Short-Term TSLA Price Movements - 2016

[neroden]

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.

Actually, you should model both simultaneously. A recession reduces the creditworthiness of less-creditworthy borrowers, so if Tesla's anything less than AAA, the recession is likely to increase Tesla's interest rates paid, even though Treasury Bond interest rates will stay low.

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.

I want to see much more specifics on what Tesla is going to do with SolarCity's structured finance business.

I actually love the rest of the merger -- Tesla owning Silevo and Zep is great. But a structured finance business can sink an otherwise solid parent; we watched this happen to several companies in 2008.

I think SCTY is probably cash-flow positive soon, but I think it has a serious "implode later" risk due to high refinancing requirements. Merging with Tesla improves that situation, but it's not like merging with Apple and its $216 billion cash hoard, which really *would* eliminate SolarCity's risk factors.

 

[MitchJi]

At $180, or lower, scty holders are basically not getting any premium. Even they may start questioning the deal.

That doesn't look likely as of now.

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.

Ludicrous !

 

[madodel]

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

Can you buy more as I'd like the price to get down to $190. Thanks for your help. ;-)

 

[Foghat]

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.

The significance of Kuaui for the rest of the nation is this is a direct replacement for peaker plants. I think the spin up to get this energy on the grid when requested is 1-3 minutes at a significantly cheaper long term price compared to the nat gas plants that are being proposed to be built by many states right now. Instead of years of development and implementation, Solarcity can build that capacity in similar markets in months. As costs come down new markets open up globally as to literally eliminate any rational need for future nat gas peakers to be plan and developed. Remember, commissions make 20 year development decisions and if Solarcity is able to develop that capacity cheaper, cleaner, and at a much more advance demand response capability, then they start to see how they can sustain themselves on existing capacity until pricing makes sense (in current non competitive markets that Solarcity is not already in)

This also applies to aggregation of rooftop solar. If Solarcity can aggregation a few MWs of firm demand response for PG&E you're talking a significantly cheaper option to developing a new nat gas peaker plant to do the same thing.

 

[Jayjs20]

Can you buy more as I'd like the price to get down to $190. Thanks for your help. ;-)

I have another grand clearing tomorrow, I'll see what I can do.

I really hope we get good delivery numbers in a few weeks. All this is betting on that.

 

[SBenson]

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

If deal doesn't happen SCTY price floor is 0.

This desperate deal with a desperate timing gave a clear signal to the market of SC's dire financial state.

If deal falls apart, I fully expect SCTY to immediately drop to single digit.

 

[dakh]

A lot of people are questioning the timing here. There is a reason for it. It's called SCTY Q2 ER.

The merger has to happen in time to avoid it.

Sorry catching up late. These things take time to finalize (couple months), so even if the deal gets approved Q2 ER will go business as usual. I can't help but think your comments on the topic are a bit emotionally colored, some of them are getting a bit out there.

 

[SBenson]

If I'm into gambling I'd short SCTY (while being long TSLA). But for certain reasons I can't.

 

[SBenson]

Sorry catching up late. These things take time to finalize (couple months), so even if the deal gets approved Q2 ER will go business as usual. I can't help but think your comments on the topic are a bit emotionally colored, some of them are getting a bit out there.

Want to place a bet on SCTY Q2 ER happening?

Add: it will happen if deal falls apart. My point is that the procedural voting will be planned ahead of ER, even if they have to push back ER.

 

[dakh]

-Model 3 ramp up already has potential of making TSLA fail. Then you add up SCTY.

Please paint at least a half-realistic picture of how is this hypothetical scenario would go down. I don't see it.

-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.

Not gonna comment on finances, I think we will have to just say we don't know. For integration, there's no integration required for the solar installers which is the bulk of SCTY workforce, and integration of engineering is already there, just will get deeper and under the same management. I don't see this being nearly as big of a problem.

 

[dakh]

Want to place a bet on SCTY Q2 ER happening?

Add: it will happen if deal falls apart. My point is that the procedural voting will be planned ahead of ER, even if they have to push back ER.

I placed some short term bets on TSLA today, enough gambling for me So you're saying then, that Tesla offer is to rescue SCTY shareholders at the expense of TSLA shareholders? You can't be serious, this would go straight to court and is completely out of line with how Elon treats business deals like this.

 

[SBenson]

I placed some short term bets on TSLA today, enough gambling for me So you're saying then, that Tesla offer is to rescue SCTY shareholders at the expense of TSLA shareholders? You can't be serious, this would go straight to court and is completely out of line with how Elon treats business deals like this.

