Short-Term TSLA Price Movements - 2016

[Fallenone]

Asking again here. Anyone know when/where/how we can listen to the financial discussion on the two companies tomorrow?

 

[Ulmo]

This from their website blog Update on Tesla's Combination with SolarCity, October 12, 2016:

"Over the next few weeks, Tesla will share important updates regarding our strategic plan for the combined company. On October 28th, Tesla and SolarCity will unveil a solar roof product, which along with Powerwall 2.0, will show the kinds of products that the combined company will be able to create. And on November 1st, Tesla will provide additional financial information relating to its plans for the combined company."

In Tesla's Q3 report, filed with SEC, they said:

With the previously announced plan to acquire SolarCity, we look forward to making solar as compelling as electric vehicles. Acquiring SolarCity would leverage Tesla’s existing investments in the Gigafactory and the next-generation Powerwall and Powerpack to drive revenue growth. In addition to the revenue growth associated with making solar more compelling, the combined company is expected to achieve over $150 million of direct cost synergies in the first full year post-close. Over the coming days, there will be a number of additional events relating to the SolarCity acquisition and our strategic plan for the combined company:

• October 28th: Product demonstration event to unveil an integrated solar roof with next-generation energy storage and EV charging.
• November 1st: Additional information to be released about the combined company.
• November 17th: Stockholder meeting to tally the final vote on the acquisition.

A text search for "November 1" did not find it in their latest prospectus for merger (but found lots of November 17, 2016 and one each of November 10, 2016 and November 1, 2013).

No mention there of a discussion. Perhaps it's just a SEC filing and a blog post (both channels previously announcing further information on that date). I did not find any tweets from @TeslaMotors, @solarcity or @elonmusk regarding November 1 other than referring to that blog post.

 

[mmd]

Ok. Thanks. But does this mean, that there is a large political risk for this kind of business?

Best to check these out directly on Solarcity's website. Better than relying on posts here for the correct info.
PPA: "Pay for the energy produced, with a 0-2.9% annual escalator"
How Much Do Solar Panels Cost? Find the Cost of Solar Energy

 

[NOLA_Mike]

Elon stated that moving the economy to electric would triple the amount of electricity needed. I think the utilities will be OK.

Yes, in fact, without distributed micro generation and storage (solar and batteries for example) the upgrades required to the "grid" to handle a three fold increase would be expensive to say the least.

 

[racer26]

Almost 100% sure you're wrong and omitting some important info. I'm not at my computer so I don't have the ability to pull up the filing. I'll find he full quote later.

The others omitted the following sentence from the quotation:

If the Merger is completed, SolarCity stockholders will have the right to receive 0.110 shares (the “Exchange Ratio”) of Tesla Common Stock for each share of SolarCity Common Stock issued and outstanding (except shares held by SolarCity as treasury stock or shares owned by Tesla or Merger Sub), with cash paid in lieu of fractional shares. This Exchange Ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the Merger. Based on the closing price of Tesla Common Stock on the NASDAQ Global Select Stock Market (“NASDAQ”) on June 21, 2016, the last full trading day before the public announcement of Tesla’s proposal to acquire SolarCity, the Exchange Ratio represents approximately $24.16 in value for each share of SolarCity Common Stock.

They cited a value ($24.16) that the exchange ratio represented, on a particular day (June 21), but what the owners of SCTY Common get is 0.11 TSLA per SCTY, and they get cash in lieu of fractional shares based on the share price of TSLA on the date of consummation of the merger. The final version of the S-4 included a second calculation of value representation as of the date of publishing the S-4.

The only thing that changes this is if TSLA falls below 170, and nullifies the merger agreement, at which point the S-4 might get renegotiated.

