Short-Term TSLA Price Movements - 2016

[mrdoubleb]

I would like to thank everyone, especially our long time contributors, for speaking their mind on recent events. I certainly hear all the concerns and even agree with some of the risks outlined. However, at the end of the day, when you take the bird's eye view of things, this comes down to one thing for me: faith (trust) in Tesla leadership and mostly in Elon.

Now I did mention in an earlier post how blind faith can be dangerous, and Elon could do plenty of crazy things where I would say he lost his marbles. But...

Do you think you have more insight into Solar City's financials, upcoming product developments & technologies, Tesla Energy business opportunities (turn-key power plants) than the Tesla board members who also happen to be on the board of SC? I surely don't. So if we accept they have more information on this than we do, then it's really the question of: do we trust they are making the right business decision here, or do we think we could make a better decision with our limited set of information?

I for one do trust them with this decision.

Now this level of trust or faith may not be for everyone. I totally understand if many will sell their positions. But for those who need more rational convincing, think about this: so far all of their crazy ideas (starting Tesla and SpaceX) proved they have the ability to see upcoming huge business opportunities and technological innovations where others only see crazy risk. Even those damn falcon wing doors worked out and are a key differentiator for the car, they turned it into the ultimate halo product.

No, 2 crazies don’t make 1 right, but forward thinking, borderline crazy yet ingenious ideas and bold business moves are what separate Bill Gates from Satya Nadella, or Steve Jobs from Tim Cook. They day Elon starts to think innovation means bringing out a rose gold Model S, is the day I am out.

 

[Cosmacelf]

Even if Solarcity is worth a lot more than its share price and it is a steal at current prices, this is still a bad move by Tesla.

 

[justdoit]

So SCTY only finished up 3% on the day. Seems to me the market isn't confident the deal will go thru....

TSLA on the other hand got slammed hard and little relief even though the deal may not go thru...

This is really interesting. Seems like the large institutions back Musk and that the deal will go through. So maybe buying some $SCTY is a good way to get some $TSLA at a 20% discount?

Behind Tesla carnage, signs of support for Musk's SolarCity deal

 

[Papafox]

We small TSLA investors have two responsibilities at present: decide how we're going to vote on the SCTY deal and figure out how to maximize our gains from this recent retreat in SP. Of the two, maximizing our gains or minimizing our losses is the most compelling need over the next few days. I see reason for TSLA to ascend significantly between now and the end of July:
* The Brexit gloom is leaving the broader markets
* First three days of July quarterly deliveries numbers may well be a beat
* Gigafactory opening in late July might be a serious SP catalyst. Elon has already suggested not only that the GF should be able to produce 3X the originally expected output, not only are we supposed to see 30% battery cost reductions due to economies of scale and inefficiencies of vertical integration, but today he alluded to cells coming off the assembly line at the speed of bullets. I think he has some serious improvements in battery manufacturing to show off.
* TSLA gained about $1 in a slow upward movement during after-hours trading today, which I see as a mildly bullish sign.
* Morgan-Stanley reiterated its overweight rating and retained the $333 price target

So, I would be extremely surprised if TSLA is not trading well above today's price come early August. I am acting accordingly.

 

[CyberDutchie]

Really?

www.americanbankingnews.com/2016/06/22/tesla-motors-inc-tsla-rating-reiterated-by-morgan-stanley/

This is from the note released just an hour or so ago:

We are downgrading TSLA to EW from OW and reducing our price target to $245 from $333 previously. The 26% reduction in our price target is mostly driven by a higher risk premium we believe should be demanded by investors following the surprise proposal to acquire SolarCity. Additionally, we have also marked-to-market our DCF and earnings model to fully reflect the impact of the capital raise and exercise of stock options by CEO Elon Musk in May. Other changes with respect to Tesla Mobility (such as an increase in discount rate to account for more ambiguity on timing) are discussed here. Given the uncertainty as to whether TSLA and SCTY shareholders will approve the proposal, we have not made changes to our operational assumptions, and have not, at this stage, modeled in an acquisition of SCTY. Our bear case of $50, which ascribes no valuation for Mobility & Energy and takes into account significant execution issues at the core remains unchanged. While there may be any number of lucid arguments supporting the strategic rationale of a combination, we believe many of the benefits could have been achieved through arm’s length/strategic partnership and without the risks inherent in exposing Tesla shareholders to the financial and capital markets risks faced by SCTY.