LOL

Half of professional financial community is saying that. Not just me.

 

[joseph7h]

I call this stupidity on display, "lost value twice as big as the proposed deal".

 

[pGo]

I placed some short term bets on TSLA today, enough gambling for me So you're saying then, that Tesla offer is to rescue SCTY shareholders at the expense of TSLA shareholders? You can't be serious, this would go straight to court and is completely out of line with how Elon treats business deals like this.

I don't see a better reason than this just based on the timings. Elon doesn't like to see any of his companies fail. Tesla is bailing out scty at the expense of the shareholders.

 

[Johan]

LOL

Half of professional financial community is saying that. Not just me.

So I'll just listen to the other half. Differing opinions as to how to properly value an equity is what makes a market. There's no such thing as a correct price.

 

[dakh]

LOL

Half of professional financial community is saying that. Not just me.

Why wouldn't they wait for SCTY to drop even further and then make an offer? Help me out here, this makes no sense to me. Why would they want to throw TSLA shareholders under the bus and create a bunch of bad blood?

 

[joseph7h]

Why wouldn't they wait for SCTY to drop even further and then make an offer? Help me out there, this makes no sense to me.

The deal is not out of some shrewd business consideration, rather musk tries to bail out his cousins.

 

[150 kWh]

LOL

Half of professional financial community is saying that. Not just me.

Half of professional financial community is saying that about Tesla too. Isn't there a chance that those are the same guys?

 

[Johan]

Why wouldn't they wait for SCTY to drop even further and then make an offer? Help me out there, this makes no sense to me.

If Tesla sees value in merging with Solarcity, in reality incorporating what is currently Solarcity in to the emerging Tesla consortium (cars, batteries, storage, solar), it doesn't make sense for them to wait until the company is in ruins before they acquire it: SCTY will have lost finance partners and a lot of deals deals will have fallen through, suppliers lost and first and foremost; brain drain (smart and skilled people leaving a sinking ship).

In other words SCTY may well be worth $2.5 billion in its current state but maybe not even $500 million if they company was on the brink of ruin.

 

[Foghat]

The biggest gain to Solarcity will be the cost of sales/marketing will drop significantly. If anyone looks at the drivers of expanding market, the combination of these cost drops and others will significantly open it wide up globally in nearly every market much much quicker and as Elon stated today, it's only a matter of reducing production constraints to reaching the demand into the foreseeable future.

Please paint at least a half-realistic picture of how is this hypothetical scenario would go down. I don't see it.

Not gonna comment on finances, I think we will have to just say we don't know. For integration, there's no integration required for the solar installers which is the bulk of SCTY workforce, and integration of engineering is already there, just will get deeper and under the same management. I don't see this being nearly as big of a problem.

biggest cos

I don't see a better reason than this just based on the timings. Elon doesn't like to see any of his companies fail. Tesla is bailing out scty at the expense of the shareholders.

Timing primarily has to do with Solarcity being cheap for aquisitiion that was going to happen anyway, and with the fact they are in a legal mess if they roll out energy storage 2.0 (and later iterations) into mass market and Solarcity becomes increasingly favored and integrated in that scaling compared to competitors to Solarcity.

In addition, the factory-that-makes-the-product business Elon is developing will be a total package product (solar, battery, car, and other associated products) that will be duplicated globally. It is better to integrate them sooner then later and I think we might see his concept start to happen in solarcity's buffalo factory and vice versa in Fremont and at the Gigafactory. Solarcity has an option with New York to build another factory of 5gw+ which is nearly 5 times the size of current buffalo factory so I see Elon taking advantage of this to build out Gigafactory 2 and so on. Also, solarcity has a deal with China to build out silevo factories already in place which would be of massive value accelerating Asia auto production site as well.

Solarcity has the land deals in place to spread out tesla storage/cell/pack production across Multiple sites instead of having to concentrate everything in Gigafactory 1 right now. Essentially, it is possible they will be able to product more storage/car batteries quicker while Gigafactory 1 scales up on its desired timeline as well.

Also to note, Solarcity has approx. 100 warehouse/operations centers in over twenty states that are with 30 minutes of all Solarcity markets. It is conceivable that Tesla could open service centers and stores at all these sites. In addition, they potentially could be used as smaller cell production sites or pack sites as well. A lot of advantages here purely on a logistical standpoint that would immediately be in effect once integrated.