Short-Term TSLA Price Movements - 2016

[electracity]

What is Solarcity's cash flow if Musk fires everyone except the workers needed for warranty work and other account maintenance?

Solarcity is now probably a crappy business, as it can't get an adequate premium as an upscale solar company. It was a good business before customers understood PPA's.

Tesla's purchase will reposition solarcity as a premium home energy services company. That reposition is probably not possible as an independent company. They need Tesla's pizzaz to make that happen.

Solarcity remaining independent and in decline would damage Musk's reputation and therefore Tesla. We will see if SCTY Q2 financials are a catalyst for this move by Tesla.

 

[Foghat]

All, this merger offer is a shock to the scty Bears out there so they are on tv en mass doing triage.

It is amazing to see really. Solarcity sells electricity (soon, for and to customers). That's it. All the propaganda about being a finance company, a construction company, etc... Is all claiming the tree as the forest to clearly defend their short position and obsficate the reality.

Solarcity's only, and I mean only, preeminate risk is the political/regulatory risk associated with monopoly incumbent utiltiies. The Nevada net metering situation was the major incident of price action for this year and if you were following that incident it was clearly instigated to defend NV Energy interests and had nothing to do with actual evidence on the net metering program.

Solarcity makes money year one on all install electricity delivery systems. They are financing up front these 20 year monthly payment streams that are profitable year one.

I say again, they make money on every install. They finance the install up front to obtain 20 years of monthly payments.

For those that don't understand, one again, Solarcity sells electricity. They are in the electricity delivery business, every other description you hear any "analyst" describe it as is just one part of this energy delivery business.

If you understand this, you might be able to understand why tesla motors is interested in getting into the energy delivery business.

 

[dandurston]

Seems to be some kind of physiological support at the 200 line

More likely psychological.

 

[Jayjs20]

More likely psychological.

You mean be right on that.

 

[JenniferQ]

I bought more TSLA on the open. Scary; I now own more value in Tesla than Apple. That's either a very good thing for the future or full of lots of rollercoaster rides as was Apple in the early years. Time will tell. Hope Elon is as smart and awesome as he tells us he is!

 

[3mp_kwh]

Next, thanks to @ntam which provided a link to this article:
SolarCity's solar + storage play on Kauai

The Kauai project is likely the largest Tesla Energy project thus far. It is done in cooperation with SolarCity. It is enough storage to allow Kauai to go completely onto Tesla Energy batteries for their 5 pm to 10pm load. It's 52 MWh of storage with a 13 MW solar array. Here's the kicker... Kauai will be buying power from this solar + storage system at 14 cents/kWh.

I really, really, need back up sources for this information. According to the article, Kauai will be buying power from a solar + battery array sized for the entire 5 pm to 10 pm main night time load only $0.02 higher than the average cost of electricity in the U.S. I really need some proper analysis of the costs, margins, etc.

I believe the 14 cents is true, because you're basically taking an available 3-5 cent PPA solar generation rate and marrying it to a 52 MWh battery cost. Where it gets challenging is how they modeled battery cost? Assuming a per kwh of $180, over 15 year life, you could discharge 40MWh daily and land on ~$43MWh. Knock the $145/MWh, given in the story, down by this and maybe an array cost of $50/MWh, and you still have room for other costs. Who knows how much ~40 acres of Hawaiian real estate costs, but there's room. Before thinking the rest of the U.S. or anywhere else will get the fever and feed solar city projects, consider obstacles:

• Kauai already had high roof-top penetration, to lower the utility scale need. IOW, day supply could be highly independent of this setup and its costs.
• Great sun
• No seasonal HVAC spikes (sort of like CA). In so many places in the U.S., the 52MWh would have to be significantly greater.
• The 12 cent U.S. average, you mentioned. AZ and NV can be so abusive to PPA and rooftop owners because of this
• We can't ignore the sunk costs of rooftop owners signing on to this arrangement (their own panels). The Kauai project probably sees very little peak-sun demand, and they're reserving most of it for storage as mentioned.
• Regulation. Though this is fascinating stuff, you have wires being used which utilities are unlikely to give up, even if these costs fall. Why not do nothing and use up what you've got, or get in with your state PUC and stack the decision?

The fight Musk had with SpaceX getting a fair bid, and the direct sales model for Tesla, will definitely need repeating in the utility space. Sorry, no sources. The useful life and DOD's are used by firms like Moody's and Barclays, whose research on defection sort of helps with this.