 

[myusername]

There has been no buying the rumor lately. I would anticipate a modest decline in TSLA tomorrow. SCTY may well be in the green due to today's decline increasing the spread. Based on recent history, I would expect a decline on Wednesday as well. Who knows what would have happened without these events but they don't appear to have had the desired effect.

pretty basic but important observation... the number of announcements/product releases/etc have become monotonous... and then when something like friday happens you're left with another dozen questions that there's not enough data to figure out... and we're just supposed to fill in the gaps with our own speculation that hopefully results in: "Elon just opened up another 1T industry"... then pop the stock $40?

this story is getting old... and from a practical perspective consists of an Auto company at it's most critical/risky juncture of trying to grow to a sustainable size... buying its cousin's (literally)... Solar company... tossing out 1.5 year to 20 year plans (depending on interpretation) left and right to keep the dream (stock) alive.

i think it should be obvious by all that this stock is no longer trading like it did in 2014/15... with ridiculous pops on similar news as what we've seen over the last 4 weeks.

 

[racer26]

For those interested:
Friday's slide deck and full transcript of the presentation were filed as 425 filings with the SEC by SolarCity:
SEC Filings - SolarCity

 

[electracity]

Why are you completely ignoring or missing the aggregation of powerwalls into VPP's (virtual power plants) to be used as spinning reserves for among other things, frequency regulation?

Why don't you follow the developments at CAISO instead of posting stuff that sounds good for TSLA?

 

[ggr]

False. It is a ratio based on the price as of the date mentioned in the original deal, ~$24.

I think everything in the post you replied to is correct. What part of it is "false" according to you? If you are referring to the ratio, he's correct that the ratio is now fixed at 0.11.

 

[MitchJi]

Ok. Thanks. But does this mean, that there is a large political risk for this kind of business?

For those small companies that don't make their own panels, yes. Their market for new customers could evaporate overnight if the subsidies go away.

Initially, SCTY was doing a lot of deals with that sort of customer, taking advantage of big subsidies. Recently, they've changed their tune, and decided that its a bad market to be in (that's how they got the billions of debt, though) in part because of the political risk factor, and have since switched to more owner-financed or owner-bought sales, which don't have the same political risks.

For all solar companies, there is an element of that risk until they can make panels cheaply enough that they are economical on their face, without the help of the subsidies.

But all of that risk is to obtaining new customers? Not what the claims are about SCTY having huge debts on their books.

Back to short term prices: I don't see the solar roof having much impact on short term stock price. It appears to be a very desirable product (I know I want it for my next home). Totally exceeded my expectations with how good it looks. But we know just about nothing about it: price, cost, margins, expected sales, capex reqs, etc. Nothing that can be reasonably added to a model to figure how it

I agree that there isn't enough information to do financial modeling, but we can figure out that it will be a breakthrough product, with a market impact similar to the iPhone or Prius.
We know that:
Almost 100% of the CAPEX is paid by NY taxpayers.

We knew that it's a smart idea to combine the roof with those shingles, because the materials and cost of installing a new roof can be applied to the same costs (although the solar shingles cost more), incurred when installing solar.

We know that two qualities that define premium roofing are appearabuand longevity, which is why slate and terra cota are popular. These tiles look better and last longer than anything else on the market. We also know that ecological products sell (why else would anyone buy a Prius?). I think it's safe to say that they will be production constrained for a long time.

The vision of buying cars, solar roofing and powerwalls from the local Tesla dealer finally seems feasable to me.

My guess is we trade lower into the meeting/call and reverse after. For some reason this time I feel it'll go higher after the SCTY explanation. I can hope right?

It's a reasonable hope. The three concerns that caused the drop on SP when the SCTY merger was announced were product concerns, synergy concerns and financial concerns. If the explanation does as good a job at providing compelling financial and synergy reasons as the product is compelling we'll be in good shape.

OTOH we just had a compelling ER, an industry leading AP introduction that has both short term (increased demand and larger margins), and a compelling product introduction that seemed impossible. A whole new category with massive potential, and TE 2.0 and we've gone down. So there's also excellent reasons for skepticism.

