flow positive very soon. Elon Musk said so on the call!
Here's the transcript with EM discussing SCTY becoming a net cash generator in just 3-6 months:
What more do we need to know? Elon Musk, the chairman of SCTY, says SCTY will generate cash within 3-6 months.
I doubt anyone writing a "note" has more inside knowledge.
Only the Internet is rumor-mongering about a "bailout" or "cash burn". Clearly trying to damage the proposed merger.
I'm glad Elon Musk firmly answered the cash-flow question on the SCTY call!
Gerardf
Active Member
tftf, since you are on this thread, implicitly confirming you are still a short holder, I would be most intertested in your opinion on my post here Tracking short interest
I have the feeling I am overlooking something, so for a change I would be interested in hearing your opinion, as you can give feedback
from a short holders point of view.
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I'm not short SCTY, but have been in the past. Closed my last position back in November 2015. Borrowing costs too high now and the stock has already fallen quite a bit.
But SCTY could go the way of SUNE (now SUNEQ). A good comment on SA about the merger:
"If Tesla had an independent board it would've waited to buy SCTY out of receivership".
I’ve been caught up in life events but found a window to post (although I’ve been following along with occasional likes!). Thought I would voice my thoughts regarding Tesla-SolarCity as I’ve received some behind the scenes pressure from long-time friends on this board to voice my perspective. Decided to put it here as it relates more to Tesla as SolarCity applies to it.
Lots of good posts and I generally have agreement with parts of many; However, I’d like to offer a alternative view (read bias) than currently in the other threads
A White noPaper
I’ll start with a warning and set of assumptions that I’m not particularly inclined to defend in discussion, as I’m time limited and have done so in the past ad-nauseam. So I’ll list them first and for those that disagree- I invite you to just save time and skip the rest.
[Also, this is from someone biographically with a deep history in technical R&D thru product development (Aerospace generally) and investment bias of long view companies (Apple, Disney, Google, Amazon type and Tesla of course)]
The conclusory elements (concluded long ago) for my Tesla investment thesis:
Assumptive Principles of Musk-World:
1) Tesla exists to fulfill one man’s vision (but now joined in vision by others like JB)- which was never about ‘making cars’ (ala GM)- it was and is solely about the cheapest possible sustainable energy for humanity
2) Elon stated (and proven) operational core- fundamental 1st principles will guide strategic decisions;
-Hence disallowing all past and current industry segmentations to exist for Tesla
(disruptive across industries if needed to achieve the objective)
3) Strategic decisions will always serve the primary mission and operative
-Hence target ONLY the long-term (decades) consideration for core strategic decisions
(Solar City for current discussion example)
4) Tesla objective relative to the stated core goal above:
To eliminate carbon based fossil fuels as a source of energy from the marketplace ASAP. Transportation and Electricity Generation are BY FAR and simultaneously the largest and most inefficient conversion of those fuels to useful (human) energy
5) Humanity is first priority
-Hence ‘the customer comes first’ defines the solution’s vertical integration from start to end.
i.e. Solutions both start and end with the individual human customer
Assumptive Conclusions for this discussion:
6) SolarCity is a separate company from Tesla in name only- it serves as a temporary strategic placeholder for the benefit of Tesla Energy, largely due to Musk time constraints.
7) The price of retail Electrical Power (read: rate of Electrical Energy used by humanity for it’s own purposes) is scheduled to approach (near)zero over the next 20 years, regardless of what (Power)Utilities do or don’t do, exist or don’t exist. Note I’m using Power here rather than Energy to denote inclusion of the rate of human Energy use on any time scale.
Above are my own conclusions based on my knowledge, due diligence, research and experience. They inform my investment decisions regarding Tesla. If you're strongly convinced they are not correct, I would just skip this post, assume the rest of it is based on the wrong conclusions, and won’t relate to your investment thesis- unfairly, I won’t be able to currently engage in discussions of those base assumptions (sorry- been there done that- and I’m exercising my 0th amendment rights of no-speech and it’s associate Pursuit of Happiness)
The Cadence of Elon
I think there is generally (including on this board) a cognitive dissonance of the Tesla dynamic relative to investments. It’s an unfair generalization that doesn’t apply to all but severe enough to create an addressable concern in my mind. When investing in Tesla, you’ll be best served IMO to contextualize your decisions in a world defined by Principles 1-5 above. It doesn’t matter what you or I think is actually correct, best, agree with- disagree with, etc. We aren’t and will never make, or have significant influence on, any primary strategic decision of Tesla. So it’s a fool’s errand to anticipate Tesla from a world constructed to conform with your past experience, life objectives, intellectual prowess, etc. It isn’t going to happen given 1-5 above. Your investment thesis for Tesla is served best to conform to Musk-Worldview, it’s stated objectives, and it’s operational character. [Note: I’m saying nothing about voicing opinion, but regardless of opinion investment decisions should frame inside Musk-World)
You’re investment thesis should constantly place your mind into that world described by 1-5 above and always ask yourself what would Elon do under those objectives?
The man in charge of your Tesla investment is hell bent on getting humanity to Mars. And in the meantime change the way humanity exists on Earth. If Earth isn’t considered a boundary for him, why would ANY boundaries (existing or fabricated) be placed on the Tesla mission in his world?
