Short-Term TSLA Price Movements - 2016

[GoTslaGo]

That was my thought, although it poses a moral conundrum.

If we suppose that Tesla Autopilot becomes so good that it would save X lives/year according to stats, would it be ethical to limit licensing to EVs only? Not only would this put ICE drivers at increased risk, it would endanger all drivers on the road if everyone did not have access to the best self driving system available.

But on the other hand, licensing Tesla Autopilot for use on ICE cars would prolong the use of ICE, which would potentially worsen the speed and effects of climate change. This will also kill people (through flooding, extreme weather, and tropical disease).

Good point. However, the other issue is that there will be and is competition out there. Mobileye, Comma.ai, Carnegie-Melon/Uber and who knows who else. So it will become an issue of market dynamics and competition. IMHO, there will be enough systems out there to cater to the ICE car makers.

So I think Tesla has a good marketing position to only cater to EVs if they want, since there will systems out there that will cover the ICE market. While we all believe that ultimately Tesla's home grown AP system will be superior we cannot discount the other competition, so I don't believe it will be much of a moral conundrum.

Ultimately all self driving systems will improve safety. Tesla pushing AP systems (with the jilted Mobileye crying foul) will help us all.

 

[neroden]

at management’s suggestion, a potential sale of SolarCity’s module manufacturing business.

Having read the entire context, I think it doesn't mean what you think it means. The sale of the manufacturing business would have been for cash and Tesla repeatedly refused to consider offering cash during the entire negotiation.

 

[neroden]

Are big institutional investors allowed to talk to each other about how they will vote? If they aren't then this could increase uncertainty even if most of them are voting for it.

Sometimes they're allowed to, sometimes they're not allowed to. It's complicated. Legally they're allowed to, but their firms may have rules prohibiting them from talking to competing firms about such things.

 

[3Victoria]

I am surprised (chagrined?) by the Mobileye's statements. That just brings both sides down.

 

[neroden]

The big assumption is that "the largest shareholders are absolutely for this". I don't think this is necessarily the case. Minds change all the time. (Note: I think most of the largest shareholders were for it earlier on but later filings showed a lot of what I call the "dismalness of SCTY" and that's changing people's minds.)

If the largest shareholders were truly absolutely for this, then this would cause no stress on Elon as it would be a done deal. But obviously (as evidenced by Elon's own words this past Sunday), it's causing him a lot of stress due to the flak and it shows that there are a lot of significant institutional investors who are against this deal or are becoming increasingly belligerent toward the deal's prospects.

Another factor is look at the SCTY's share price... If TSLA's at $200, SCTY should be at $22 (due to the 0.11 stock swap offer by TSLA). But it's significantly lower. Why?

You're making a fundamental error. You're assuming rationality of stock markets. Actually, you're making two, and I'll describe the other one in a second.

Investors on the Street are well connected and

Well connected with what? Not information.

the stock is $17 (and not $22) because of two reasons:

You're guessing. Here's an alternative scenario:
There's worry about getting the votes for the merger on the TSLA side, so there are large recalls of shares. Everyone thinks the SCTY side is taken care of guaranteed, so those shares AREN'T being recalled.

That is: we have a short-covering rally in TSLA but not in SCTY.

This dooes have the rather unpleasant implication that after the merger, TSLA may drop to $17 / 0.11 = $154. Anyway, I think this is a perfectly likely scenario which doesn't make the asinine assumption that the extreme short-term traders on Wall Street, many of whom are bots, actually know what's going on with the merger.

 

[stealthology]

Are big institutional investors allowed to talk to each other about how they will vote? If they aren't then this could increase uncertainty even if most of them are voting for it.

The next question to that is would it be against the law for some big TSLA institutional holders to converse amongst themselves and buy more SCTY shares if they feel the deal will go through (because of the wide spread).

I'm not at all sure Elon checks his net worth daily. I check our portfolio multiple times daily because I'm a nano cent on the dollar investor by comparison.

Even though Musk may say otherwise, I'm pretty sure he gets a little more stressed when TSLA's share price gets pretty low, esp. if he thought it were for the wrong reasons.

 

[neroden]

Big investors don't pass up on a blatantly obvious 28% arbitrage gains if it's anything remotely close to low risk.

OK, look.

Most stocks are held for under 4 months, with many trades lasting only *22 seconds*. Short-term traders *dominate* the market. The big institutional investors can't move the market in the short term unless they put in enormous orders, and if they do, it works against them; they do better if they feed their large orders in slowly.

Even among longer-term traders, the most popular investment style is "momentum" -- meaning, stocks which are going down tend to go down and stocks which are going up tend to go up.

Most fund managers manage too many stocks, don't know jack about most of them, and read the media. They would think that the merger was likely to fail.

Consider the funds who would do actual investigation. Many of them are not authorized to invest in SCTY by their rules. Many others are essentially fully invested, are very large, and can only move very slowly because their stakes are way too high -- you don't sell 20 million TSLA and buy 180 million SCTY, that doesn't work.

