Causalien
Prime 8 ball Oracle
Yes. These are called "variable interest entities". They are consolidated on the books as if they are 100% owned, and then the portion of profit or loss allocated to the other investors is subtracted later (on the appropriate line, "losses allocated to others" or something like that). It's very similar to the "minority interest" accounting treatment you'd use for a subsidiary which is 80% owned by SCTY, and 20% by random other people.
The VIEs are consolidated even though SolarCity has less than majority interest in them because SolarCity has substantive control over them and the other investors are essentially passive. There's a bunch of rules about this, some of which are old and some of which date from the 2008 crisis.
Prior to 2008, VIEs -- which are typically created by banks -- were typically "off the books" of banks. But when the VIEs went bust, the passive investors demanded that the banks make them whole, and (sometimes after being sued) the banks usually did. A consequence of this is that these types of structures are now deemed to belong on the books of the controlling entity.
Unfortunately, "minority interest" accounting is notoriously opaque, and always has been. It's not clear from the way it's done exactly *what* rights the minority interest has to the future income and cash flows of the business and *what* obligations they have for future losses, and it's especially unclear for SolarCity, which has hundreds of these things.
The minority-interest accounting convention works OK when it's an inconsequential part of the balance sheet, but when it dominates the balance sheet, it makes it unreadable, and requires additional reporting to explain what's *really* going on.
From my experience of the 2008 crisis. Assuming I can treat SCTY as a bank. I'd write off both minority interest as well as both loss/gain attributed to others. Then I'd take minority interest and reduce SCTY capital by 20% as reserve for lawsuit.
Bear sterns downfall, if I rember correctly, started with bailing out two of their off balance sheet hedge fund. SCTY's off balance sheet entity differs from these banks because they are smaller but more numerous. It'd be interesting to know if they concentrated the bigger commercial projects into 1~2 entities or hundreds of smaller ines.
But I think the biggest question is, whether ir not there's any common weakness to all the small entities. i.e. if they are all house owners, then housing market is their achilles heel and they might as well just be one entity.
One thing I do not understand. Back then, off balance sheet is a trick to increase income/asset. With the new rule, the balance has to be shown on the books, why would they need to do that? Or is this a practice that started before 2008, and just gets carried through cause it is too late to change?