 

[Jayjs20]

Alright, I'm in at 201. Since I just bought in, prepare for it to drop.

 

[neroden]

Solarcity makes money year one on all install electricity delivery systems.

Actually, if you read their annual report, they lose money the first year *on direct purchases of solar panels*! The warranty allowance (taken for the entire time period up front) is larger than the profit margin! (With the profits partly deferred because...?) Now, I think that's hinky accounting but that's their accounting.

 

[Jayjs20]

If I had literally waited 2 minutes, it would have dropped a dollar. Just how do I do it.

 

[150 kWh]

Currently SCTY is trading at $22.12. TSLA proposed exchange ratio will be between 0.122x and 0.131x (as per blog post).
This way by purchasing SCTY at current price you will be effectively purchasing TSLA at $181.3 ($22.12 / 0.122).
TSLA is currently traded at $200 so that makes it almost 10% discount.

Whats in your opinion risks involved in exploiting this market situation?

 

[rallykeeper]

My projection on the next two year is a 2% rise in interet rate. SCTY has to pay what? 5%+ prime. What does everything look like with 8% interet rate. What does everything look like in a 4 year recession. My sources from upstream of the supply chain is indicating a recession.

SCTY's cost of financing should go down with a merger. TSLA is a far more creditworthy guarantor than SCTY and should be able to achieve cheaper financing. Difficult to say by how much, but likely can make up for more than a few Fed funds hikes. In other words, in your example, prime goes up, but the 5% goes down.

I don't think you meant to, but for other readers, one shouldn't model both an increase in interest rates and a recession -- it's an either-or proposition. Higher interest rates wouldn't persist in a recession -- and wouldn't likely happen if we were close to recession.

All told for me, leaving aside products, better business strategies, vertical integration, etc. (all of which I think are very big positives), I think Tesla's acquisition instantly cleans up any lingering issues at SCTY for basically no cost to TSLA. SCTY finance expense should go down and sales acquisition expense should go down even more. Those have been the 2 drags on SCTY's model.

So, TSLA acquires a SCTY that has very little, if any future cash drag (and might even be cash flow positive), and instantly has a bigger distribution network for TSLA and the potential of massively increasing the business opportunity for TE (and SCTY) -- particularly for utility scale projects.

 

[nienco2]

Currently SCTY is trading at $22.12. TSLA proposed exchange ratio will be between 0.122x and 0.131x (as per blog post).
This way by purchasing SCTY at current price you will be effectively purchasing TSLA at $181.3 ($22.12 / 0.122).
TSLA is currently traded at $200 so that makes it almost 10% discount.

Whats in your opinion risks involved in exploiting this market situation?

The risk is deal doesn't happen, (which is the most likely scenario) and who knows where the floor for SCTY will be.

 

[joseph7h]

Solar city stock gain seems to be vanishing, mr. market probably expects no deal approval by Tesla share holders.

 

[joseph7h]

I see scty acquisition can be value added in the long run, but not right now as it's more like a big distraction and with higher risk which tesla definitely doesn't need.

 

[farzyness]

My thoughts on the whole SCTY buy-out:

- It makes sense for Tesla to leverage its stores to sell Solar City products. To my understanding, the biggest cost sink for SCTY is their lead-generation for potential customers. This cost could theoretically go completely bye-bye, removing a major component of what a lot of analysts and investors were sour on with the company.

- SCTY is currently building a Gigafactory in Buffalo, NY which I believe is being used to manufacture solar panels. Would make sense to move Tesla Energy battery production to that facility as well, no? This would increase the output of cells being manufacturer purely for cars out of their Nevada facility. in essense, if this acquisition goes thru, Tesla would have 2 gigafactories up and running, each doing up to 3x the originally planned output planned by Tesla.

- Elon Musk is a titan of industry. There's countless examples of Elon capitalizing on buying big things for cheap (NUMNI) and turning it into a major advantage. I tend to trust the guy who is able to land a rocket on a sea barge a little bit more than any number of analysts, bloggers, etc.

 

[joseph7h]

I will do my two cents to vote down the deal. Don't see any reports on big share holders such as Fidelity/MS/Baron/TRowePrice etc.

 

[pGo]

Currently SCTY is trading at $22.12. TSLA proposed exchange ratio will be between 0.122x and 0.131x (as per blog post).
This way by purchasing SCTY at current price you will be effectively purchasing TSLA at $181.3 ($22.12 / 0.122).
TSLA is currently traded at $200 so that makes it almost 10% discount.

Whats in your opinion risks involved in exploiting this market situation?

