Short-Term TSLA Price Movements - 2016

[Turing]

Just to be clear, the grant date value is $5 million but the vehicle isn't set - the 8-K says it will be in the form of RSUs, options or a combination thereof.

Assuming options are used, it's not a slam dunk that they will become worthless if the deal doesn't go through. The strike price will be the SP on the start date and the term will likely be 10 years. Even if the SP takes a short term hit due to the failed merger a lot can happen in 10 years...

To recap guesstimates we can make about this hiring announcement wrt merger:

1) Only makes sense if Tesla/new hire are convinced merger will go through. If some major institutions are leaning towards "No" would this hire change that? (Doesn't seem all that likely imo, unless this was some kind of back channel condition for supporting merger by one of big institutions?)

2) Why would top solar exec leave current position and accept option heavy offer if he wasn't already convinced beyond reasonable doubt of 1) being true.

 

[racer26]

To recap guesstimates we can make about this hiring announcement wrt merger:

1) Only makes sense if Tesla/new hire are convinced merger will go through. If some major institutions are leaning towards "No" would this hire change that? (Doesn't seem all that likely imo, unless this was some kind of back channel condition for supporting merger?)

2) Why would top solar exec leave current position and accept option heavy offer if he wasn't already convinced beyond reasonable doubt of 1) being true.

I could see him doing 2) independent of 1) if and only if he thinks SunPower is on its way down the tubes, and that TSLA/SCTY is not.

 

[esk8mw]

207.50 it is.

 

[Turing]

His value proposition to Tesla if the merger fails would be negligible, and I imagine he would be let go. If I were in his shoes, I wouldn't sign on unless I was reasonably assured that the merger goes through. In addition, I'm betting that 5M options package doesn't vest if he and the company part ways. All the more reason I would want assurances of the merger's success before I accepted the terms of the deal in his shoes.

Right, this is what i was implying. He is no longer worth the comp package if the merger fails, he has to strongly consider this going into it which implies he is sufficiently convinced merger will go through, or he is just willing to take a huge risk if you assume his current employer is going down...

 

[Turing]

I could see him doing 2) independent of 1) if and only if he thinks SunPower is on its way down the tubes, and that TSLA/SCTY is not.

Good point, but would Tesla make public announcement of this hire if they still had doubts about deal?

 

[esk8mw]

207.50 it is.

207.45. Apologies for the error in my prediction.

 

[Jayjs20]

I think someone just pressed the wrong key a few times. It's dumb to go that low that quick, and it's already gone back up.

 

[Ulmo]

The trouble with older solar roofing technologies is that they were put forth in an environment where they were dramatically more expensive than the competing incumbent technologies, and they weren't willing to throw away all notion of what a roof *is* before they started. This is the very same problem past EV companies had - they started with preconceived notions of what a car *is*, and ended up with an inferior product.

Precisely.

Wooden shingles are wooden.
Clay tile roofing is Clay tile.
Asphalt paper shingles are asphalt paper.
Solar roofing shingles are ---- they used to think they are ---- I'll let you guess ---- something other than solar panels, like maybe wooden shakes, maybe clay tile, maybe asphalt ----- anything but a solar panel! No, no way.

Now, today, they are going to try out this novel new concept that no one has tried:

Solar roofing shingle panels are solar panels.

YES! WE WIN!

In other words, all the prior attempts were designed to fail. Probably, the few people who had attempts that were designed to succeed were bought out or crushed by vested interests, but this time around, when the vested interests came knocking to buy out the projects, Elon Musk's Tesla answers, and says "P100DL!" The P100DL, besides being an insanely irrational car, is 5x more rational than the cars it competes against, and is a true statement and testament to the fact that they can sell something good using electrons rather than oil.

But the real proof in the pudding came this week when they did a blow-out sale of low-end cars and gave discounts of $7,000-$10,000 off, pushing prices of electric cars down and showing the world that yes, indeed, a good car can be bought for even LESS money and sold at a PROFIT. That's Tesla's real answer to being bought out or crushed by those who don't want solar roofing. And soon, GM's Bolt and Tesla's Model 3 will cut that in half! These solar roofs are not having an identity crisis any more, no matter how much name calling goes around by those who don't want them to succeed.