Industry segments, product segments, market segments, political segments, technology segments, manufacturing segments, social segments- Have you seen any of those come to play in any core strategic decision he ever made?
He doesn’t see those boundaries and neither should you for your Tesla investment. Issues of $1B funding here and $1B funding there are simply bothersome perturbations in the ether for the primary decision maker of your Tesla investment dollars. As they should be given the objective clearly stated (and proven by events thus far)- Right or wrong isn’t at issue here- nor is our own belief - we are not in control or in position to influence - we can only invest or not.
If you do invest in this venture, move yourself to the world of Elon -
You're going to Mars in 20 years. And Principles 1-5 above is how you’re going to get there.
It’s The Big Long - there’s nothing short, quick or small about it.
To be successful, Your Tesla investment must match The Cadence of Elon.
In that spirit I’m going to enter Musk-World to paint a picture of TeslaEnergy-SolarCity - even for things we already know and have discussed to help contextualize and inform what to expect:
Replace the Grid not the Fuel
Principle 4 (Eliminate Carbon Fuels) alone creates a solution that sells Solar Panels to Utilities both directly and indirectly through the end consumer of Power. Note in today’s world selling a consumer Solar Panels is financially viable only by using the Utility grid as storage/balancing/billing/support - (via Net Metering) Powering the Utility. This is the same as selling to the Utility itself with an indirect financial model that flows through the Consumer who perhaps unwittingly assumes the added risks of 1) decades long fixed price of Power and 2) unknown value effect of shelter asset, in exchange for what is currently a reduced Price of Power consumed. This is effectively a sale to the Utility using the consumers existing assets as a financial intermediary leverage against the future.
This fosters the PPA/Leases used by Solar City, is a sale to consumers in name only, couples both the physical and financial relationships to the current Power Utility Structure (requiring their full approval and cooperation) and current Industry delineations; And does not provide a vertically integrated solution as a consumer first start-end.
As such, concurrently violates Principles 1,2,3, and 5 to accomplish 4, and so is not a Musk-World solution, accordingly rejected by this investor as anything but temporary (I held a VERY tiny position in SCTY uncorrelated to Tesla, which I recently eliminated in exchange for more TSLA).
It is what the normal current business world would adopt and hence given Elon’s limited resource while he’s solving the bigger user of carbon fuels (mobility), Solar City serves as a placeholder to temporarily operate and build some momentum into that space. This is what drove my Conclusion 6 long ago. It is part of the eventual Tesla solution, but not currently part of the company- to be continued at a later time.
A Musk-World solution must incorporate Principles 1-5. The only conforming solution must replace the Grid between the Power source and the customer. The conceptual view in Musk-World is not that the Grid and it’s obvious advantages is eliminated- It’s simply redefined according to 1st Principles and as such replaced as part of the vertically integrated solution Power to the human-consumer (in both senses of that equation).
As such, the Grid is the celestial fusion reactor distributing Power directly at no cost to every human individual world wide. Cloud computing for Power. It’s the view of the Grid you would have from Mars.
Of course we all know this factually- but the Musk-World distinction is it defines the integral solution (technically and business) - crossing all current Industrial and Commerce boundaries and most importantly REQUIRES the consumer based solution to transform:
Power from a Service to a Product
That’s the key disruptive from a Musk-World view- financial, technological, relationship to consumer and all the business infrastructure required to secure it’s success is the Tesla mission to accomplish. This by definition means SolarCity (or certainly it’s equivalent) was always part of Tesla.
The transformation of mission in consumer-first speak:
With the right Product I can self-service my Power- and so the cost to produce the product becomes the long term Tesla quest, not the cost to produce the Power.
Photon grid receptors are by definition inside the vertically integrated Tesla Power Product (incorporating storage/support) connecting each Consumer to the new (photon)Grid directly.
The Tesla solution is a product that converts quantum level grid photons to electrical potential for all uses. The Tesla mission for the coming decades, to deliver this product solution at the lowest possible cost through innovation that vertically spans the grid source of photons with customer acquisition and support.
The technology of the product conversion and storage is an extension of the semi-conductor fundamentals of research, development, and manufacturing. The product will take the form of a single but multilayer sheeting, largely manufactured by 3D printing and related [again we are in 10+ year forward here_ aka the cadence of Musk World].
The single sheet layering will contain multi-junction multi-wavelength grid photon reception and conversion to free electrons, super capacitors doped into the same sheet to receive and store the free electrons; solid state inversion for delivery and a sink path to ground as safe discharge of excess energy balances input and output. Other than small micro-grids for high density populations, there is no 'market' for electrons as supply massively swamps any demand.
The analogy against current product structure (and extended technology/manufacturing basis) is best served by the cloud networked computer. The outer sheet layers converting photon to electrical is the CPU/GPU and the SuperCapacitance storage layer is Memory.
The Tesla mission per vertical integration principle provides all technology fundamentals to product design to material sourcing to manufacturing to production to customer acquisition to sales/marketing to product service to virtual upgrades.
