Short-Term TSLA Price Movements - 2016

[pGo]

Because the valuation is tied in tesla shares as a currency, it is highly likely that solar city investors don't get any premium based on today's closing price. If tesla falls to $180 or below in the next few trading days, scty low end already (.11 to .13 is the range) is almost break even. This means no one is happy. Tesla holders see the value drop and no premium for scty holders. Lose lose.

In such a case, solar city holders may ask for a better premium(even if same as today's price.. ) but since Tesla stock has dropped significantly, it may dilute more shareholders equity to get this deal done. It's all possible. What a nightmare distraction.

 

[Sancho]

TM didn't have to go into the TE business. They could have partnered with someone (including SCTY) to sell excess battery capacity for energy storage.

But Elon is not interested in just making a great car. And many of us buyers are not just interested in owning a great car. He -- and we -- want a sustainable future. We want an electric car, and solar power generating the electricity for it, and our house.

That is the "why" of this merger. The TM blog post today is very clear on this.

The "when" of this merger is dictated by two factors: timing at SCTY and timing at TSLA. For SCTY, it must have become increasingly clear that their stock price would not rise in the face of convoluted financial statement requirements and regulatory risks. For TSLA, Musk must be feeling pretty damn confident now about the Model 3 to be taking on TE/SCTY.

For investors in TSLA, this merger is barely material. If you don't believe that TM can soon build, at a solid profit, hundreds of thousands of Model 3 cars to meet the proven demand, then short the stock. If that all seems very achievable, go long.

 

[neroden]

Solarcity is financing 20 year monthly revenue streams. That's the loss on the books. They are paying up front for 20 years of monthly payments.

They make money on every install. They just finance each install, so debt on the books up front. Each install brings in monthly revenue which is very solid(ave fico 740, 99.5% have made payments on time over past 9 years of each install production periods)

What you see a losing money is Solarcity financing each install for a 20 year reoccurring revenue stream that is profitable.

Except that SolarCity *isn't* doing the financing with their equity. They're borrowing money to do the financing. If they borrow at too high a rate, they end up losing money long-term. Furthermore, they're doing short-term borrowing (2-year bonds) to finance the installs -- borrowing short, lending long.

This is why questions about the interest rate spread are so critical. As well as questions about the extent of duration mismatch. Unfortunately, SolarCity does *not* report its finances the way a regulated bank would report its finances, and it's quite hard to decipher the financing enough to figure out what the interest rate spread is, and it's practically impossible to figure out how bad the duration mismatch is.

I strongly suspect that SolarCity is sitting on a lot of installs which will have to be refinanced at interest rates which will be loss-making. I'm not sure how bad it is. I also don't trust the default rates -- any serious national economic downturn, and they'll skyrocket. That's just how default rates work; they're highly correlated with the economy.

I don't want to be in this business. It's an unregulated financing operation without access to the Federal Reserve discount window, a lot like GMAC and GE Capital were -- both of those hit the wall in 2008 and would have taken down their parent companies if not for the federal government bailouts. SolarCity wouldn't get that bailout, and neither would Tesla.

If Elon Musk is planning to get SolarCity out of this messy financing business, I would be very happy.

I actually love what SolarCity is doing with Zep and Silevo technology. But I don't want to touch the financing business with a ten-foot pole.

 

[Seesaw]

Except that SolarCity *isn't* doing the financing with their equity. They're borrowing money to do the financing. If they borrow at too high a rate, they end up losing money long-term. Furthermore, they're doing short-term borrowing (2-year bonds) to finance the installs -- borrowing short, lending long.

This is why questions about the interest rate spread are so critical. As well as questions about the extent of duration mismatch. Unfortunately, SolarCity does *not* report its finances the way a regulated bank would report its finances, and it's quite hard to decipher the financing enough to figure out what the interest rate spread is, and it's practically impossible to figure out how bad the duration mismatch is.



If Elon Musk is planning to get SolarCity out of this messy financing business, I would be very happy.

Elon has sat on the SolarCity board since day dot. Surely he is 'all in' on their business model.

 

[Foghat]

As I've said elsewhere, I think the Silevo factory in Buffalo is worth a lot. Basically worth the $900 million which went into it. I think Silevo is worth at least the $200 million which SolarCity paid for it and Zep is worth at least the $154 million which SolarCity paid for it. That's 1.3 billion right there. The nationwide installation business is probably worth *something*, even though it appears to basically break even.

The problem is that SolarCity has this financial mess on top of the business. There's 3.25 billion in debt, and then there are all these PPAs and leases and so on. It's very hard to work out whether that financial mess is worth a positive amount, or whether it's a liability.

Tesla's car loans are almost all from banks, and the banks take the default risk.

If Tesla can unwind SolarCity's financing mess and transition to a comprehensible financing scheme where banks make the loans and take the default risks, I'd be quite happy with the acquistion. But I don't see that that's going to happen.

If I recall correctly, they have over $11bln in payments due over the next 20 years. The financials are solid given the growth they are achieving right now.

It's really about the incumbent monopoly policy that has hit this stock. And they are attacking that side aggressively right now.

