Short-Term TSLA Price Movements - 2016

[vgrinshpun]

Tesla has held analyst conference calls for relatively minor news events in the past. This SCTY merger is a pretty huge event. Where's/when's the conference call?

Conference call at 7:30am. Webcast:
Tesla Motors Conference Call | Tesla Motors

 

[TSLADream]

I am a firm believer of Elon and Tesla but my initial reaction was it's going to be a really bad move. MSFT acquisition of LNKD made a lot of sense as they have huge pile of cash and looking for growth. Tesla is already a high growth business with huge potential future earnings so they don't need to put more focus on their acquisition.

The timing is horrible with Brexit this week and also the Model X stability issues. Investment in Tesla is definitely a high stakes game. High reward/risk. I hope they focus on delivering the $500K cars promised by 2015 and not worry about integrating SCTY to Tesla Energy. Why buy yourself on both sides? It does not make sense. Honestly, Solar is a commodity so there is not going to be a lot of profit in that market.

 

[SteveG3]

I'm definitely two thumbs up for the merger. If selling solar and Powerwalls at Tesla stores looks like it might be a solid end run around the various state dealership lobbies. That's been draining Tesla bandwidth and limiting sales activities in many states.

I don't know how I'd value that, but with Model 3 coming, having brick and mortar stores everywhere (even if limited to just solar and Powerwall and -cough cough go to our website for a car cough-) gets the foot in the door. It creates local jobs, Tesla becomes part of the community, and it becomes a huge annoyance to the local community when they can't also buy a car there.

the public is already overwhelmingly on Tesla's side rather than the dealerships. while the scenario you presented might help at the margins, the issue is the dealership lobby buying state legislature's dismissal of what the public wants.

I'd like to think this is a good deal for TSLA shareholders, but at this point, I can only say it's a good deal for Tesla's mission. I wont complain about that... the mission is why Elon has led Tesla to accomplish remarkable things, without it, I'd never have had the financial opportunity of TSLA.

 

[FredTMC]

I worked late today and got home to be greeted by 20 new pages in the ST thread. What a bombshell.

I like TSLA and have owned it with a few short breaks since March 2013. I have great situational awareness wrt Tesla's financials and products. I've owned SCTY just once where I made a quick buck on a volatility play.

SCTY does address the right problem, which is that the irrationally short time preferences of consumers are hindering the adoption of solar.

But I'm against this move for a couple reasons.

1. Tesla Owners love Tesla, Solar City owners often hate Solar City; this is a huge negative, that ill-will will not disappear.
2. As has been noted by many already, Solar City's financials are opaque, I don't understand them so I haven't held SCTY long term. In my brain SCTY financials are somewhere beyond the "here be dragons" area.

I do like the idea of Tesla owning the "solar gigafactory" and the further vertical integration that would bring. I also like the idea of integrated TE-PV products.

My big question is: What percentage overlap is there between the institutional investors in these two companies? These guys will determine if the vote passes.

I suspect anyone who has significant positions in both companies will vote for the aquisition because Tesla brings greatly increased credit stability to SCTY.

If a solid plan to de-mystify SCTY finances emerges I may change my mind...

Edit: And seriously the timing sucks.

Good post.

Honestly, I think there's a fair chance that the TSLA shareholders will vote it down. Hence the CC tomorrow to further sell it.

I think that even the institutions that own both will vote it down too. Most probably have way more in TSLA than SCTY. TSLA is likely taking a big hit tomorrow vs the $220 reg hour close. TSLA is 10x mkt cap

My vote is "no". I'm a long term TSLA shareholder. I don't own SCTY

 

[wallaby]

I'm quite frankly shocked that Musk is considering this. My personal vote (Although I don't currently own any shares; i sold them before the last earnings report *phew* would be against this deal.