 

[electracity]

The second half of The Energy Gang talks about solarcity and the Buffalo factory. Interesting for those wanting to understand actual industry opinion. For everyone else - carry on!

Making Stuff Is Hard: Lessons From Cleantech Hardware Startups

 

[Value Ev]

pretty basic but important observation... the number of announcements/product releases/etc have become monotonous... and then when something like friday happens you're left with another dozen questions that there's not enough data to figure out... and we're just supposed to fill in the gaps with our own speculation that hopefully results in: "Elon just opened up another 1T industry"... then pop the stock $40?

this story is getting old... and from a practical perspective consists of an Auto company at it's most critical/risky juncture of trying to grow to a sustainable size... buying its cousin's (literally)... Solar company... tossing out 1.5 year to 20 year plans (depending on interpretation) left and right to keep the dream (stock) alive.

i think it should be obvious by all that this stock is no longer trading like it did in 2014/15... with ridiculous pops on similar news as what we've seen over the last 4 weeks.

This.
It is not unusual or wrong that a stock price is mainly supported by vision, hope, hype, big expectations, etc. but at some point it starts to trade in different trading patterns that are based on a different blend of results, specifics as well as vision and hope. The event on Friday had a beautiful panels, and the industry does need that to increase adoption, but not much more specific than that. And it just raises more questions, for instance Is anyone here sure what the pricing even is? It was mentioned that it was the same as a traditional roof plus the cost of electricity (or some wording like that). Does that mean the cost of electricity for 1 year? For 10? 20? The life of the roof? If it is for the life of the roof, doesn't that mean it is just a break even proposition with the costs being front loaded? Wall Street is not a big fan of uncertainty although it is more tolerant of it when packaged with a big vision.

Vision is great, but sometimes what is needed is what three-time Pulitzer Prize winner Milton Friedman said: "show me the money"

 

[Ulmo]

Where does this notion that off-grid systems won't be allowed come from? I can buy solar panels and build my own off-grid solution. I then call up the power company and request that they disconnect me from their service. If they don't, I simply stop paying them, and they'll disconnect me.

You're not the first person who's suggested that it might not be allowed, but I don't understand. We live in a society (at least in the western world) predicated on the notion of freedom. I don't have to be beholden to a power company if I don't want to be.

There are lots of ways of getting at this. As I understand, many condemnation and occupancy laws are triggered based on provision of electricity from the grid.

The principle of freedom can be successfully applied to being off-grid, but it is also pressure from other angles. When I looked for ways to power homes in wilderness areas many decades ago, originally, I found more resistance from governments because of lack of utility power, but now, it is often advertised in real estate as a feature to take advantage of solar (in previously "unavailable" areas due to lack of electric utilities), and governments are accepting and even in some ways encouraging this. Beholden partisans can muck up the works by enforcing archaic and probably illegal laws regarding this as you mention. In the aggregate, I believe @racer26 is correct, although, the government-as-god crowd will have plenty of road blocks at their disposal in order to make good on pay-for-play schemes (example: Clintons). Luckily, government is presently on our side a lot of the time regarding clean energy (often cited example (I've seen no proof): Clinton). This is a good political time to handle these things, with relatively less fuss about it, because people will somehow find that they can do the right thing.

Overall, if this is not brought up aggressively as a people vs. government thing, government will probably be on our side most of the time, and for individual conflicts, solar + battery being good and sufficient should help those individuals out, most of the time. The few times road blocks like you mention will hold sway are just typical government for government's sake, not any type of market standard (which favors this freedom as far as non-government market freedom issues are concerned) or citizen rights standard (which should allow this). Of course, competitors (an issue Elon addressed October 28 very loudly (search for "utilities")) may want to attempt to hinder these things, and already have, but won't be able to after PowerWall 2 is shipping in consumer demand quantities, because market forces have broken through to allow this (see Elon Musk comments about this October 28, when he said utilities will be a big part of getting 3x the amount of electricity as we currently have).

