Short-Term TSLA Price Movements - 2016

[Ulmo]

Outperforming the indexes 2:1... TSLA as a conservative hedge. Didn't see that one coming.

Nor I, but to me, although I'm bad at predicting the stock market, I have no problem with it making sense in retrospect:

The Tesla business is fundamentally sound. What's more, they're still in growth mode. Those who have to postpone Model 3 purchases due to macro losses are fighting against a mudslide of other people ordering, and Model S/X has been a small healthy pool for years now itself partially insulated from macro markets due to the wealth of its customer pool. This temporary argument about Solar City still has to work out. It's partially priced in already. For now, it makes sense that $TSLA can outperform the macro.

 

[austinEV]

Musk was referring to literally visually attractive. I'm going with hexagon (seriously).

uniform black surface with low profile metal frames in your choice of color. I can't conceive of another proposition. It's rooftop solar, not a car with a design.

(uniform black with choice of color would be awesome and a good differentiator).

 

[AlMc]

Maybe your ST Calls will turn green ?

Mitch...My strangle ended up doing well. Puts up (and sold yesterday) about 300%...as you might imagine my calls are near worthless,

 

[Cosmacelf]

As far as deal repricing goes, yes, that is definitely on the table. Deals get repriced all the time in acquisitions. Will have to wait a while for markets to settle though.

 

[Foghat]

I've read those.

Problems with the Asset Financing Memo:
(1) I don't think "per watt" helps explain anything; it just creates confusion.
(2) The term loans have their durations laid out neatly, but are missing the interest rates.
(3) The Solar Loan-backed notes, Solar Asset-backed notes, and Solar Renewable Energy Credit Term Loan are missing both durations and interest rates
(4) The revolving credit facilities are missing interest rates.

As for the investor presentation:
Gross project cash flows -- The average contracted price per kwh starts at 12 cents / kwh and escalates in later years. I'm paying 11 cents through my utility. Business will dry up if they keep charging this much. There's a local installer in Ithaca, NY guaranteeing lower prices for 20 years than SolarCity's average, and I'm actually currently paying less than that by "picking my supplier" in our so-called "deregulated" utility market.

They're assuming renewals. Zero chance, not at those prices.

Unlevered project cash flows -- Yes, they have an income stream *if they don't have to finance anything*, but unfortunately they do.

Asset financing interest rates range from 3.9% to 6.25%, but it's not clear whether these rates are actually profitable compared to the income stream described earlier. It's also not clear what all the structures are. It also seems that SolarCity is having more and more trouble placing these.

What's a "5 year back leverage bank debt structure"?

Debt service is already projected to eat a third of the company's income as far out as 2025, and the projections after that are fantasy because they depend on renewals.

Then we learn that SolarCity is selling off the income streams they have as fast as possible to generate cash now. Sure, they have the residual post 2028 income, but that's going to be very low.

Finally on page 25 we see a vague schedule of the different types of debt. It's all appallingly short term. The longest is 15 years, but most of it is 5 years or less. Given that these are backed by 20-year contracts, I conclude that SolarCity is generating nearly all its money by aggressive maturity transformation.

Finally, SolarCity states in its conclusion: "Goal of not owning future manufacturing assets on balance sheet".
So, if that's what they want, why doesn't Tesla buy Silevo and Zep and take those manufacturing assets off SolarCity's balance sheet? :raises eyebrows:

I can get to your last point right now, have to comment on the rest later...

They have a 10 year lease deal with the state of New York for the silevo factory once in operation. New York owns the factory, Solarcity just leases it for a $1/year (with some capital investment in the panel specific machinery).

They are stating this type of arrangement is their goal on future factories, which they are already in the discussions with New York on how they would do such a deal on a 5GW factory(or now maybe a tesla-Solarcity product factory combine). I don't have the reference for it off the top, but an article stating these decisions in motion is out there from a few months back.

 

[Drax7]

applying first principles, as in physics, what is the intrinsic value of Solarcity

assets - liabilities ?