Note: Conceptually this begins with fundamental sourcing of Grid-photons (fuel) for the consumer all the way through Power available for use by any device (most especially, Tesla’s own human mobility end-product). This resolves the original Primary Objective: to remove carbon fuels from the two largest human use cases (Power production and Mobility)
Think Apple / Intel / GE / DuPont / GM / Utility cross industries - I suspect Panasonic to play a strong on going partnership role in both LiIon (bridge to SuperCap), PV along with the partnerships with the University research personnel etc. (again Elon always colors outside the lines)
In Musk-World, there was never going to be a ‘solar industry’ which by definition maps to current Utility grid - instead, Solar is simply a piece part in the BOM of the Tesla Power Product solution. And only a layer of it in that.
This requires SolarCity to become the opposite of a PowerCo, YieldCo, Owner/Seller of power in any form as a service or commodity. Power is destined to become a personal appliance product. Rated for use like any refrigerator or A/C unit.
Price of Power underwrites, but Pricing Power is the Mission
The wrong Asymptote-
The current Price of Power in non-inflated dollars has been essentially constant for decades (relative to the disruption of this discussion). Not surprisingly, since the delivery mechanism scales to any use at roughly the same cost per user and with guaranteed returns. This has induced one of the most indelible investment assumptions in history as Power Utilities’ stability and return are considered among the safest and dependable available. The consistent and guaranteed Price of Power underwriting these investments. The associated Solar intrusions produce attractive funding, locking in confident forward assumptions extending 20 years, historically a small time frame relative to the Utility history of return.
This requires of course a continuation of Power delivered as a grid service for decades to come. This ~12c kWh (for discussion reference) has become understandably ingrained in consumer, investor, and utility mind set as largely unassailable.
Delivery of Power as a product of course disrupts en masse. And is more importantly driven by a wholly different set of rules (Moore's law for example). The most important of which is, there are no rules. It's defined solely by the technology/manufacturing development path as an extension of semi-conductor advancement. Those advancements equally attacking all aspects of product definition- install cost, service requirement, longevity, materials, efficiency, etc. There is no effective safe-bet bottom support from 1st principles.
Current lab technologies (already baked in) flowing to the marketplace schedules a household roof sheeting (both conversion and storage) for a total price of a current appliance ($2000-$3000) and with performance lifetime of 20+ years, requiring almost no service cost. Installation costs similar to roof replacement currently recurring every 15 years or so. All in, on the order of 1/10 of current Pricing per kWh (near free).
How predictable is technological progress?
The Tesla Power Product replacing the oil-based roof, will install as a structural, architectural part of the home or business, with install costs built in to the normal roof replacement cycle but costing less than a current roof costs today; and of course like today simply amortized as part of the structure asset itself. [Note, although less efficient, building structures and automobile paint layers will also accomplish photon conversion for same price as current paint- It's in the paint!]
Price of Power near zero- melted into cost of the structure itself, permanently eliminates all current Utility based- distribution costs- balancing costs- fuel generation costs- system costs- grid maintenance costs- service costs- meter costs- billing costs- regulatory costs. (Think EV vs ICE on a massive scale). More importantly, NONE of these costs impose themselves as barriers to the technology based product solution development. Like the super computer in your pocket, with its cost per FLOP and MBPS, the cost per KWh will asymptotically approach zero. And render Utility based power obsolete and unviable- Solar based or otherwise. We have now entered this funnel, and is is an inevitability. Safely sinking all the excess power will be an important element.
SCTY 2.0 is the product based solution set
Goals are inapposite to 20 year PPA/Lease
Elon knows all of this of course and so
Finally, how does this resolve into meaningful consideration of Tesla's absorption of SolarCity?
Key recognition of two elements.
One: The objective of TeslaEnergy-SolarCity (TESC - SCTY 2.0) is inapposite with the long term PPA/lease financing, which by definition underwrites against the wrong asymptote price of power over the financing term;
Two: Assumes Power as a Service not a Product.
The successful TESC development of Product Power will drive to the lowest cost possible in order to gain the best Pricing Power with all customers. This is inapposite of long term price lock-in that underwrites using fixed current value of power. The market value of a PPA/Lease under the TESC objective is known to be a financial loss assuming it’s successful at it’s own objective; It’s therefore a disservice to the customer obligated to it when the mission of the seller is to effectively make it worthless to both the original customer and any potential buyer of the PPA/Lease.
I believe this is the transition they are currently making with the new financing product, new personnel, leading into the pending merger. I would recommend continual questioning and monitoring to validate this. In my view SCTY 1.0 should be working to offload all current PPA/Leases to the ‘currently clueless’ financial institution fund investors (poetic justice imo).
SCTY 2.0 should eschew all financial vestiges of 1) ownership of the power (the value of which is destined to be near zero by TESC’s own mission), ownership of the financing underwritten by the Price of Power, and 3) all sales based on that financial relationship with the customer.
SCTY 2.0 should sell product with Pricing Power, for cash, bank loan financing, or other equivalent financing mechanisms. I believe this is exactly what they have in mind. For years I've warned investors away from investments in YieldCos, Utilities, owners of power, bonds and other instruments of these for this very reason. And also why I've kept my SCTY investment very low in anticipation of this corrective action that I believe will occur as part of this merger.
Epilogue:
Sun God to Sun Grid
Of course years from now, we humans will arrogantly congratulate ourselves for our prowess in achieving near free power as part of our homes and businesses.
In reality it's a small feat in our evolution. Truthfully, we are just catching up to our plant-life friends who figured out how to convert free photons for self energy long before we even arrived on the evolutionary scene.