Nevada public utility commission pulled an extremely bias regularity change which disrupted the Nevada sales literally overnight. Interestingly enough more evidence has recently (today) come out the the legal head of the Nevada public utiltiy commision was posting anti-net metering, anti solar propaganda under an alias on the internet which is just one among many incidents of illegal and unethical activity on behalf of buffet's Nevada monopoly utility.

So many things are coming to light in the policy area that mitigating this headwind.

 

[Causalien]

Except that SolarCity *isn't* doing the financing with their equity. They're borrowing money to do the financing. If they borrow at too high a rate, they end up losing money long-term. Furthermore, they're doing short-term borrowing (2-year bonds) to finance the installs -- borrowing short, lending long.

This is why questions about the interest rate spread are so critical. As well as questions about the extent of duration mismatch. Unfortunately, SolarCity does *not* report its finances the way a regulated bank would report its finances, and it's quite hard to decipher the financing enough to figure out what the interest rate spread is, and it's practically impossible to figure out how bad the duration mismatch is.

I strongly suspect that SolarCity is sitting on a lot of installs which will have to be refinanced at interest rates which will be loss-making. I'm not sure how bad it is. I also don't trust the default rates -- any serious national economic downturn, and they'll skyrocket. That's just how default rates work; they're highly correlated with the economy.

I don't want to be in this business. It's an unregulated financing operation without access to the Federal Reserve discount window, a lot like GMAC and GE Capital were -- both of those hit the wall in 2008 and would have taken down their parent companies if not for the federal government bailouts. SolarCity wouldn't get that bailout, and neither would Tesla.

If Elon Musk is planning to get SolarCity out of this messy financing business, I would be very happy.

I actually love what SolarCity is doing with Zep and Silevo technology. But I don't want to touch the financing business with a ten-foot pole.

Ok. The financing sounds like Bear Sterns... Am I understanding correctly that the financing is not disclosed like banks? Is it audited? If this clusterf*** of financing is what I think it is. Based on the 3 years I spent pouring over bank finances during 2008 period, not even the CEO understands the full extend of their exposure.

Yes, the basic premises of hope and dream is probably valid. But if you are doing Bear Stern and Lehman brother type financing, no amount of dream can get you through the next 5 years when a cyclical recession has 99% chance of happening.

 

[Foghat]

Except that SolarCity *isn't* doing the financing with their equity. They're borrowing money to do the financing. If they borrow at too high a rate, they end up losing money long-term. Furthermore, they're doing short-term borrowing (2-year bonds) to finance the installs -- borrowing short, lending long.

This is why questions about the interest rate spread are so critical. As well as questions about the extent of duration mismatch. Unfortunately, SolarCity does *not* report its finances the way a regulated bank would report its finances, and it's quite hard to decipher the financing enough to figure out what the interest rate spread is, and it's practically impossible to figure out how bad the duration mismatch is.

I strongly suspect that SolarCity is sitting on a lot of installs which will have to be refinanced at interest rates which will be loss-making. I'm not sure how bad it is. I also don't trust the default rates -- any serious national economic downturn, and they'll skyrocket. That's just how default rates work; they're highly correlated with the economy.

I don't want to be in this business. It's an unregulated financing operation without access to the Federal Reserve discount window, a lot like GMAC and GE Capital were -- both of those hit the wall in 2008 and would have taken down their parent companies if not for the federal government bailouts. SolarCity wouldn't get that bailout, and neither would Tesla.

If Elon Musk is planning to get SolarCity out of this messy financing business, I would be very happy.

I actually love what SolarCity is doing with Zep and Silevo technology. But I don't want to touch the financing business with a ten-foot pole.

Most all Solarcity instslls are already financed at sub 6% so no sure what you're talking about. Already a done deal, so rate change will not effect already installed "electricity delivering machines". Solarcity customers pay a price/kWh. Thats it. If that's cheaper then traditional utiltiy to keep the lights on, they will pay that rather then not.

Secondly, Solarcity has been installing since 2006... Before the massive subprime crisis... And still 99.5% of all payments have been made to them. like I've said before, Solarcity average fico score across over 2GWs of installs is over 740, extremely high quality no/low default payment customer base.

 

[neroden]

For investors in TSLA, this merger is barely material.

OK, I'll give the counterargument for why it *could be* material.

SolarCity has an awful lot of complex financing arrangements. While the *net* value of these financing arrangements is quite low, the *gross* value is enormous. Solarcity is a "shadow bank". If they are stuck trying to refinance a large amount of debt (including refinancing various "special purpose entities" which are not on their books) they could end up with an enormous need for cash, be unable to refinance it at reasonable interest rates, and either cause a bankruptcy or turn into a serious money drain.

This is basically the only scenario under which it could be materially harmful to Tesla. The solar panel, racking, and installation businesses really can't lose very much money per year even in the worst case scenario -- little enough that it would be immaterial to Tesla. But the financing business *could*.

 

[neroden]

Most all Solarcity instslls are already financed at sub 6% so no sure what you're talking about.