The only people allowed to do true merger arb trades are long/short funds (including specialist merger arb funds) and I think their total firepower is insufficient to outweigh all the short-term speculators.

If Fidelity OTC is buying up SolarCity stock, we won't find out for months. If a merger arb fund is buying SCTY and short-selling TSLA we won't find out for months. These are the guys who would *know*, and *their opinions are not really reflected in short-term stock prices*.

I think there's a fundamental (mis)attribution error going on here. People are assuming that the stock price move is related to the opinions of long-term holders regarding fundamentals. *It almost never is*. That's just not how the markets *work* these days, with all these 22-second computerized trades.

Yeah, there's a decent chance the merger fails, there always is. But assuming that the arbitrage spread implies that the chance is high is simply wrong. You can't reason in that direction.

 

[pGo]

Speculation on my part..

Since SolarCity stock went down before the Elon comments, I think it is possible that a large SCTY holder may have liquidated the position knowing the deal is being scrutinized by other large holders of Tesla against the deal. The most publicized potential merger this year can't otherwise create 28% arbitrage opportunity for weeks. Remember those SCTY leaps having disproportionate puts vs calls premiums, now it all makes sense.

TMC is good at finding a source available on Internet or customer generated data, but there is a lot we don't know about big funds.

If the deal fails, I would say Elon makes scty private at $1.5b + valuation. It may be a drag on tesla and failure on Elons part to execute the deal for some time until they start showing execution at Tesla and people will forget what happened.

If deal goes through, i believe scty will remain a drag and my potential yearly $300 stock upper limit goes down to $270 or even lower due to cash crunch as I write off scty in near to medium term.

 

[Bgarret]

With respect Dave, why in the world do you think there is a 45% probability the deal does not go through?

In M&A when both parties want to get the deal done, the vast majority of time it gets done unless there are regulatory roadblocks, but I don't see antitrust concerns or anything of the sort. I see tons of negative articles in the mainstream media that could convince a few smaller retail investors to vote against the will of the CEO and Boards of Directors of both companies, but I don't even think many will. Tesla is buying a ready-made Tesla Energy workforce and possibly the most recognizable US solar brand for a good, mutually agreeable price. There is no hostility of any kind between the companies. The largest shareholders are absolutely for this. Tesla's stock has already taken the hit. Don't you think your odds are a little off?

If the event was binary as SBenson says, the 28% arbitrage is a good starting point for the probability whether the deal goes through or not. I would say Dave's is at the high end of a range of between a 20-40% chance of the deal not going through.

 

[Bgarret]

Even if what MBLY's enemies (particularly George Hotz) says is true, that may not mean that MBLY loses in the long term.

Supposing that Tesla creates a better self driving system -- will they license it to other manufacturers? What are the benefits to licensing Tesla Autopilot, vs. the costs of having it no longer be a competitive advantage exclusive to Tesla cars? Would Tesla license Autopilot for use in ICE cars? This game is just starting.

That may be the case for MBLY long-term. I didn't have a significant opinion on their ethics before the last couple days, I didn't think their technology or camera based approach was the right technology. If what Tesla and George Hotz alleges is true, then they are ethically challenged and deserve to be relegated to the dust bin of history. Amnon came off as a bullying, self-righteous, hypocritical prick.

 

[stealthology]

Here's an alternative scenario: There's worry about getting the votes for the merger on the TSLA side, so there are large recalls of shares. Everyone thinks the SCTY side is taken care of guaranteed, so those shares AREN'T being recalled.

That is: we have a short-covering rally in TSLA but not in SCTY.

If this occurs (probably occurring to some degree) and SCTY doesn't follow suit, the spread just gets larger (currently 29.66%). Hmm.

 

[brian45011]

Having read the entire context, I think it doesn't mean what you think it means. The sale of the manufacturing business would have been for cash and Tesla repeatedly refused to consider offering cash during the entire negotiation.

Why? NY ( Fort Schuyler Management Corp) is providing the facility and the equipment to be installed there-in to SCTY for no up-front cash in exchange for employment commitments in the area. Tesla has previously structured deals with Jackson Family Wineries and Irving Corp among others where the PowerPacks were "purchased" and paid for using installments from the savings realized from the installation. A similar kind of transaction with a smaller cash down payment and installments paid out of profits could have been structured for RiverBend. Tesla is paying Panasonic for the equipment being installed in Sparks as a capital lease.

Were you able to discern from the entire context the arrangement with the other entity that expressed an interest in purchasing the module manufacturing business that the Special Committee decided would not be in the best interest of SCTY share-holders?

 

[neroden]

Remember those SCTY leaps having disproportionate puts vs calls premiums, now it all makes sense.

Nope. TSLA leaps have had disproportionate put vs. call premiums for *three years*. Just means there are a lot of shorts, nothing more.

 

[ggr]

Arbitrage is running close to 28%

If mbly keeps being a jilted ex girlfriend I may have to liquidate them.

I got out of MBLY a few days ago.