First, let's get something straight about SolarCity: it's not a solar energy firm: it's a financing vehicle. It doesn't produce solar panels, or batteries, or anything else. It's a finance firm that buys all that stuff, leases it to homeowners on a 20-year lease, and collects payments over those 20 years. We don't consider banks to be construction companies just because they finance the mortgage that allows people to "buy" homes. We shouldn't do the same with SolarCity.

Financial firms are not the same as manufacturing firms, which is why everyone else splits this function off. That's why GE spun off GE Capital (which finances purchases of GE products like jet engines, wind turbines, and nuclear reactors), and why every car company has an independent leasing / financing arm (think GMAC).

So why don't manufacturing and financial firms mix? Because they're exposed to very different profit strategies and downside risks. SolarCity will live or die on financial factors like prevailing interest rates, solar panel depreciation rates, cost of capital, and maturity mismatches. They are far more dependent on Fed policy and the long-term outlook for the 30-year treasury bond, than they are on solar tech to guarantee their survival.

OTOH, manufacturing is about much more simple sales - costs calculations (with a little financing mixed in for capex, debt, etc.). We see this even now: Tesla bears keep pointing to GAAP losses while Tesla bulls understand those "losses" are due to accounting provisions for the leases and resale guarantees that Tesla keeps on its books.In contrast, no one cares about how many cars GM produces that end up on leases, because those leases (and all the financial risks they imply) are offloaded to an independent company.

IMHO, mixing a financial firm with a manufacturing firm just muddies the picture and harms the company. Firstly, investors can't accurately tease out the different risks, so they price all of their stocks and bonds at a discount. Secondly, for execution within the company. The CEO of Toyota would make a terrible CEO of Goldman Sachs, and vice versa, because their skillsets are vastly different. There is nothing so far to indicate that Elon Musk, whose primary strength from his PayPal days is rapid technological innovation, is also a financial maven. Just the fact that SolarCity is failing is proof of that.

And as for those synergies: again, SolarCity is a finance vehicle. There is no technology they own that Tesla needs. Conversely, if Tesla's energy products are competitive in the marketplace, SCTY will buy them (I'd hope they wouldn't buy Tesla products just because they're related companies), so no need to have them as a captive customer. And any marketing synergies can be exploited through a partnership and co-marketing agreements (think of how much spam you get from 3rd parties that get your address and financial info from your credit cards). Heck, the only benefit a financial firm can give a manufacturing firm, a solid financial base to provide lease and capex financing at better terms, is actually the inverse: SolarCity has higher borrowing costs than Tesla.

Tesla should actually go the opposite way: spinoff the leasing and resale guarantees into a financing vehicle. That makes the manufacturing aspect much simpler, and will attract investors looking for manufacturing exposure, and will also make the financing aspect much simpler, and attract investors more comfortable with interest rate hedging and bond swaps than with widget making. Both parts of the company win, with a more narrow and easily executable focus, and a base of investors much more aligned with their respective business lines.

I hope the shareholders vote against this and leave Tesla focused on manufacturing execution and tech innovation.

 

[SteveG3]

Earlier today I would have said I would follow Musk anywhere. For 6 years this was my mantra. After this I would never make that statement again. Even if it were in tesla interest to sell solar panels why solar city? What due diligence did they do to look at other potential companies? The best advantage seems to be that Musk and his family owns a lot of scty shares. He will benefit by Tsla paying a premium for those shares. What he didn't bank on was the drop in Tsla share price. So he has lost money in the process. So instead of not only demonstrating an inability to perform his fiduciary and forego his selfish self interest, he has also demonstrated a level of foolishness I would not have expected. I would urge all to vote against it. Even if you still care about Musk, do it to prevent the multiple law suits that will come out of this

chicken, I have my doubts that this is in the best interest of TSLA shareholders. I can understand a shareholder not wanting to hear anything beyond that about this regarding this deal, and really, really, not liking this deal. however, I'm quite confident that what Elon may have put ahead of Tesla shareholders was not his personal financial interest, but rather Tesla's mission and/or Solar City's mission and/or the welfare of his cousins. Elon's not sitting on the couch thinking "F! 9.3 billion net worth instead of 10 billion... all that hard work for 9.3 billion... unbearable!"