I see that the market now will see a risk in governance around Tesla and scty. I strongly feel that tsla will be dragged down. A scenario I mentioned before is: If current mood continues, market may bring tsla further lower. At $180, or lower, scty holders are basically not getting any premium. Even they may start questioning the deal.

Overall, I feel that the deal looks shady based on the timings and almost feels like it was done in a developing country - family business.

 

[MitchJi]

Applying game theory principles, decision making under uncertainty , leads me to liquidated half my position.

Selling while the market is in the early stages of a knee jerk overreaction is probably not a good idea. If you think the stock will continue to plummet it probably makes more sense to sell just enough of your portfolio to buy enough September puts to more than cover any future drops.

So now it will become a Tesla store "can I talk to you for a moment" sales pitch. The Tesla purchase experience is consistently praised by customers. Unless Tesla changes the complete sales staff of what is formerly SolarCity that experience will not be there anymore. And hearing Elon talking this morning, the plan is literally to sell every single one of the Model 3 reservation owners a solar system for an additional 35k. No matter the proposition, that's not going to happen without some high pressure sales tactics. In a Tesla store. If that plan goes forward I think ultimately this is going to reflect badly on the Tesla brand.

After listening to the call I'm enthusiastic about the merger. Elon is clearly planning to drive down the price of solar+storage to the point where it is an economically compelling product everywhere. He believes that providing integrated, and nice looking systems will provide substantial benefits. He is planning to use the same manufacturing techniques Tesla engineers used at the GF, for producing panels.

He is aware of the fact that today the economics aren't good everywhere. He knows that that will take some time, but it will also take some time to ramp production, and even if batteries don't make sense for you now it makes sense to buy a solar system to which you can easily add them later.

No need for a hard sell, only one percent of homes currently have solar. Our roof is marginal now for solar. When we get our M3 if Tesla can save us money on our electric bill or even come close we will jump on it. If storage is cost effective we'll be happy to get that too. If not it will be nice to get a solar system that can easily be upgraded with batteries.

I'm also excited about his confidence that Tesla will become the best manufacturing company in the world. It's pretty clear that the first phase of the GF will be producing at least 2x the original plan very soon. He said that the cell production equipment is amazing, with cells coming off the line literally moving faster than machine gun bullets. He must mean the speed of bullets of the number of bullets moving through the gun, rate of fire,not the muzzle velocity but that's still pretty impressive ("typically at a rate of 300 to 1800 rounds per minute"). I need to listen to it again but I'm pretty sure he has seen the equipment producing cells, and I think he said that people at the party would be able to see the cells coming off the line. In any case we can be pretty sure that Tesla will be using GF produced cells in Q3.

 

[30seconds]

I believe the 14 cents is true, because you're basically taking an available 3-5 cent PPA solar generation rate and marrying it to a 52 MWh battery cost. Where it gets challenging is how they modeled battery cost? Assuming a per kwh of $180, over 15 year life, you could discharge 40MWh daily and land on ~$43MWh. Knock the $145/MWh, given in the story, down by this and maybe an array cost of $50/MWh, and you still have room for other costs. Who knows how much ~40 acres of Hawaiian real estate costs, but there's room. Before thinking the rest of the U.S. or anywhere else will get the fever and feed solar city projects, consider obstacles:

• Kauai already had high roof-top penetration, to lower the utility scale need. IOW, day supply could be highly independent of this setup and its costs.
• Great sun
• No seasonal HVAC spikes (sort of like CA). In so many places in the U.S., the 52MWh would have to be significantly greater.
• The 12 cent U.S. average, you mentioned. AZ and NV can be so abusive to PPA and rooftop owners because of this
• We can't ignore the sunk costs of rooftop owners signing on to this arrangement (their own panels). The Kauai project probably sees very little peak-sun demand, and they're reserving most of it for storage as mentioned.
• Regulation. Though this is fascinating stuff, you have wires being used which utilities are unlikely to give up, even if these costs fall. Why not do nothing and use up what you've got, or get in with your state PUC and stack the decision?

The fight Musk had with SpaceX getting a fair bid, and the direct sales model for Tesla, will definitely need repeating in the utility space. Sorry, no sources. The useful life and DOD's are used by firms like Moody's and Barclays, whose research on defection sort of helps with this.

They could spend the next couple of years focusing on island economies with high energy costs before worrying about general US market for these types of projects.

 

[joseph7h]

Share holders are mostly in favor of the merger per Electrek.Co survey, but I serious doubt it.