And the irony of ironies, our fist solution was to look down - extract the decomposition of our teachers (without somehow looking up) and burn it (must have been our ridiculous obsession with fire I guess- thanks King Louie)
After cooking and choking ourselves with our first solution, our second solution finally applied the teachings of our plant-life friends to convert ground chemicals gladly provided by Mother Earth to construct photon-receptor canopies integral with our own shelter.
Tesla is The Photosynthesis of Mankind
The new mantra for TeslaEnergy
I Am Groot
I might suggest we try to limit arguing about semantic drivel
(reminds me of a Norman Rockwell group of old men)
Instead, Let’s
Come Together—
Because—
In The End—
the Light We Take is Equal to the Light We Make
(tm Lennon/McCartney/Harrison/Starr…)
Celebrate the music we make- the truly unique achievements of humanity-
the rest is just a discovery of what's already there
Postcript:
My home planet is Mars (been accused of this for years)
RocketMan now residing in Mars city of Musk-ville
Elon says Hi; just Tweeted:
"Save Mother Earth-Life - there are no Beatles on Mars…"
tweet 2
"It’s not Rocket Science-"
tweet 3
"So what if it is? Photons aren’t real anyway…"
peace and good fortune…
Lots of good posts and I generally have agreement with parts of many; However, I’d like to offer a alternative view (read bias) than currently in the other threads
A White noPaper
I’ll start with a warning and set of assumptions that I’m not particularly inclined to defend in discussion, as I’m time limited and have done so in the past ad-nauseam. So I’ll list them first and for those that disagree- I invite you to just save time and skip the rest.
[Also, this is from someone biographically with a deep history in technical R&D thru product development (Aerospace generally) and investment bias of long view companies (Apple, Disney, Google, Amazon type and Tesla of course)]
The conclusory elements (concluded long ago) for my Tesla investment thesis:
Assumptive Principles of Musk-World:
1) Tesla exists to fulfill one man’s vision (but now joined in vision by others like JB)- which was never about ‘making cars’ (ala GM)- it was and is solely about the cheapest possible sustainable energy for humanity
2) Elon stated (and proven) operational core- fundamental 1st principles will guide strategic decisions;
-Hence disallowing all past and current industry segmentations to exist for Tesla
(disruptive across industries if needed to achieve the objective)
3) Strategic decisions will always serve the primary mission and operative
-Hence target ONLY the long-term (decades) consideration for core strategic decisions
(Solar City for current discussion example)
4) Tesla objective relative to the stated core goal above:
To eliminate carbon based fossil fuels as a source of energy from the marketplace ASAP. Transportation and Electricity Generation are BY FAR and simultaneously the largest and most inefficient conversion of those fuels to useful (human) energy
5) Humanity is first priority
-Hence ‘the customer comes first’ defines the solution’s vertical integration from start to end.
i.e. Solutions both start and end with the individual human customer
Assumptive Conclusions for this discussion:
6) SolarCity is a separate company from Tesla in name only- it serves as a temporary strategic placeholder for the benefit of Tesla Energy, largely due to Musk time constraints.
7) The price of retail Electrical Power (read: rate of Electrical Energy used by humanity for it’s own purposes) is scheduled to approach (near)zero over the next 20 years, regardless of what (Power)Utilities do or don’t do, exist or don’t exist. Note I’m using Power here rather than Energy to denote inclusion of the rate of human Energy use on any time scale.
Above are my own conclusions based on my knowledge, due diligence, research and experience. They inform my investment decisions regarding Tesla. If you're strongly convinced they are not correct, I would just skip this post, assume the rest of it is based on the wrong conclusions, and won’t relate to your investment thesis- unfairly, I won’t be able to currently engage in discussions of those base assumptions (sorry- been there done that- and I’m exercising my 0th amendment rights of no-speech and it’s associate Pursuit of Happiness)
The Cadence of Elon
I think there is generally (including on this board) a cognitive dissonance of the Tesla dynamic relative to investments. It’s an unfair generalization that doesn’t apply to all but severe enough to create an addressable concern in my mind. When investing in Tesla, you’ll be best served IMO to contextualize your decisions in a world defined by Principles 1-5 above. It doesn’t matter what you or I think is actually correct, best, agree with- disagree with, etc. We aren’t and will never make, or have significant influence on, any primary strategic decision of Tesla. So it’s a fool’s errand to anticipate Tesla from a world constructed to conform with your past experience, life objectives, intellectual prowess, etc. It isn’t going to happen given 1-5 above. Your investment thesis for Tesla is served best to conform to Musk-Worldview, it’s stated objectives, and it’s operational character. [Note: I’m saying nothing about voicing opinion, but regardless of opinion investment decisions should frame inside Musk-World)
You’re investment thesis should constantly place your mind into that world described by 1-5 above and always ask yourself what would Elon do under those objectives?
The man in charge of your Tesla investment is hell bent on getting humanity to Mars. And in the meantime change the way humanity exists on Earth. If Earth isn’t considered a boundary for him, why would ANY boundaries (existing or fabricated) be placed on the Tesla mission in his world?
Industry segments, product segments, market segments, political segments, technology segments, manufacturing segments, social segments- Have you seen any of those come to play in any core strategic decision he ever made?