 

[CyberDutchie]

More from Morgan Stanley's research note:

At a high level, we view Tesla’s share price as influenced by 3 main factors: (1) The quality and appeal of its cars, (2) the pace of cash consumption, and (3) the company’s ability to access capital markets to fund ambitious investment and growth objectives. Let’s examine each of these while contextualizing SCTY within our views of Tesla’s business fundamentals and share price outlook:

1. Does buying SCTY help TSLA make better cars? No. We do not believe so. In our view, the success of the Model 3 will be due to factors not related to the ownership of a solar company. Over the long term, could we envision a confluence of clean transportation and clean energy where Tesla offers services and the use of its ecosystem to consumers as a bundle? Sure. Could Tesla achieve even higher economies of scale in storage from serving the energy market that could enhance the economics of batteries for cars? Possibly. We believe such benefits are theoretical and very long term.

2. Does buying SCTY improve the pace of TSLA’s cash burn? No. Based on our electric utility/clean energy team’s forecasts, it appears SCTY would exacerbate the cash burn of TSLA even when allowing for cost synergies and initial commercial opportunities. On our current forecasts without an acquisition, Tesla already consumes significant amounts of cash on an annual basis. Following nearly $2bn of free cash burn in 2015, we forecast FY16 cash burn of $1.8bn followed by $400mm in 2017. We don't forecast Tesla to achieve positive free cash flow before the middle of 2018. Our N.A. Power Utility and Clean Tech team estimate SCTY cash burn of $364mm in 2017 and $116mm in 2018. Exhibit 5

3. Does buying SCTY improve Tesla’s access to the capital markets to help fund the mission? No. We think it raises a number of questions around governance that may test the bond of trust with investors who, to this point, have funded Tesla’s early accomplishments. Even if Tesla shareholders do not approve of the deal, the questions surrounding governance could have a lasting impact on the investment debate. In the event that a deal is rejected, would SCTY face increased difficulty in accessing capital from other sources? What impact would this have on investor perceptions of Tesla? On yesterday's analyst conference call Elon Musk stated: "If SolarCity is constrained in the short term from going out and raising equity, Tesla would provide a bridge loan if needed. I don't think it is going to be needed." What are the precedents for an acquiror lending money to an acquiree, particularly with conflicts of interest related to family and cross ownership? Would such a bridge-loan require shareholder approval?

Assuming SCTY turns out to be a success, is it big enough to move the needle significantly? Discussions with our N.A. Power Utility & Clean Tech team have led us to agree with CEO Elon Musk on some of the potential benefits that could be derived from a combination of TSLA/SCTY. Among those, we'd highlight (1) Lower sales costs for solar/storage; (2) Lower installation costs; and (3) Advantages from integrating solar and storage especially as net metering rules change at the state level. However, these potential benefits appear to be relatively small over the next few years even under rosy scenarios. Exhibit 4 From our perspective, we believe Tesla’s valuation is dominated by the significant opportunities it faces in the areas of shared, electric and autonomous mobility. Our core thesis for the long term direction of the automotive industry lends itself to many of the skills and attributes that Tesla possesses. We forecast Tesla's revenues to exceed $9bn in 2017 vs. SolarCity revenues of a bit more than $600m this year.

 

[CyberDutchie]

link?

No link available, this research note is available to MS clients only, but I just posted the important text.

 

[dakh]

Had too much going to follow up on any previous discussions, but I did finally listen to the conference call.

