Short-Term TSLA Price Movements - 2016

[Foghat]

"What will it take for Solar City to stop net losing money?"
SolarCity will be profitable once they slow new lease/PPA installs such that the cost of these new installs is less than the margin generated by (1) upfront system sales and (2) previously installed systems.

Solarcity does not lose money. They finance each install for a 20 year monthly revenue stream.

In addition, Solarcity has a 20 year relationship for upsale for future products such as powerwall, Solarcity management service of customer sided energy sales, and now tesla automobiles and assorted tesla products that may come down the line in the next twenty years.

That approximately 300k customers as of the signing of the deal. Solarcity has a goal of achieving 1 million customers by beginning of 2019 so that is a massive boon for tesla long term product sales/marketing/advertising.

 

[Causalien]

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.

SO a lot of it rest on the interest rate of financing. Has anyone looked into this yet? I am expecting rate to rise.

For me, to get me to instantly vote yes on the deal without spending a week on due diligence. I need a material adverse clause to break the merger and the project merger date 2 years from now. The material adverse clause needs to include specific language on adverse scenarios of a normalized interest rate environment as well as any hidden derivative hedging that blows up when these debts comes due.

 

[Foghat]

SO a lot of it rest on the interest rate of financing. Has anyone looked into this yet? I am expecting rate to rise.

For me, to get me to instantly vote yes on the deal without spending a week on due diligence. I need a material adverse clause to break the merger and the project merger date 2 years from now.

Solarcity has had a track record of 99.5% of on time payments over the past 9 years. They also are installing approximately 2 instslls per crew a day on average, which makes it an attractive asset backed securitization vehicle for massive install capacity company like Solarcity. They can install a lot of solar very quickly with rock solid monthy payments which translates into a very attractive institutional ABS investment. Last I recall, they have very strong demand for ABS products which translates into highly competitive rates.

The primary concern with Solarcity is purely political/regulatory. Solarcity has had a lot of push back from buffet backed utilty commission in Nevada and Koch bros backed pinnacle west backed commission in Arizona. However, Solarcity has hired former FERC chairman as a major mitigation element in the regulatory fight.

With tesla acquisition, Tesla's policy team and political capital will also swing the policy fight as well.

If Solarcity wins the policy battle, this company will add more value (quicker)to tesla then tesla itself.

 

[anticitizen13.7]

The best companies to get into (in my opinion) are ones which are product focused. e.g. Google, Apple, Tesla

The ones that rely on finance instruments to make the money (unless they are a finance company themselves) end in disaster e.g. GM, Enron

I tend to agree, which is why I want Elon to explain in very exacting terms how SolarCity's business will change if it is brought into the Tesla fold.

With respect to focus on product, a combination of Tesla and SolarCity does allow complete hardware product offering that neither company can offer alone. SolarCity panels (from the Buffalo, NY factory), plus Tesla batteries for storage, plus a Tesla inverter (perhaps based on tech from the inverters used in Tesla cars), would be a single hardware solution and installation from one company. That's a lot more compelling from a value-add standpoint than just selling panel installs or just selling batteries.

SolarCity's original business model was to stay out of hardware, and instead use the Power Purchase Agreement model to build revenue streams. Going vertical with all the hardware would signal a major change.

 

[pGo]

Solarcity has had a track record of 99.5% of on time payments over the past 9 years. They also are installing approximately 2 instslls per crew a day on average, which makes it an attractive asset backed securitization vehicle for massive install capacity company like Solarcity. They can install a lot of solar very quickly with rock solid monthy payments which translates into a very attractive institutional ABS investment. Last I recall, they have very strong demand for ABS products which translates into highly competitive rates.

The primary concern with Solarcity is purely political/regulatory. Solarcity has had a lot of push back from buffet backed utilty commission in Nevada and Koch bros backed pinnacle west backed commission in Arizona. However, Solarcity has hired former FERC chairman as a major mitigation element in the regulatory fight.

With tesla acquisition, Tesla's policy team and political capital will also swing the policy fight as well.

If Solarcity wins the policy battle, this company will add more value (quicker)to tesla then tesla itself.