He doesn’t see those boundaries and neither should you for your Tesla investment. Issues of $1B funding here and $1B funding there are simply bothersome perturbations in the ether for the primary decision maker of your Tesla investment dollars. As they should be given the objective clearly stated (and proven by events thus far)- Right or wrong isn’t at issue here- nor is our own belief - we are not in control or in position to influence - we can only invest or not.
If you do invest in this venture, move yourself to the world of Elon -
You're going to Mars in 20 years. And Principles 1-5 above is how you’re going to get there.
It’s The Big Long - there’s nothing short, quick or small about it.
To be successful, Your Tesla investment must match The Cadence of Elon.
In that spirit I’m going to enter Musk-World to paint a picture of TeslaEnergy-SolarCity - even for things we already know and have discussed to help contextualize and inform what to expect:
Replace the Grid not the Fuel
Principle 4 (Eliminate Carbon Fuels) alone creates a solution that sells Solar Panels to Utilities both directly and indirectly through the end consumer of Power. Note in today’s world selling a consumer Solar Panels is financially viable only by using the Utility grid as storage/balancing/billing/support - (via Net Metering) Powering the Utility. This is the same as selling to the Utility itself with an indirect financial model that flows through the Consumer who perhaps unwittingly assumes the added risks of 1) decades long fixed price of Power and 2) unknown value effect of shelter asset, in exchange for what is currently a reduced Price of Power consumed. This is effectively a sale to the Utility using the consumers existing assets as a financial intermediary leverage against the future.
This fosters the PPA/Leases used by Solar City, is a sale to consumers in name only, couples both the physical and financial relationships to the current Power Utility Structure (requiring their full approval and cooperation) and current Industry delineations; And does not provide a vertically integrated solution as a consumer first start-end.
As such, concurrently violates Principles 1,2,3, and 5 to accomplish 4, and so is not a Musk-World solution, accordingly rejected by this investor as anything but temporary (I held a VERY tiny position in SCTY uncorrelated to Tesla, which I recently eliminated in exchange for more TSLA).
It is what the normal current business world would adopt and hence given Elon’s limited resource while he’s solving the bigger user of carbon fuels (mobility), Solar City serves as a placeholder to temporarily operate and build some momentum into that space. This is what drove my Conclusion 6 long ago. It is part of the eventual Tesla solution, but not currently part of the company- to be continued at a later time.
A Musk-World solution must incorporate Principles 1-5. The only conforming solution must replace the Grid between the Power source and the customer. The conceptual view in Musk-World is not that the Grid and it’s obvious advantages is eliminated- It’s simply redefined according to 1st Principles and as such replaced as part of the vertically integrated solution Power to the human-consumer (in both senses of that equation).
As such, the Grid is the celestial fusion reactor distributing Power directly at no cost to every human individual world wide. Cloud computing for Power. It’s the view of the Grid you would have from Mars.
Of course we all know this factually- but the Musk-World distinction is it defines the integral solution (technically and business) - crossing all current Industrial and Commerce boundaries and most importantly REQUIRES the consumer based solution to transform:
Power from a Service to a Product
That’s the key disruptive from a Musk-World view- financial, technological, relationship to consumer and all the business infrastructure required to secure it’s success is the Tesla mission to accomplish. This by definition means SolarCity (or certainly it’s equivalent) was always part of Tesla.
The transformation of mission in consumer-first speak:
With the right Product I can self-service my Power- and so the cost to produce the product becomes the long term Tesla quest, not the cost to produce the Power.
Photon grid receptors are by definition inside the vertically integrated Tesla Power Product (incorporating storage/support) connecting each Consumer to the new (photon)Grid directly.
The Tesla solution is a product that converts quantum level grid photons to electrical potential for all uses. The Tesla mission for the coming decades, to deliver this product solution at the lowest possible cost through innovation that vertically spans the grid source of photons with customer acquisition and support.
The technology of the product conversion and storage is an extension of the semi-conductor fundamentals of research, development, and manufacturing. The product will take the form of a single but multilayer sheeting, largely manufactured by 3D printing and related [again we are in 10+ year forward here_ aka the cadence of Musk World].
The single sheet layering will contain multi-junction multi-wavelength grid photon reception and conversion to free electrons, super capacitors doped into the same sheet to receive and store the free electrons; solid state inversion for delivery and a sink path to ground as safe discharge of excess energy balances input and output. Other than small micro-grids for high density populations, there is no 'market' for electrons as supply massively swamps any demand.
The analogy against current product structure (and extended technology/manufacturing basis) is best served by the cloud networked computer. The outer sheet layers converting photon to electrical is the CPU/GPU and the SuperCapacitance storage layer is Memory.
The Tesla mission per vertical integration principle provides all technology fundamentals to product design to material sourcing to manufacturing to production to customer acquisition to sales/marketing to product service to virtual upgrades.
Note: Conceptually this begins with fundamental sourcing of Grid-photons (fuel) for the consumer all the way through Power available for use by any device (most especially, Tesla’s own human mobility end-product). This resolves the original Primary Objective: to remove carbon fuels from the two largest human use cases (Power production and Mobility)
Think Apple / Intel / GE / DuPont / GM / Utility cross industries - I suspect Panasonic to play a strong on going partnership role in both LiIon (bridge to SuperCap), PV along with the partnerships with the University research personnel etc. (again Elon always colors outside the lines)
In Musk-World, there was never going to be a ‘solar industry’ which by definition maps to current Utility grid - instead, Solar is simply a piece part in the BOM of the Tesla Power Product solution. And only a layer of it in that.