My takeaways, other than a pat on the back for exactly calling the reasons for the merger right after the announcement, are:

1. Pretty much Elon called out what is going on on this forum: people who focus on product cheer on, people who focus on money boo.
2. SCTY has something baking product-wise that they don't yet want to talk about but will differentiate them substantially. That's great news and a reason to buy up a bit more.
3. Yes the reason for acquisition is primarily product development, plus some economies.
4. Timing is dictated by Gigafactory starting to produce cells and product development cycles. Some of you guys would be furious about an acquisition ten times more if it was announced pretty much any other time before. Now Model 3 financing is secured, X production is solved, GF is about to open and product cycle is such that this just has to happen. So they're doing it. Makes perfect sense to me. Again, finance people just don't get it -- they're putting product development first, and using money to make that happen. That's how it should be.

Bottom line, my biggest concern now is if somehow this falls though. Doesn't seem like there's a big chance of that but it'd be pretty bad if that happens.

 

[VanE]

Today will be an interesting day, since all the information of yesterday will have sunk in.

In Europe TSLA opened a bit lower than yesterdays closing price. It's currently 192,3, 2,3% down from yesterday.

 

[Gerardf]

My 2 cents.. (
As a shareholder for both TSLA (larger portion) and SCTY (smaller portion).

Although I am a bit surprised by the timing, we simply have to trust the Tesla board on this. Maybe in 12 months we all feel it was a bit risky timing and on finances, but buying later would maybe by then have been much more expensive (e.g. being CF-positive and with the Giga-panel-factory humming). Now the offer is out, it is better for all shareholder to get this over with as quick and smooth as possible.
The sooner this uncertainty is out of the way, the better.

Note that the Tesla board is more than Elon, and also that the real deciding vote on this will be from the big institutional shareholders. I am very much convinced this offer would not have gone out without that being cleared in advance, so it is a done deal anyway.

Next to that, this deal breaking up now would be much worse for both SCTY and TSLA shareholders than the current situation.

In case I felt my vote would be relevant, I would thus vote YES.

P.S. I find it interesting that the most outspoken voices against this happening are the well known and very loud hedgefunds that are long-time heavy shorts. (See Citron, he almost completely lost it in a CNBC interview). Citron's Left: TSLA-SCTY should not go through
They seem to feel they have the most to loose on this move, which is an interesting datapoint.

Edit: added link.

 

[Gerasimental]

What a time to go two days without internet.

Does this mean Elon now owes that guy $20k for his stolen bike parts?

 

[Seesaw]

Im concerned this merger will be disastrous, but I'm hoping SolarCity is small enough in the scheme of things that it won't matter over the long term.

 

[mrdoubleb]

More from Morgan Stanley's research note:

At a high level, we view Tesla’s share price as influenced by 3 main factors: (1) The quality and appeal of its cars, (2) the pace of cash consumption, and (3) the company’s ability to access capital markets to fund ambitious investment and growth objectives. Let’s examine each of these while contextualizing SCTY within our views of Tesla’s business fundamentals and share price outlook:

1. Does buying SCTY help TSLA make better cars? No. We do not believe so. In our view, the success of the Model 3 will be due to factors not related to the ownership of a solar company. Over the long term, could we envision a confluence of clean transportation and clean energy where Tesla offers services and the use of its ecosystem to consumers as a bundle? Sure. Could Tesla achieve even higher economies of scale in storage from serving the energy market that could enhance the economics of batteries for cars? Possibly. We believe such benefits are theoretical and very long term.