 

[Cosmacelf]

applying first principles, as in physics, what is the intrinsic value of Solarcity

assets - liabilities ?

Which is exactly why Elon's first principle tangents on factory volumetric utilization is so inane. Valuing any company is way more complicated than assets - liabilities.

 

[Foghat]

Can Elon Musk make solar panels as attractive as a Tesla?

Elon and Lyndon Rive (scty CEO) did a talk at the California public utiltiy commission a couple years back (can view on YouTube) where both Elon and Lyndon talked about Solarcity systems being beautiful. Lyndon went on further to say that he wanted neighbors to look at someone's system and say "gee, look at that, I want that on my roof."

I think they are approaching this aesthetic idea as a vehicle for viral advertising and as apart of breaking down stereo types of solar in the general mainstream. As the tesla has broke the stereotype of electric (green) cars of the past, so too does he want to break the stereotype of solar, reinvent the idea of it in public consciousness like he's done with autos.

Remember, there is under 2% penetration of solar in addressable market in the US right now, if this type of hype associated solar as must have (in addition to all the other benefits) then Elon is absolutely right, a trillion dollar company will not only be possible,
It will be inevitable because they will be years ahead of all the competition in design, integration, and scalability.

 

[Rarity]

I haven't seen a panel from SolarCity that is anywhere near as good-looking as SunPower's. If somebody has a picture of this good-looking panel from SolarCity, could you post it?

 

[electracity]

uniform black surface with low profile metal frames in your choice of color. I can't conceive of another proposition. It's rooftop solar, not a car with a design.

(uniform black with choice of color would be awesome and a good differentiator).

Hexagons fit non-rectangular roof sections better than rectangles. Color choice probably doesn't work with high efficiency panels.

I'm thinking that a bunch of male engineers would think hexagons would be just the perfect choice for a front facing roof.

 

[Jonathan Hewitt]

I haven't seen a panel from SolarCity that is anywhere near as good-looking as SunPower's. If somebody has a picture of this good-looking panel from SolarCity, could you post it?

I really like my SunPower system.

 

[Foghat]

I haven't seen a panel from SolarCity that is anywhere near as good-looking as SunPower's. If somebody has a picture of this good-looking panel from SolarCity, could you post it?

The all black does look good, but I have to say, Solarcity's vendors panels don't look much different. I have not seen the new Silevo panel yet, so that probably would be a better comparison with sunpower though to be fair.

I've actually seen a couple Solarcity installs where I couldn't even see the system since the roof was in profile. Their install sits flat on the roof and they have a skirting around the panels that makes it look like one flat rectangle. They also have wifi connection to production and have a how UI app for their customers to access. This is why a 20 year relationship is so valuable. Currently Solarcity has approaching 300k customers potentially using their app on a continual basic where they could integrate all smart home utilities and tech such as NEST thermos, wash n dryer, etc... And create upsell opportunities and partnership advertising that could potentially become a massive Solarcity OS ecosystem.

I think vivint has actually has similar potential on this since they have an in through their home security business and UI there.

 

[electracity]

applying first principles, as in physics, what is the intrinsic value of Solarcity

assets - liabilities ?

The argument of SCTY value primarily revolves around renewal percentage at year 20 when customer contracts expire. The need to even use numbers 20 years in the future underscores the pathetic financial condition of SCTY.

SCTY no longer offers "retained earnings" calculations. Even they gave up the hype, which is why the SCTY board is willing to sell at less than half the 52 week high.

Its still not a fair deal for TSLA holders at $26-28, but the deal need to get done.

 

[MitchJi]

I think the markets concerns that the SCTY deal will slow the M3 ramp or remove Tesla's focus are misplaced. I believe it signifies the opposite. That Elon isn't worried about the M3 ramp. I believe that while there could still be unforeseen problems or delays that right now it's going smoothly.

 

[dc_h]

The argument of SCTY value primarily revolves around renewal percentage at year 20 when customer contracts expire. The need to even use numbers 20 years in the future underscores the pathetic financial condition of SCTY.