 

[neroden]

Why? NY ( Fort Schuyler Management Corp) is providing the facility and the equipment to be installed there-in to SCTY for no up-front cash in exchange for employment commitments in the area. Tesla has previously structured deals with Jackson Family Wineries and Irving Corp among others where the PowerPacks were "purchased" and paid for using installments from the savings realized from the installation. A similar kind of transaction with a smaller cash down payment and installments paid out of profits could have been structured for RiverBend. Tesla is paying Panasonic for the equipment being installed in Sparks as a capital lease.

Interesting, if bizarre, possibility. Buy the module manufacturing facility for zero money down on the "installment plan". Selling things for zero money down is the sort of deal which got SolarCity in trouble, so maybe Musk simply didn't want to help SolarCity hang itself...

I think Musk doesn't like complicated deals. He said the Panasonic deal is about two pages long.

It's not absolutely clear why the Tesla board refused to buy the module manufacturing business by itself. It's clear enough that they couldn't pay for a subsidiary with Tesla stock (total hairball transaction), and that they couldn't pay for it with cash (don't wanna spend cash), but you did raise a possible purchase scenario.

Maybe there is something else Musk genuinely wants out of SolarCity. Maybe he actually wants the installation teams, which he did mention a couple of times. Who did the installations in the Kauai'i deal? He referred to it repeatedly.

Were you able to discern from the entire context the arrangement with the other entity that expressed an interest in purchasing the module manufacturing business that the Special Committee decided would not be in the best interest of SCTY share-holders?

That was particularly interesting, but all very cryptic. It sounds like it was considered a lowball offer... which doesn't surprise me, the SCTY management presumably considers that factory to be valuable.

 

[dmckinstry]

That was my thought, although it poses a moral conundrum.

If we suppose that Tesla Autopilot becomes so good that it would save X lives/year according to stats, would it be ethical to limit licensing to EVs only? Not only would this put ICE drivers at increased risk, it would endanger all drivers on the road if everyone did not have access to the best self driving system available.

But on the other hand, licensing Tesla Autopilot for use on ICE cars would prolong the use of ICE, which would potentially worsen the speed and effects of climate change. This will also kill people (through flooding, extreme weather, and tropical disease).

What about the ethics of charging use in ICE cars a much higher price that for use in EVs? This would seem no worse than making ICE manufacturers pay for zero emission credits.

 

[madodel]

Reading every post here is beyond my capability, so I rely on Srini to rate all our posts. I'm sure he has a great system, however even with that perhaps I missed this already discussed here between the endless SCTY merger posts and Mobileye clawing at the side of the bowl as it is going down the drain but any comments on today's blog update on TE Powerpack system in California? Addressing Peak Energy Demand with the Tesla Powerpack

 

[brian45011]

that's currently an unfinished project (requires capital to purchase that asset AND to complete the factory).

No, that's NY's obligation. SolarCity just needs to buy raw materials, and hire/train its workforce

Remember that SCTY also has experienced solar deployment teams and cash-flow from its existing PPA contracts. It's not all worthless.

Weren't much of the payments for the initial 20 year terms on the PPAs used to secure the non-recourse debt, and SCTY was counting on most of its share from the revenue stream from the renewals after 20 years (IMO those assets will be long past obsolete)?

I also fail to see any great value in the experienced solar deployment teams; small mom & pop contractors know much better their local markets and how to operate lean and mean without much in corporate overhead. To me the analogy is HVAC manufacturers of residential and small commercial/industrial systems. They have a co-operative relationships with qualified/certified independent installation contractors while providing financing, technical, training, and marketing support.

Not saying it's worthless (but IMO 15 million shares is too much to pay--if those shares were sold in a follow-on offering they'd go a long way to provide the capital needed for the GF and the accelerated M3 schedule.)

 

[Krugerrand]

Supposing that Tesla creates a better self driving system -- will they license it to other manufacturers? What are the benefits to licensing Tesla Autopilot, vs. the costs of having it no longer be a competitive advantage exclusive to Tesla cars? Would Tesla license Autopilot for use in ICE cars? This game is just starting.

Good questions.

The answers I believe are easy when you consider human nature, particular that of the CEO in question. I would bet that Mobileye just permanently burnt the Tesla partnership bridge, if it wasn't already burnt by the shenanigans behind the scenes. I would bet that in the event of licensing, Tesla will offer 'partnerships' and that those will be only for OEMs to put in their EVs. Yes, regardless if it would save lives in ICE cars. We won't have to worry about dying in car accidents if we keep making ICEs.

 

[brian45011]

The TSLA-only investors should recognize how counter-productive it is and would rather sell for cash than hold stock to vote down the merger.

Agreed. I think that partially explains the share price declines in late June and again in September (S-4 filed 8/31/16). The institutions that want out cannot afford to overwhelm the MMs with too many shares all at once. Most potential buyers are on the sidelines waiting for real news, so perhaps the only buyers the exiting institutions can find to take the other side are small retail ones--and based on this thread many of those may prefer the arbitrage play with SCTY.

It will be interesting to observe the trading action two days before the record date--holding institutions may decide to begin lightening up to be in compliance with their risk management concentration guidelines once the transaction closes.