2. Does buying SCTY improve the pace of TSLA’s cash burn? No. Based on our electric utility/clean energy team’s forecasts, it appears SCTY would exacerbate the cash burn of TSLA even when allowing for cost synergies and initial commercial opportunities. On our current forecasts without an acquisition, Tesla already consumes significant amounts of cash on an annual basis. Following nearly $2bn of free cash burn in 2015, we forecast FY16 cash burn of $1.8bn followed by $400mm in 2017. We don't forecast Tesla to achieve positive free cash flow before the middle of 2018. Our N.A. Power Utility and Clean Tech team estimate SCTY cash burn of $364mm in 2017 and $116mm in 2018. Exhibit 5

3. Does buying SCTY improve Tesla’s access to the capital markets to help fund the mission? No. We think it raises a number of questions around governance that may test the bond of trust with investors who, to this point, have funded Tesla’s early accomplishments. Even if Tesla shareholders do not approve of the deal, the questions surrounding governance could have a lasting impact on the investment debate. In the event that a deal is rejected, would SCTY face increased difficulty in accessing capital from other sources? What impact would this have on investor perceptions of Tesla? On yesterday's analyst conference call Elon Musk stated: "If SolarCity is constrained in the short term from going out and raising equity, Tesla would provide a bridge loan if needed. I don't think it is going to be needed." What are the precedents for an acquiror lending money to an acquiree, particularly with conflicts of interest related to family and cross ownership? Would such a bridge-loan require shareholder approval?

Assuming SCTY turns out to be a success, is it big enough to move the needle significantly? Discussions with our N.A. Power Utility & Clean Tech team have led us to agree with CEO Elon Musk on some of the potential benefits that could be derived from a combination of TSLA/SCTY. Among those, we'd highlight (1) Lower sales costs for solar/storage; (2) Lower installation costs; and (3) Advantages from integrating solar and storage especially as net metering rules change at the state level. However, these potential benefits appear to be relatively small over the next few years even under rosy scenarios. Exhibit 4 From our perspective, we believe Tesla’s valuation is dominated by the significant opportunities it faces in the areas of shared, electric and autonomous mobility. Our core thesis for the long term direction of the automotive industry lends itself to many of the skills and attributes that Tesla possesses. We forecast Tesla's revenues to exceed $9bn in 2017 vs. SolarCity revenues of a bit more than $600m this year.

wow. Someone should send these guys a note about Tesla Energy.... Somehow they are unaware of that business.

I think the Hawaii project is going to be a big reference case and will open the doors to utility orders for end to end projects on solar + battery.

 

[WarpedOne]

99% of the world and 90% of this forum is clueless of Tesla Energy and where half of GF production is intended to go.
They understand what is a car, but have no idea what is energy businesses.

Cars will be smaller part of Tesla future. Tesla Energy was to add about half of revenue, together with solar panel production and installation across the globe, it will be more than half.
When other car companies finally full embrace EV business, Tesla might even stop car production and concentrate on energy production and supply.

 

[SBenson]

Jeffrey Gundlach

This Bond Guru Calls the Tesla-SolarCity Deal a ‘Confidence Destroyer’

He was a pretty outspoken bull for a while now. First time seeing him being this negative on Tesla.

 

[pGo]

I hesitate to even wade into the quagmire of Tesla-City....and I have been prone to hopium in the past, reading benevolent outcomes from dubious actions, but this is a forum, so here it goes.

I haven't understood the $215 capital raise or the SCTY acquisition. It would seem that Tesla and TSLA would both be stronger without either. In a fanciful world of frictionless planes, had Tesla waited to raise capital, move up deadlines and acquire companies until they were cash flow positive, they could have done so in a way more understandable to us all....and yet they chose not to.

While not an Ayn Rand officianado (any more) there is a good quote from Atlas Shrugged, "Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong."

The disclosure to purchase SCTY seems ill-timed. Tesla should be concentrating on marshaling Capex to build Model III and not purchasing a business that is a cash flow drain at the same time they are ramping up to the MOMENT OF THEIR STATED existence....a compelling and affordable electric car.

And yet....and yet...Tesla will not purchase SCTY today, or tomorrow, or in the next 3-6. months. So what if, on advice of counsel, Elon and Tesla/SCTY decided to meet the SEC requirements for a disclosed merger, a merger that they believe will occur in 3-6 months, at a TSLA stock price much better than the stock price yesterday and the stock price today. In this case, the cart has to come before the horse. Because of the intertwined nature of the companies, the notice of merger has to come prior to the takeover.