You haven't done your research. Try again and look at the duration mismatch (short-term bonds financing long term installs).

 

[Adm]

So Tesla will produce its own solar panels for the GF1 and Solar City will go international over night?
Now Elon could decide to buy a inverter company and the the loop would be closed.

 

[SBenson]

If I recall correctly, they have over $11bln in payments due over the next 20 years. The financials are solid given the growth they are achieving right now.

It's really about the incumbent monopoly policy that has hit this stock. And they are attacking that side aggressively right now.

Nevada public utility commission pulled an extremely bias regularity change which disrupted the Nevada sales literally overnight. Interestingly enough more evidence has recently (today) come out the the legal head of the Nevada public utiltiy commision was posting anti-net metering, anti solar propaganda under an alias on the internet which is just one among many incidents of illegal and unethical activity on behalf of buffet's Nevada monopoly utility.

So many things are coming to light in the policy area that mitigating this headwind.

Be very careful reading Foghat's posts. He is an ultra bull of SCTY who was strongly recommending buying when SCTY was in 50s calling it "bottom feeder prices" or some sh!t like that. I know because I fell for it. He is quite an evangelical.

 

[neroden]

Ok. The financing sounds like Bear Sterns... Am I understanding correctly that the financing is not disclosed like banks?

It's "disclosed", but it's not presented the way a bank would present it, because SolarCity is claiming to be a consumer products company and claiming not to be a bank. So it's disclosed as if it were all simple "loans to buy a washing machine". Which it isn't.

Unfortunately, it is basically a banking operation, so the presentation SolarCity is using causes total obfustication.

I would like to thank whoever linked the Tax Equity 101 page, it's very useful. SolarCity's arrangements appear to be even more complicated, though.

Is it audited? If this clusterf*** of financing is what I think it is. Based on the 3 years I spent pouring over bank finances during 2008 period, not even the CEO understands the full extend of their exposure.

If I recall correctly, they have over $11bln in payments due over the next 20 years.

Which is why, in the worst-case scenario, SCTY is worth $-11 billion to Tesla. (obviously it's not likely to be that bad.)

 

[Grendal]

There is the rather interesting scenario where the car battery also becomes part of the grid backup/ buffering system. Few people drive the full capacity on a daily basis and many prob come home right around sundown

Elon and J.B. has specifically said that Tesla does not want to do this with their cars. I think it was during this years Q & A.

This brings all of the battery, solar, storage, and cars under one roof. Personally, I'll have to live with it if it officially happens but I prefer the safety net of separation that the multiple businesses created.

 

[Foghat]

You haven't done your research. Try again and look at the duration mismatch (short-term bonds financing long term installs).

It's "disclosed", but it's not presented the way a bank would present it, because SolarCity is claiming to be a consumer products company and claiming not to be a bank. So it's disclosed as if it were all simple "loans to buy a washing machine". Which it isn't.

Unfortunately, it is basically a banking operation, so the presentation SolarCity is using causes total obfustication.

I would like to thank whoever linked the Tax Equity 101 page, it's very useful. SolarCity's arrangements appear to be even more complicated, though.




Which is why, in the worst-case scenario, SCTY is worth $-11 billion to Tesla.

Not very high quality discussion here, so I'll close it out.

Solarcity is an extremely high value business. That's not really up for debate in rational circles.
The only concern is regulatory interference on behalf of incumbent monopoly utilties not willing to pivot right now toward modern business advances and competing within that new business environment. This is the front line of where the most risk lives. Tesla and Solarcity together make a compelling team in tackling this risk and together they massively benefit if successful in policy disruption.

 

[Ulmo]

As I sit here 7.5 hours before tonight's conference call, I'm wondering what it would be like to open up SCTY's financials more; perhaps that would unduly allow outside manipulators to contagion the debt; without even knowing what's inside, it's hard to even know if that's likely. If the institutional investors have enough votes AND have access to this information in a secure manner, then I could see that being enough for this to go through (or not as the case might be) by itself, which, in that case, what is tonight's conference call for?

 

[BornToFly]

I own a LOT of TSLA because it is a disruptive company with no competition in the near future, and was a probably 10 bagger starting at $240. I have avoided SCTY like the plague because I don't see the same unique disruptive potential, and I thought there was a good chance they would go bankrupt. I basically trusted Elon with my retirement money by going long on TSLA. I too think the timing is horrible, and the drop in AH trading has cost me more than 6 figures if the stock doesn't come back up. I'm angry right now....

 

[stealthology]

Elon thinks most energy will be solar within 15 years:

Elon Musk Unveils the World’s Most Efficient Solar Panel:

 

[yesla]

TSLA management to hold conference before market open tomorrow. this better be good

 

[Krugerrand]

I basically trusted Elon with my retirement money by going long on TSLA. I too think the timing is horrible, and the drop in AH trading has cost me more than 6 figures if the stock doesn't come back up. I'm angry right now....

Were you planning on retiring tomorrow?

 

[EinSV]

Please forgive me since I am a little punchy from too much work and too little sleep but for some reason I find this whole thing highly entertaining. Never a dull moment