There is a reason scty was trading in low 20s. Those battles are too difficult to win. Buffet talked about a simple scenario where more than 4.5M households are impacted to support a few thousands solar panel owners. Different battles in different states. It's just too much unknown.

 

[Electrifying]

SCTY is on the cusp of winning big in the lucrative and fast-growing utility scale solar market. Remember the Kauai utility solar project won by SCTY and TSLA? SCTY is building the 13 MW Solar farm and TSLA is supplying the 52 MWh battery storage. Imagine all major tourist islands follow this trend?

Also I disagree with the thinking of SCTY has no technology. They built the grid management software orchestrating the rooftops, solar farms and battery storage to allow utility to point the power from all three wherever they want. This kind of expertise is as high-tech as it gets.

Also there must be cost savings such as eliminating redundant billing software, CRM, enterprise IT etc.

 

[Foghat]

I tend to agree, which is why I want Elon to explain in very exacting terms how SolarCity's business will change if it is brought into the Tesla fold.

With respect to focus on product, a combination of Tesla and SolarCity does allow complete hardware product offering that neither company can offer alone. SolarCity panels (from the Buffalo, NY factory), plus Tesla batteries for storage, plus a Tesla inverter (perhaps based on tech from the inverters used in Tesla cars), would be a single hardware solution and installation from one company. That's a lot more compelling from a value-add standpoint than just selling panel installs or just selling batteries.

SolarCity's original business model was to stay out of hardware, and instead use the Power Purchase Agreement model to build revenue streams. Going vertical with all the hardware would signal a major change.

Solarcity sells a commodity: electricity. This is their product. Now tesla is going to add a design element to the delivery of that commodity.

In addition, Solarcity will also start to manage customer sided revenues on electricity sales through the grid system (which ultimately translates into lower cost for the electricity commodity a customer consumes).

 

[Foghat]

Solarcity sells a commodity: electricity. This is their product. Now tesla is going to add a design element to the delivery of that commodity.

In addition, Solarcity will also start to manage customer sided revenues on electricity sales through the grid system (which ultimately translates into lower cost for the electricity commodity a customer consumes).

Like the Uber of electricity.

 

[dakh]

SolarCity's original business model was to stay out of hardware, and instead use the Power Purchase Agreement model to build revenue streams. Going vertical with all the hardware would signal a major change.

SolarCity's model is to build the most badass solar installation machine out there. They do care a whole lot about driving costs down and they very much do understand that this is a commodity business. That's why they did some acquisitions and that's why they spent so much on R&D to drive their installation costs down, to improve speed and efficiency.

I think though that the opportunity that they can take is a lot bigger. There's a lot of value that will be unlocked in the process of restructuring of electricity production and distribution. It is absolutely inevitable given the advances of technology. The question only is how exactly will that go down and for how long the incumbents will be able to hold the fort. This merger results in a stronger play to move the needle faster on that front.

 

[dakh]

Given that both TSLA and SCTY are publicly traded companies, wouldn't "material" information like this have to be made available to everyone at the same time? Cluing in some parties but not others seems to create a huge risk of insider trading.

Like it was pointed out a possibility of a merger was disclosed before. There might be some presentations going on at the moment...

 

[Foghat]

SolarCity's model is to build the most badass solar installation machine out there. They do care a whole lot about driving costs down and they very much do understand that this is a commodity business. That's why they did some acquisitions and that's why they spent so much on R&D to drive their installation costs down, to improve speed and efficiency.

I think though that the opportunity that they can take is a lot bigger. There's a lot of value that will be unlocked in the process of restructuring of electricity production and distribution. It is absolutely inevitable given the advances of technology. The question only is how exactly will that go down and for how long the incumbents will be able to hold the fort. This merger results in a stronger play to move the needle faster on that front.

Solarcity's business model is to sell electricity.

 

[drinkerofkoolaid]

As I said before, if Tesla "trades" Tesla stock for all of Solar City's shares, this will force everyone who is short Solar City to cover on the same day. Right?