So: Politically correct: check. Market correct: check. Citizens rights correct: check. Cleaning up the old laws on the books and spawned regulations? When they're found, they'll be cleaned up, somehow, some way.

 

[Value Ev]

The second half of The Energy Gang talks about solarcity and the Buffalo factory. Interesting for those wanting to understand actual industry opinion. For everyone else - carry on!

Making Stuff Is Hard: Lessons From Cleantech Hardware Startups

Interesting articles and links.

So if they are correct when they say:
"SolarCity's growth-at-all-costs strategy has caused problems as U.S. residential installation growth has slowed, customer acquisition costs have risen, local installers have started to offer better pricing, and the company's cash-burn rate accelerates."

How does Tesla acquiring them fix that? Customer acquisition cost is an industry issue (education, competition, the economics, financin,g etc) and not necessarily solved by setting up a part of the Tesla store to take orders for solar the way they do for cars.

Funny that there was so much discussion here about SIlevo as the value within this deal and Tesla certainly talked them up a bit, and now this.

 

[Skryll]

... and from a practical perspective consists of an Auto company at it's most critical/risky juncture of trying to grow to a sustainable size... buying its cousin's (literally)... Solar company... tossing out 1.5 year to 20 year plans (depending on interpretation) left and right to keep the dream (stock) alive.

Except that from the get-go Tesla was about a paradigm shift from fossil fuel to renewable energy, and for the last two years people talked about how solar is the logical consequence of electrical driving. Home owners with two electric cars in the garage, charging at home for the convenience of it, see their already high electrical bills go up and look for a solution. The answer is local power generation with solar, which begets more questions about storage of energy... That is why a lot of TSLA share holders also own shares of SCTY, SEDG, CSIQ, VSLR... Its obvious and makes sense to produce the necessary technology (motors, inverters, batteries, panels) and take on disrupting the established industries. Just waiting on what they can do for home air conditioning / heat pumps, thats an industry still waiting to be disrupted to make it affordable.

Of course it will not be obvious to everybody. Just like my boss telling me 'nobody will ever use email for business' 30 years ago.

 

[Value Ev]

Except that from the get-go Tesla was about a paradigm shift from fossil fuel to renewable energy, and for the last two years people talked about how solar is the logical consequence of electrical driving. Home owners with two electric cars in the garage, charging at home for the convenience of it, see their already high electrical bills go up and look for a solution. The answer is local power generation with solar, which begets more questions about storage of energy....

Why don't people just buy solar panels from any of the multiple suppliers out there?
Isn't competition a great way to drive innovation and pricing improvements?

Why does it beget questions about storage of energy? Are people planning to buy much bigger solar systems than they actually need so they can then buy a 6.5k or 13k battery system to store the energy?
(if a 2 bedroom house requires a 6.5k system for just the refrigerator and lights for a day, how many batteries do you need if you have 2 electric cars, and run the rest of your house, like the tv? Oh, and how many solar panels do you need to get that much incremental power into the batteries?)

 

[tander]

The second half of The Energy Gang talks about solarcity and the Buffalo factory. Interesting for those wanting to understand actual industry opinion. For everyone else - carry on!

Making Stuff Is Hard: Lessons From Cleantech Hardware Startups

Listening to this, that guy is super critical of SCTY and vertical integration. He keeps saying vertical integration doesn't work...I think maybe he's forgetting the history of the industrial revolution.

 

[schonelucht]

You quoted and bolded exactly the part that shows you were wrong before.

 

[doggusfluffy]

The only thing that changes this is if TSLA falls below 170, and nullifies the merger agreement, at which point the S-4 might get renegotiated.

Is this scenario the explanation for the widening arbitrage? As 170 gets closer the odds of nulification increase?

 

[drinkerofkoolaid]

SolarCity will continue to fluctuate between $18 and $25 because analysts have no desire to attempt to give it an honest valuation, and Chanos is a POS chode. This is the only reason Tesla has been unusually volatile.