This requires SolarCity to become the opposite of a PowerCo, YieldCo, Owner/Seller of power in any form as a service or commodity. Power is destined to become a personal appliance product. Rated for use like any refrigerator or A/C unit.
Price of Power underwrites, but Pricing Power is the Mission
The wrong Asymptote-
The current Price of Power in non-inflated dollars has been essentially constant for decades (relative to the disruption of this discussion). Not surprisingly, since the delivery mechanism scales to any use at roughly the same cost per user and with guaranteed returns. This has induced one of the most indelible investment assumptions in history as Power Utilities’ stability and return are considered among the safest and dependable available. The consistent and guaranteed Price of Power underwriting these investments. The associated Solar intrusions produce attractive funding, locking in confident forward assumptions extending 20 years, historically a small time frame relative to the Utility history of return.
This requires of course a continuation of Power delivered as a grid service for decades to come. This ~12c kWh (for discussion reference) has become understandably ingrained in consumer, investor, and utility mind set as largely unassailable.
Delivery of Power as a product of course disrupts en masse. And is more importantly driven by a wholly different set of rules (Moore's law for example). The most important of which is, there are no rules. It's defined solely by the technology/manufacturing development path as an extension of semi-conductor advancement. Those advancements equally attacking all aspects of product definition- install cost, service requirement, longevity, materials, efficiency, etc. There is no effective safe-bet bottom support from 1st principles.
Current lab technologies (already baked in) flowing to the marketplace schedules a household roof sheeting (both conversion and storage) for a total price of a current appliance ($2000-$3000) and with performance lifetime of 20+ years, requiring almost no service cost. Installation costs similar to roof replacement currently recurring every 15 years or so. All in, on the order of 1/10 of current Pricing per kWh (near free).
How predictable is technological progress?
The Tesla Power Product replacing the oil-based roof, will install as a structural, architectural part of the home or business, with install costs built in to the normal roof replacement cycle but costing less than a current roof costs today; and of course like today simply amortized as part of the structure asset itself. [Note, although less efficient, building structures and automobile paint layers will also accomplish photon conversion for same price as current paint- It's in the paint!]
Price of Power near zero- melted into cost of the structure itself, permanently eliminates all current Utility based- distribution costs- balancing costs- fuel generation costs- system costs- grid maintenance costs- service costs- meter costs- billing costs- regulatory costs. (Think EV vs ICE on a massive scale). More importantly, NONE of these costs impose themselves as barriers to the technology based product solution development. Like the super computer in your pocket, with its cost per FLOP and MBPS, the cost per KWh will asymptotically approach zero. And render Utility based power obsolete and unviable- Solar based or otherwise. We have now entered this funnel, and is is an inevitability. Safely sinking all the excess power will be an important element.
SCTY 2.0 is the product based solution set
Goals are inapposite to 20 year PPA/Lease
Elon knows all of this of course and so
Finally, how does this resolve into meaningful consideration of Tesla's absorption of SolarCity?
Key recognition of two elements.
One: The objective of TeslaEnergy-SolarCity (TESC - SCTY 2.0) is inapposite with the long term PPA/lease financing, which by definition underwrites against the wrong asymptote price of power over the financing term;
Two: Assumes Power as a Service not a Product.
The successful TESC development of Product Power will drive to the lowest cost possible in order to gain the best Pricing Power with all customers. This is inapposite of long term price lock-in that underwrites using fixed current value of power. The market value of a PPA/Lease under the TESC objective is known to be a financial loss assuming it’s successful at it’s own objective; It’s therefore a disservice to the customer obligated to it when the mission of the seller is to effectively make it worthless to both the original customer and any potential buyer of the PPA/Lease.
I believe this is the transition they are currently making with the new financing product, new personnel, leading into the pending merger. I would recommend continual questioning and monitoring to validate this. In my view SCTY 1.0 should be working to offload all current PPA/Leases to the ‘currently clueless’ financial institution fund investors (poetic justice imo).
SCTY 2.0 should eschew all financial vestiges of 1) ownership of the power (the value of which is destined to be near zero by TESC’s own mission), ownership of the financing underwritten by the Price of Power, and 3) all sales based on that financial relationship with the customer.
SCTY 2.0 should sell product with Pricing Power, for cash, bank loan financing, or other equivalent financing mechanisms. I believe this is exactly what they have in mind. For years I've warned investors away from investments in YieldCos, Utilities, owners of power, bonds and other instruments of these for this very reason. And also why I've kept my SCTY investment very low in anticipation of this corrective action that I believe will occur as part of this merger.
Epilogue:
Sun God to Sun Grid
Of course years from now, we humans will arrogantly congratulate ourselves for our prowess in achieving near free power as part of our homes and businesses.
In reality it's a small feat in our evolution. Truthfully, we are just catching up to our plant-life friends who figured out how to convert free photons for self energy long before we even arrived on the evolutionary scene.