Imagine this: a world without the evil that stopped so much progress in the past century, crushing better products and better ideas because something inferior was already in market. We would have had electric cars and solar panels back in the 1960s and 1970s, and today there would be no discussion about global warming or terrorism, because they wouldn't exist. All the while, with the risk we'd have robot AI overlords, and we'd be treated as pets, so I'm not saying it's all upside ... (thankfully, OpenAI is an attempt to prevent bad versions of that).

 

[jesselivenomore]

Jesse. Can you give us some *color* on how you see the merger and how some of your WS associates view it AND do you think the SCTY/TSLA arbitrage is a good play?

Thanks

Just my opinion:

According to Elon, SCTY is doing fine and on a path to "positive cash flow"(not to be confused with FCF+, just that money coming in from financing activities > expenditures). The timing of the merger is because TE is starting to ramp up, coinciding with the Buffalo/Silevo factory becoming operational, and they want an integrated solar/storage product - which they will show on Oct. 28 apparently. According to SCTY the recent draw down in cash was from delays in financing due to the pending merger.

If this is true, then while it is a bit ambitious at a critical time(par for the course), the merger should be a good deal. You are buying an industry leader at a low point, while new products are just on the horizon.

On the other hand, according to general consensus this is a bailout of SCTY which is on the verge of collapse.

This is such a foregone conclusion even among Tesla supporters that I should push back on it a bit first before we explore a scenario where we assume it is true.

First of all, what has not been emphasized enough is that we are in the midst of an industry wide downturn in the solar sector that is not exclusive to SCTY. So when people point out all the problems specific to SCTY, its management, its business model - that has not stopped every other solar company from also being impacted negatively and collapsing in equity value. Looking at their balance sheet, their stock performance, if SCTY was on the verge of collapse, then most other solar companies must be as well, especially the installers like Sunrun and VSLR, since their balance sheets are just as bad. Perhaps instead of everyone about to close doors, Tesla simply bought SCTY to strengthen it during a time of broad weakness, to come out an even more dominant player. How does Sunrun and VSLR feel about about SCTY having the backing of Tesla now? This is not to say there aren't problems with SCTY's business model, and I'll get into that.

With that said, let's assume SCTY really is on the verge of collapse, and the merger is a bailout to save it. As Tesla investors you have to make a couple of assumptions - that Elon Musk is not an idiot, and that he has access to more information than we do. That does not mean he will be always right, no one is, but as an investor you have to put your trust in him. Or sell your shares. So as the largest shareholder of Tesla, and with most of his financial wealth tied to Tesla, you have to believe that he would only bail out SCTY for one of a couple reasons. Either he believes a bailout will not negatively hamper Tesla's critical path, and benefit it in the long run. Or, he believes a collapse in SCTY would have dire consequences where a bailout is absolutely necessary. How much of an impact would there be to SpaceX if SCTY defaults on its solar bonds? How much of an impact to Tesla's ability to raise capital would there be if both of Musk's other ventures are struggling/failing?

I do not believe that Musk is doing this for ego's sake or saving face while putting Tesla in harms way. He is either doing it because he believes it is for the best, or because he is absolutely forced to do it. In either case, it is in the shareholder's best interest to support him. (Or sell)

There are things I do not like about Solarcity. I do not like that their business is dependent on the confidence of debt markets. Even if things were okay in reality, fear that they are not can drive borrowing costs up and create a self-fulfilling spiral - especially if sentiment can be influenced by short sellers. I would prefer to be in charge of my own destiny. I also do not like their intrusive sales practices. Cold calling and door to door tactics are not suitable for the mass market. I understand that they don't have much of a choice on some of these things. People don't exactly come running to you to buy solar. And their leasing model is what got them their market share. Under Tesla both these things should change. Financially they are already moving towards loans vs leases. And using Tesla stores to sell the solar package makes a lot of sense. Imagine, instead of invading people's homes and free time, people are coming to you to look at electric cars, and are offered a system that charges the electric car, and can be used to power your home as well. And instead of paying exorbitant commissions to door to door salesmen, Tesla uses a fraction of that money for a discount off of a Model 3 + Solar + Powerwall bundle. I'm not sure if that would generate the 80% growth that Solarcity was used to, but I am pretty sure it will be more efficient and profitable, not to mention a vastly more natural and noninvasive sales process.