If the deal happens in November/December at a TSLA stock price well above $200, then the deal will truly be a "no brainer". Both in discourse and in actions, Elon and Tesla are not acting as if they are a nascent business on the edge of success and failure - they are acting boldly, as if success is inevitable and underwritten by deeper corporate pockets. Layering on $2.3 Billion of debt for SCTY seems not only Ill timed, but reckless.

It may be wise to check our premises.

I would like your thoughts to be correct and that in 3-6 months, tesla goes much higher. If that is what on Elons mind as well, tesla is paying a HUUUGE premium for the business seriously in trouble. And, as a shareholder, I would prefer tesla makes an offer and does deal at that price point so dilution is not so high for tesla shareholders. Again, the timing of this deal doesn't make sense.

 

[dalalsid]

Tesla Powerwall - Wikipedia, the free encyclopedia

"A bigger battery called Powerpack, that can store 100 kWh of electricity, is projected to be available for industrial consumers, reaching a price point of $250/kWh."

Initially $250/kwh was mentioned, I can see the price has been hiked significantly since for some reason. Well it is still very early days, not sure if Tesla has even shipped any powerpacks yet. Apparently the cost for a small and a large battery is now the same per kwh, that doesn't make sense to me.

$250/kWh might be the 2020 price

40 Powerpacks

1,000 kW4,000 kWh4 hour duration

Peak Power: 1,000 kW

40 Powerpacks$1,880,000

• 4 Bi-Directional 250 kW Inverters$260,000
• Cabling & Site Support Hardware$22,000

Total Estimate Excluding Installation$2,162,000

Build your Powerpack Energy Storage Solution | Tesla Motors

 

[Seesaw]

99% of the world and 90% of this forum is clueless of Tesla Energy and where half of GF production is intended to go.
They understand what is a car, but have no idea what is energy businesses.

Cars will be smaller part of Tesla future. Tesla Energy was to add about half of revenue, together with solar panel production and installation across the globe, it will be more than half.
When other car companies finally full embrace EV business, Tesla might even stop car production and concentrate on energy production and supply.

Focusing on solar panels is silly, there is no competitive advantage there, the Chinese and Germans do it better and cheaper.

And as for installation? You must be joking.... Small operators with none of the overheads of the huge corporate behemoths will eat SolarCity alive in all markets.

The only way SolarCity survives is through hugely expensive sales strategies, multi level marketing schemes and stupid PPAs. And considering their massive cash burn and 20% bond payments, I would barely call it surviving.

 

[Drax7]

Jeffrey Gundlach

This Bond Guru Calls the Tesla-SolarCity Deal a ‘Confidence Destroyer’

He was a pretty outspoken bull for a while now. First time seeing him being this negative on Tesla.

If this guy dislikes it , I am even more bullish.

 

[tftf]

Ugh... Here comes a MASSIVE downgrade by Morgan Stanley

What a shameful stabbing in the back by MS for a visionary CEO they supported with the necessary capital rounds in the past.

MS issued a superb note in February 2014 outlining the huge synergies between the battery, solar/renewable energy and EVs/TaaS markets:

MORGAN STANLEY: Utopia Is Coming By 2026

These are trillion-dollar-revenue markets!

All Tesla is doing is with the merger is starting to execute on that great business model:

http://static5.businessinsider.com/image/530c96cbeab8eae3222de3fa-817-520/screen shot 2014-02-25 at 8.06.42 am.png

I hope Elon and his team will work with more reliable partners in the future who continue to support him and don't throw in the towel on the first hill.

CEO Musk said the new Tesla is worth a trillion dollars (probably conservative when you look at the total addressable market potential in the chart above!) - merging with SCTY would be the first strategic puzzle piece to achieve this.