And the irony of ironies, our fist solution was to look down - extract the decomposition of our teachers (without somehow looking up) and burn it (must have been our ridiculous obsession with fire I guess- thanks King Louie)
After cooking and choking ourselves with our first solution, our second solution finally applied the teachings of our plant-life friends to convert ground chemicals gladly provided by Mother Earth to construct photon-receptor canopies integral with our own shelter.
Tesla is The Photosynthesis of Mankind
The new mantra for TeslaEnergy
I Am Groot
I might suggest we try to limit arguing about semantic drivel
(reminds me of a Norman Rockwell group of old men)
Instead, Let’s
Come Together—
Because—
In The End—
the Light We Take is Equal to the Light We Make
(tm Lennon/McCartney/Harrison/Starr…)
Celebrate the music we make- the truly unique achievements of humanity-
the rest is just a discovery of what's already there
Postcript:
My home planet is Mars (been accused of this for years)
RocketMan now residing in Mars city of Musk-ville
Elon says Hi; just Tweeted:
"Save Mother Earth-Life - there are no Beatles on Mars…"
tweet 2
"It’s not Rocket Science-"
tweet 3
"So what if it is? Photons aren’t real anyway…"
peace and good fortune…
JRP3
Hyperactive Member
Nice write up. I would agree with most, however I do not think you have really mapped out the near term. Currently the technology to make energy a product isn't cheap enough to do so.
So how does one get from here to there? This is another feature of Elon that I think many investors do not understand or at least want to agree with. Elon is on a mission as you point out, so (in my opinion) he is aggressive at using whatever finanicals tools that will accelerate said mission. PPAs, customer deposits, tax credits, ZEVs, state negotiations, convertible debt, follow on financing, whatever, doesn't matter.
He didn't create any of these things, but is very adept at using them to further his goals. Especially to bridge technology improvements or cost improvements delivered by scale. That is usually why these things exist in the first place. My opinion is that as long as Tesla, SCTY, SpaceX is continuing to deliver on the master plan then he should use these tools aggressively.
This is part of the package when investing in Elon. Deal with it.
So how does one get from here to there? This is another feature of Elon that I think many investors do not understand or at least want to agree with. Elon is on a mission as you point out, so (in my opinion) he is aggressive at using whatever finanicals tools that will accelerate said mission. PPAs, customer deposits, tax credits, ZEVs, state negotiations, convertible debt, follow on financing, whatever, doesn't matter.
He didn't create any of these things, but is very adept at using them to further his goals. Especially to bridge technology improvements or cost improvements delivered by scale. That is usually why these things exist in the first place. My opinion is that as long as Tesla, SCTY, SpaceX is continuing to deliver on the master plan then he should use these tools aggressively.
This is part of the package when investing in Elon. Deal with it.
jhm
Well-Known Member
This is an excellent point. It took the Chinese a little while to realize that the biggest economic gain from producing solar panels was to be derived from installing them domestically. Now China is the biggest installer of solar and wind in the world, and this is enabling the country to slash import bill for coal.
So when it comes to the battery race, will they see this as merely an export opportunity? I don't think so. I think that they will see this as a huge domestic opportunity to cut all fossil fuel imports at a rapid pace. Not that right now China is stockpiling oil into a national strategic petroleum reserve at maximum pace. They hope to have a 90 day supply against their daily oil imports. This is around 590M barrels. The basic motivation seems to be to protect their economy from oil supply disruptions and price swings. They are currently importing at maximum physical capacity to fill this beast up. So consider the opportunity China has to reduce oil imports by electrifying transportation. If is is worth tens of billions of dollars to stockpile oil, it is also worth serious government investment in EVs. Ultimately, the ability to slam out EVs will give the country much more security from oil disruptions than a SPR ever could. So massive battery factories have enormous strategic value for China, much more value than just exporting a cheap commodity.
jhm
Well-Known Member
Great job, Ken. I've always thought that to understand Tesla, one needs to have the imagination of science fiction. And you have demonstrated that principle here.
I do think that SolarCity and its PPAs are consistent with the longterm vision. The thought that solar systems installed today will be obsolete in the future has never troubled me as it seems to trouble you. We all know, I suspect, that the Model S that Tesla sells today will also be obsolete in the future. But these are the products that can be deployed today. The financial question is how much value can be derived from them before they are so obsolete that we cast them aside for something new. The beauty of a PPA for customers today is that they enjoy savings all along the way to obsolencence, while the PPA provider absorbs the risk of obsolencence. However, absorbing this risk is not really a potential loss for SolarCity if they are the entity positioned to profit from offering the new product that brings about obsolencence. Similarly, when Tesla make the Model S obsolete, it is right there making money on the new product. However, when consumers position themselves to absorb the risk of a purchased solar system, they simply cast aside a sunk cost, whether they saved money or not. It's fine if a consumer wishes to do that, but there is no moral superiority in a solar installer that eschews offering PPA financing. Indeed, it is quite gracious for SolarCity and Tesla to spare the PPA customer the risk of obsolencence. Sure, in twenty years the customer replaces the roof with whatever the state of the art solar system is at the time, no questions asked. Morever, this does not trouble me as a SolarCity investor, because TESC is well positioned to offer and profit from that upgrade. What the renewal term offers is an option against the posibility that the state of the art in 20 years is not really worth transitioning to for another 5 or 10 years. Consider that risk for awhile. If the products do not advance quickly enough then SolarCity is actually worth less in the future than if it had completely obsoleted a 20 year old system. So anyone worried about the value of the renewal term is contemplating a scenario where the technology is progressing very slowly.