Also, assuming it is a bailout, that isn't necessarily a bad thing as long as they actually get bailed out. Then they are in a stronger position when their competitors are all weakening, in an industry that should have a lot of growth in the long run. The downside of this is if things are so bad at SCTY that they drag Tesla down with it. Which is where trust in Elon Musk not being an idiot comes to play. I would like to believe that he wouldn't risk his main horse to save something 1/10 the size, unless the alternative is just as bad.

And lastly, the vote. IMO, I believe the merger will go through. A failed vote would signal falling investor confidence in Musk and decline in credibility. So much of Tesla's valuation is based on the Musk factor, personally I know I would not be in this stock tomorrow if he is no longer with the company. So investors essentially revolting against him would IMO in turn take the stock down, which would then impact their ability to raise capital and hamper the underlying business. The large institutions know this. So instead of voting no, and then hanging onto a sinking boat, it would make much more sense for those who dissent to simply sell their shares. The latest decline may very well have been due to this. This leaves a much larger portion in favor left to vote, making a pass more likely. This is just my opinion though, and would not play an arbitrage based on it unless it is money you can lose. I do know that if the vote is rejected I would be selling my Tesla shares at least until the smoke clears afterwards.

 

[AlMc]

Thanks Jesse. Don't be a stranger

 

[racer26]

Expanding on my thoughts about why TSLA/SCTY Solar roofing will succeed where earlier efforts have failed:

Technologies go through a period in their infancy where they are very expensive, and integration with other parts of a system is very difficult.

We saw this same problem with batteries. Its why Tesla has succeeded in large part by using cylindrical Li cells which had already matured in the consumer electronics sector.

Early solar panels had poor efficiency, and unsightly aesthetics. Today, the efficiency is reaching a point where you can do something to mitigate the aesthetics at a cost of a minor hit to efficiency. For example a 2% efficiency hit on a panel that is 30% efficient isn't nearly as painful as a 2% efficiency hit on a panel thats 8% efficient.

Solar Roofing

Here's a group that is showing a product that is almost indistinguishable from its non-active components.

Additionally, something like the older Dow-Corning attempt at solar shingles looks pretty sharp, but is very complex to install. A workable solar roofing solution needs to be simple to install by the manual laborers that work for roofing companies, and simple for the electrician to wire up when the roofers are done installing it.

Elon has a remarkable knack for spotting when a technology is at just the right point on the curve to buy in and capitalize on it, while others are still reticent to move because of past failed experiences. He also doesn't just do what others did because they did it. He analyzes every design decision and determines if it makes sense.

This is why the other automakers don't have a hope of catching Tesla if they keep playing the game where they build an EV conversion of an otherwise ICE platform. LEAF is just an electrified Versa, and Bolt is just an electrified Sonic (albeit with a few chassis tweaks that make it marginally better than *just* an EV conversion).

 

[Turing]

And lastly, the vote. IMO, I believe the merger will go through. A failed vote would signal falling investor confidence in Musk and decline in credibility. So much of Tesla's valuation is based on the Musk factor, personally I know I would not be in this stock tomorrow if he is no longer with the company. So investors essentially revolting against him would IMO in turn take the stock down, which would then impact their ability to raise capital and hamper the underlying business. The large institutions know this. So instead of voting no, and then hanging onto a sinking boat, it would make much more sense for those who dissent to simply sell their shares. The latest decline may very well have been due to this. This leaves a much larger portion in favor left to vote, making a pass more likely. This is just my opinion though, and would not play an arbitrage based on it unless it is money you can lose. I do know that if the vote is rejected I would be selling my Tesla shares at least until the smoke clears afterwards.

This is a key point, many of us have suggested a similar line of reasoning (trying to talk sense into the tsla longs that want deal to fail on here) but you explained it better. Those institutions against this would be better off unwinding their position rather than a very public and embarrassing 'no' vote of confidence on Musk on top management AND the board, in a stock that needs to do another cap raise soon.