 

[SteveG3]

More FUD.

This great merger will separate the true believers from those not fully in line with Elon's quest and those only hanging in there for a quick buck in the past.

Go Elon!

The synergies between the two companies will be enormous. After all, investors paid between $60-90 for SCTY shares not long ago. Deal is a bargain!

you realize you are writing this in a thread where there is active critical analysis of the deal, most of it quite skeptical against the deal?

I'd want to know exactly how Elon and the Tesla team intend to accomplish a turnaround at SolarCity. The blog post had no details on how Tesla intends to accomplish this.

If I'm having serious questions about it, you can bet that the big institutional shareholders are going to demand answers too: Tesla Motors, Inc. (TSLA) Ownership Summary

Institutions hold a whopping 93.3 Million (approximately) shares of TSLA, representing 63.33% of the company. Fidelity alone holds over 16M shares.

indeed, and given that Elon's ~30 million TSLA shares will not be part of the vote (he recused himself due to his role at SCTY), institutions will make up roughly 80% of the voting shares. yes, those institutions will demand answers. that may already have begun and been a catalyst for the early am call tomorrow.

 

[Johan]

The only rational explanation of the timing, which would seem poor (SCTY in a shaky position and TSLA in a critical phase expansion and capital wise), is that Elon and Wheeler etc. are seeing some obvious ("no-brainer") effect from this that we're missing, likely related to the very high short interest in both SCTY and TSLA. Such as for example bringing up the price of SCTY to the offering price or above, maybe getting a competing offer from someone else to take SCTY private etc. thus creating a short squeeze in SCTY which in turn might put pressure financially on these people, who are also the ones shorting TSLA?

 

[MitchJi]

At the beginning of July, we get two critical pieces of data... the Q2 delivery numbers and the Q2status report on the progress of the Gigafactory. Also, there is a Gigafactory grand opening event at the end July, and then the Q2 ER in August.

We get a gf update in early July?!

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

Curt,

Would you please post your opinion on this from the perspective of a TSLA share holder?

 

[Johan]

For those who don't cover their SCTY short before the merger they'll all of a sudden instead be short TSLA? At the TSLA closing price on the day of the merger? Which would seem sub $200... So it could mean this is a way to put SCTY shorts between a rock and a hard place: Either cover your SCTY short at a loss in the market (before the merger) or stay short and become instead short TSLA (at a lower valuation than yesterday)?

 

[MartinAustin]

I'd like to think this is a good deal for TSLA shareholders, but at this point, I can only say it's a good deal for Tesla's mission. I wont complain about that... the mission is why Elon has led Tesla to accomplish remarkable things, without it, I'd never have had the financial opportunity of TSLA.

I'm in exactly the same position on all points. Elon is undoubtedly thinking long-term and believes he/his companies need to show the way for other companies to follow. Heck, look at BMW and Daimler, both of which have mysteriously launched battery storage companies. (even thought their yearly BEV output is puny/laughable) And all the companies who have announced BEVs. Tesla is unequivocably out in front.

Whatever he has in store for us (no pun untended!) with the solar panels business will all make a lot of sense in a couple of years.

Doesn't make looking at today's dollar loss less painful - but I am dead certain the captain of the ship hasn't lost his marbles.

 

[Johan]

Just a thought: how low would SCTY have to go before Elon made a bid to take the whole thingamojang private? Below $10? That would be $1 billion, give or take a few millions. I was kind of disappointed he didn't buy the other day around $16.

By the way this was something I posted in the SCTY thread on May 16th this year, when SCTY had been hitting some real lows. Just something many have pondered I suppose...

 

[MartinAustin]

...thus creating a short squeeze in SCTY which in turn might put pressure financially on these people, who are also the ones shorting TSLA?