So I don't mean to get into weeds here. The basic point is that our greatest hope is that everything Tesla and SolarCity are making today will become rapidly obsolete. Staying at the head of the curve is the only way to create lasting value for shareholders. And for this we need a vision that takes us to Mars and back.
I do think that SolarCity and its PPAs are consistent with the longterm vision. The thought that solar systems installed today will be obsolete in the future has never troubled me as it seems to trouble you. We all know, I suspect, that the Model S that Tesla sells today will also be obsolete in the future. But these are the products that can be deployed today. The financial question is how much value can be derived from them before they are so obsolete that we cast them aside for something new. The beauty of a PPA for customers today is that they enjoy savings all along the way to obsolencence, while the PPA provider absorbs the risk of obsolencence. However, absorbing this risk is not really a potential loss for SolarCity if they are the entity positioned to profit from offering the new product that brings about obsolencence. Similarly, when Tesla make the Model S obsolete, it is right there making money on the new product. However, when consumers position themselves to absorb the risk of a purchased solar system, they simply cast aside a sunk cost, whether they saved money or not. It's fine if a consumer wishes to do that, but there is no moral superiority in a solar installer that eschews offering PPA financing. Indeed, it is quite gracious for SolarCity and Tesla to spare the PPA customer the risk of obsolencence. Sure, in twenty years the customer replaces the roof with whatever the state of the art solar system is at the time, no questions asked. Morever, this does not trouble me as a SolarCity investor, because TESC is well positioned to offer and profit from that upgrade. What the renewal term offers is an option against the posibility that the state of the art in 20 years is not really worth transitioning to for another 5 or 10 years. Consider that risk for awhile. If the products do not advance quickly enough then SolarCity is actually worth less in the future than if it had completely obsoleted a 20 year old system. So anyone worried about the value of the renewal term is contemplating a scenario where the technology is progressing very slowly.
So I don't mean to get into weeds here. The basic point is that our greatest hope is that everything Tesla and SolarCity are making today will become rapidly obsolete. Staying at the head of the curve is the only way to create lasting value for shareholders. And for this we need a vision that takes us to Mars and back.
adiggs
Well-Known Member
I'm seeing how the PPA agreement can go badly against a consumer, and thus gets to Ken's point. If the PPA were adjusting annually up and down, by as much as 2.9% based on what the provider's price does, then it would be Solar City absorbing the risk of the cost of energy going down during the PPA. With a 2.9% annual escalator built into a 20 year contract, on a product whose cost is going towards 0 - that's all profit to Solar City and bad news for the consumer (should that scenario play out).
And it doesn't need to go to 0 to be bad for the consumer. All the cost of electricity needs to do is stay flattish for the next 20 years, instead of increasing as it has in the past (and which increase tends to be baked into the financial justification that makes these systems work), while the PPA is going up, and consumers have a higher cost of energy to look forward to in the latter end of the contract.
I agree with the larger societal point, that installing all we can now, and obsolete it and be installing different and way better stuff in 10/20/30 years is entirely to the good. But that escalator clause looks to me as well, like the clause that shifts the PPA from an unalloyed good for the consumer and Solar City, and shifts all the risk of technology change to the consumer, and all the benefits to Solar City. (I know that I wouldn't sign a PPA with escalator in it, and I know I wouldn't recommend it to somebody else; that core realization keeps me from investing in Solar City).
The bigger picture - Ken said it and has been thinking about it way more than me. The idea that energy is going to zero though, is something I've been thinking about for awhile. I don't see that idea baked into the markets. I didn't think about how that will change the utility industry.
How does the world economy change when the energy "tax" we pay, to varying degrees, to live, work, and produce things goes down to ~0? That looks deflationary to me during the transition as the current energy systems get taken out, and deflationary economies tend to freak people out.
And it doesn't need to go to 0 to be bad for the consumer. All the cost of electricity needs to do is stay flattish for the next 20 years, instead of increasing as it has in the past (and which increase tends to be baked into the financial justification that makes these systems work), while the PPA is going up, and consumers have a higher cost of energy to look forward to in the latter end of the contract.
I agree with the larger societal point, that installing all we can now, and obsolete it and be installing different and way better stuff in 10/20/30 years is entirely to the good. But that escalator clause looks to me as well, like the clause that shifts the PPA from an unalloyed good for the consumer and Solar City, and shifts all the risk of technology change to the consumer, and all the benefits to Solar City. (I know that I wouldn't sign a PPA with escalator in it, and I know I wouldn't recommend it to somebody else; that core realization keeps me from investing in Solar City).
The bigger picture - Ken said it and has been thinking about it way more than me. The idea that energy is going to zero though, is something I've been thinking about for awhile. I don't see that idea baked into the markets. I didn't think about how that will change the utility industry.
How does the world economy change when the energy "tax" we pay, to varying degrees, to live, work, and produce things goes down to ~0? That looks deflationary to me during the transition as the current energy systems get taken out, and deflationary economies tend to freak people out.
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