 

[jesselivenomore]

Lastly on SCTY bailout. Perhaps the debt markets are closing on them, but driven by fear/confusion instead of the quality of the underlying business(clearly Musk believes this). SCTY may need time to transition out from their dependency on the debt markets, and if they can come out the other side then they are worth $100, and if not then they are worth $0. Would it make sense to bail them out at $20 then, if it ensures the eventual $100 in value? Especially if the alternative has a materially negative impact on SpaceX(solar bonds) and Tesla(crisis in credibility, ability to raise capital).

The question many will ask then is why not wait to bail them out at $10, or $1 then?

Because sometimes you reach a point of no return. If you burn something to the ground, you may not be able to build it back up again. If you are picking SCTY up from impending bankruptcy, they would have a hard time ever raising debt again, and as a part of Tesla negatively impact the parent company's financing ability.

 

[brian45011]

Why would a top solar industry exec take a options heavy comp package before merger is done unless he was convinced it was near certainty that the deal would go through

He is likely the replacement for Zanoni (who left in March) and is likely a capable accounting professional--his recent solar experience is a plus but that slot has been vacant for six months,.

" Prior to joining SunPower, Branderiz served as vice president, corporate controller, treasurer and head of subsidy business operations for the Knowledge Universe (KU), where he was responsible for all accounting, external reporting, internal controls, subsidy operations, and treasury activities. Prior to KU, he served in various positions at Spansion, Inc., including as senior vice president, corporate finance & corporate controller, where he managed the company's financial accounting, financial reporting, global manufacturing cost accounting, worldwide sales and marketing finance, global shared accounting services and analysis, corporate treasury and tax. Early in his career, Branderiz held various positions at Advanced Micro Devices, Inc., Ernst & Young, LLP, and the Provincial Branch of Consumer & Corporate Affairs and Treasury Departments in Canada. Branderiz is a Certified Public Accountant and earned a Business Commerce Degree from the University of Alberta, Canada.

unless he was convinced it was near certainty that his stock options wont become worthless?

RSU typically have a zero basis when they vest,

 

[Turing]

RSU typically have a zero basis when they vest,

Sure, the point was more is he valuable enough to tesla to warrant a 5mil comp package - and stick around long enough for it to vest - in the instance that the merger fails?

 

[Drivin]

Imagine this: a world without the evil that stopped so much progress in the past century, crushing better products and better ideas because something inferior was already in market. We would have had electric cars and solar panels back in the 1960s and 1970s,

Some context for this.

First commercial solar cells were available in the 1950s. But they were expensive: $300/watt.
The major change in the cost structure for solar cells happened in the 1970s. The cost went from $100/watt to $20/watt.

The major driver/researcher for that? Exxon.

 

[neroden]

I guess I won't bother to take up Schwab on the very juicy offer I just got 10 minutes ago to lend my SCTY arbitrage position -- it'll drop in rate again next week.

I told Schwab I was holding the shares for voting today and that I'd lend 'em over the weekend. (Since, y'know, the record date has passed now.)

 

[neroden]

A federal district court decision has minimal precedential value and may not even be binding within the District. Litigation is the sport of kings, and can take a long time while consuming SG&A resources to get a ruling that is controlling in just one the country's 13 Circuits.The legislative route is better but still incurs lobbying expense and has had mixed results.

Tesla plans to sell 500,000/year in 2018 and 1 million/year by 2020. A car is the second biggest purchase most people make, and states will continue to use licensing laws to regulate who can sell new and used cars commercially. In jurisdictions that currently restrict Tesla's operations, why not set up a franchise system using trusted investors as majority owners with Tesla/Elon retaining a significant minority interest to establish standards and practices?

If Tesla has even one franchise anywhere in the world, it prevents Tesla from having company-owned stores in states such as New York and California. Not an acceptable tradeoff.

I've explained this so many times I'm getting bored explaining it. People need to do their own research.

 

[winfield100]

Got response from Jeff Evanson:

"THE DATE IS TODAY"

goodie, i got another 103 shares of SCTY @2:39pm

 

[austinEV]

Arbitrage trending down, merely a 15.7% discount:

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