The WSJ seems to agree.
Elon Musk Eats the Shorts

 

[MikeC]

As I said before, if Tesla "trades" Tesla stock for all of Solar City's shares, this will force everyone who is short Solar City to cover. Right?

The WSJ seems to agree.
Elon Musk Eats the Shorts

Or they could just be converted to short a proportionate amount of TSLA. Maybe this was just Elon's strategy to create the most shorted company of all time.

 

[ggies07]

I own shares of both companies and keep a close tab on Lyndon like I do Elon for interviews. I think it was maybe 2 years ago now, but Lyndon gave an example of how Elon helps steer SolarCity's bigger picture and this could be one of those times. Elon would tell them in their meetings that sometimes you have to hit this pothole coming up to avoid the bigger problem down the road.

So maybe this might be TSLA's (stock, not company) pothole moment, but once the energy side is up and running, this transaction will seem like a winner....

 

[DrManhattan]

I don't think Elon gives a *sugar* about the share price - at least short term. Normally those CEO's don't last long - but Elon has enough inside info about Solar City you have to trust him. Also it's hard to see the long term downside - an established company & now an established name in Tesla. I would think most people in here believe solar is a huge part of the future. Maybe this was the plan all along? Tank Solar City enough so Tesla could buy it.

 

[Curt Renz]

Or they could just be converted to short a proportionate amount of TSLA.

That's the way it should work for short positions not covered before any merger finalizes.

 

[Causalien]

Solarcity has had a track record of 99.5% of on time payments over the past 9 years. They also are installing approximately 2 instslls per crew a day on average, which makes it an attractive asset backed securitization vehicle for massive install capacity company like Solarcity. They can install a lot of solar very quickly with rock solid monthy payments which translates into a very attractive institutional ABS investment. Last I recall, they have very strong demand for ABS products which translates into highly competitive rates.

The primary concern with Solarcity is purely political/regulatory. Solarcity has had a lot of push back from buffet backed utilty commission in Nevada and Koch bros backed pinnacle west backed commission in Arizona. However, Solarcity has hired former FERC chairman as a major mitigation element in the regulatory fight.

With tesla acquisition, Tesla's policy team and political capital will also swing the policy fight as well.

If Solarcity wins the policy battle, this company will add more value (quicker)to tesla then tesla itself.

This is vague, I am guessing you are using this to reply about the rising interest rate. When SHTF, 99.5% on time payment turns into 100% default. Especially with the clusterf*** of securitization.

With Current TSLA, we know how much car we need to sell to reach net 0. I am not getting the answer from SCTY. Yeah I know the margin from income payment needs to outpace the debt payment (which also needs to offset the cost of the solar panels in 20 years). So, how many installs needs to be done. Or how many years before the full cost of the solar panels gets paid off.

The fight with utilities and the negative outcomes on net metering ruling is the reason why I asked about the scenario where no net customer base growth and continued expenses.

 

[GLDYLX]

Whoa. Hold up. If SolarCity is considered a utility, and becomes a part of Tesla, Supercharging could potentially become a pay-per-use (or subscription) revenue stream from apartment-dwelling Model 3 owners who need local charging.....

Hmmmmmm...... Is that just too CrAzY to contemplate?

 

[neroden]

That is the exact opposite of what you must do to attract Tesla service centers to your area.

Until there is a significant number of Tesla cars in a geographical area, it would be foolish for Tesla Motors to pay for a service center and employees who would be twiddling their thumbs most of the time.

There are already at least a hundred. That should be enough. Or at least it should be enough to have a local mechanic. (I'm fine with the "Spokane solution" where the local mechanic works out of someone else's facilities.)

People living in less populated areas need to be patient.

No. No, we don't. We've waited long enough already.

 

[doggusfluffy]

Whoa. Hold up. If SolarCity is considered a utility, and becomes a part of Tesla, Supercharging could potentially become a pay-per-use (or subscription) revenue stream from apartment-dwelling Model 3 owners who need local charging.....

Hmmmmmm...... Is that just too CrAzY to contemplate?

Think aggregation.
Greater than the sum: How aggregation is making storage into a software business