I am hoping Jim Chanos becomes very quiet over this, I'm sure he didn't see it coming

 

[schonelucht]

From the Tesla blog:

• We would be able to expand our addressable market further than either company could do separately. Because of the shared ideals of the companies and our customers, those who are interested in buying Tesla vehicles or Powerwalls are naturally interested in going solar, and the reverse is true as well. When brought together by the high foot traffic that is drawn to Tesla’s stores, everyone should benefit.

Except that Tesla has one of the most customer-positive brand images out there (no car dealers!) and with SolarCity it's just the other way around. High pressure sales talks, continuous phone calls, etc... That is what Tesla is inviting in their stores. You come in to look at a car and now some bozo will try to upsell you on a product you don't need. Not good. At all.

 

[Causalien]

The reason why this deal is probably better done in 2 years is this.

In 2 years, TSLA shares will probably double. While I fully expect SCTY shares to increase by less than double since it is limited to USA only. Buying then with pure share offer will be cheaper.

There are some conflict of interest in this deal. A non related CEO would probably explore a harsher term for the purchase to maximize TSLA profit. I would float a low ball hostile offer first at the tune of $10 to see if there's any other competitor. Or I could simply wait for the bankruptcy.

Disclosure: Long TSLA shares, Model 3 reservation.

 

[mrdoubleb]

I am not going to comment on the financials of SCTY or whether Tesla is taking on potential unknown risks because of muddy financing schemes... Some of you on this board have much more knowledge on that.

However what I am surprised about is the sudden lack of faith in Elon on this thread. Don't get me wrong, I am not advocating for blind faith, but since when did Elon make calls on Tesla to bail out his family or to advance his own personal finances?! If anything we have seen him work against his own immediate financial interests to advance Tesla.

I am not saying this merger makes short term financial sense (I don't have deep enough knowledge on SCTY), but Elon is usually a couple of chess moves ahead in his head.

 

[dakh]

The reason why this deal is probably better done in 2 years is this.

In 2 years, TSLA shares will probably double. While I fully expect SCTY shares to increase by less than double since it is limited to USA only. Buying then with pure share offer will be cheaper.

SCTY could move to be 2x or 3x as well since it was there before. More importantly they'd miss 2 years of joint product development which is what I believe this deal is mostly about.

 

[Jayjs20]

Given the seemingly overwhelming opposition to this deal by the stock holders, isn't it more than likely (almost certain?) that this deal won't go through?

 

[mrdoubleb]

Given the seemingly overwhelming opposition to this deal by the stock holders, isn't it more than likely (almost certain?) that this deal won't go through?

I think that largely depends on whether the institutional shareholders are on board and not the sentiment on this board.

Should be an interesting call later today though...

 

[Causalien]

I hear a lot about bad timing here, can you elaborate on that? I see that would make sense for folks who just wanted TSLA to be at a particular price point but that's bad timing for their agenda, not Telsa's.

-Model 3 ramp up already has potential of making TSLA fail. Then you add up SCTY.
-Also, SCTY refinances every 2 years according to someone else. The current interest rate environment is the lowest it can possibly be and is already on the upward trajectory. Brexit no would mean a definite raise in interest rate sooner. So we are hoping for Britain to separate from Europe here. Not only this, I just found out SCTY's interest rate is 6%...
-Integration of two large headcount companies like this. Takes years. We are not even sure we can survive the chaos in the next 2 with expansion of service centers. Expansion of Giagfactory workforce, Expansion of Supercharger stations. It's a administration nightmare.

They could also do this with no shareholder revolt: Create hold co. Take both company private by a buyout of current shareholders financed by the banks and then move both corp under holdco and reissue the shares to the public. Direct buyout like this, means one of them is in trouble and you can lowball. Or the buying company is stagnating and sees greed in an expanding market and will buy something no matter the price, but with this premise, TSLA is never about money.

Given the seemingly overwhelming opposition to this deal by the stock holders, isn't it more than likely (almost certain?) that this deal won't go through?

We don't know. According to a poll posted up thread, the yes vote is 70%