SCTY no longer offers "retained earnings" calculations. Even they gave up the hype, which is why the SCTY board is willing to sell at less than half the 52 week high.

Its still not a fair deal for TSLA holders at $26-28, but the deal need to get done.

The entire premise of scty is to eliminate upfront costs and absorb long term risk for the consumer. The 20 year cycle is their reason for being. It is their business model.

 

[brian45011]

I use USAA, and I had confirmed last summer that they do in fact loan shares on occasion. I can't remember whom they are owned by, but it is a company contracted out by USAA. Unlike the banking services, it is not controlled in house by USAA. I will double check this with brokerage services tomorrow.

USAA is owned by its member. They tuned over the administration of security trading operations to FMR in August 2014

 

[Cosmacelf]

Have there been any significant numbers of Powerwall installs in the US?? I really think this acquisition is more about fixing the Tesla Energy debacle more than anything else. Solaredge, an Isreali company, has 75% of their sales in the US. Meanwhile, the only Powerwall sales I hear about are in Australia, a tiny market.

I think Elon's talk about product integration really has to do with the frustration of not being to sell enough Powerwalls. I think they've come to the conclusion that they need to have a better Powerwall/inverter/panel integrated product to be able to sell ANY Powerwalls in any volume.

And why do they care so much about selling Powerwalls? Because they've signed supply agreements which obligate them to buy a certain number of Powerwall compatible cells, and they are soon going to be awash in unsold cells (these cells see cells are different from the ones they can use in cars).

I think this is a bombshell hiding in Tesla financials which we will see soon. Elon did say that if anything this purchase offer was too late, rather than too early.

 

[Foghat]

The entire premise of scty is to eliminate upfront costs and absorb long term risk for the consumer. The 20 year cycle is their reason for being. It is their business model.

I think the lower monthly utiltiy bill with no fuss no muss, no risk investment to get that lower utility bill is what opened up the home solar market and became a sustainable business model for them.

They didn't start out with lease, but with group rates through approaching neighborhoods as a group and giving a group discount on bulk installs.

I think they found out from this initial process that most people didn't want to take out a loan or pay cash for a system. They just wanted to save money on monthly energy bill with no risk (in addition to societal/environmental benefits).

They figured out a way to meet that consumer desire then did it.

What I gathered from this is that they don't develop a business model and force it on consumers, but rather listen to what the consumer wants and figure out a way to deliver that to them.

In this way, Solarcity will develop the business model that works, if that be what they are doing now or something different later, this is the driving function of their business model.

This is why I feel the next evolution of the business model will be selling energy for customers and to customers(utilities) grid services. This is a huge area of grid innovation that we haven't seen in over a 100 years and is desperately needed. Solarcity looks to be positioning their business model to meet this need and soon.

 

[motobaleno]

they've signed supply agreements which obligate them to buy a certain number of Powerwall compatible cells,.

any reference for this?

 

[eloder]

Have there been any significant numbers of Powerwall installs in the US?? I really think this acquisition is more about fixing the Tesla Energy debacle more than anything else. Solaredge, an Isreali company, has 75% of their sales in the US. Meanwhile, the only Powerwall sales I hear about are in Australia, a tiny market.

I think Elon's talk about product integration really has to do with the frustration of not being to sell enough Powerwalls. I think they've come to the conclusion that they need to have a better Powerwall/inverter/panel integrated product to be able to sell ANY Powerwalls in any volume.

And why do they care so much about selling Powerwalls? Because they've signed supply agreements which obligate them to buy a certain number of Powerwall compatible cells, and they are soon going to be awash in unsold cells (these cells see cells are different from the ones they can use in cars).

I think this is a bombshell hiding in Tesla financials which we will see soon. Elon did say that if anything this purchase offer was too late, rather than too early.

That's not a big shocker. Musk stated a 90/10 split between Powerpack and Powerwalls. The Powerpack side is doing great, the Powerwall doesn't make sense for a very strong majority of consumers until costs drop substantially more whereas Powerpack makes sense now over new peaker plants.

In other words, not surprising at all based on Tesla's very own guidance.