TheTalkingMule
Distributed Energy Enthusiast
I'd like to see an online dashboard similar to the model in that "article" posted above. That way you could refute the nonsense immediately. Maybe I'll find a 12 year old that knows how to do that....
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I'd like to see an online dashboard similar to the model in that "article" posted above. That way you could refute the nonsense immediately. Maybe I'll find a 12 year old that knows how to do that....
SolarCity credit crisis
The macro winds certainly don't help, like the energy sector getting hammered and banking sector gradually getting into a credit crisis and such. But I honestly think SolarCity is going through some sort of liquidity crisis of it's own.
Lets begin with this:
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All of the data is from their slide-1 except last two lines. The last-but-one line is my estimate of NPV of actual contracted amounts with proper discounting. In my view it's roughly half the quoted NPV. The last line is basically debt vs contracted-revenue.
As you see the contracted-debt has completely ballooned the contracted-revenue.
My suspicion is that they basically are running out of borrowing options. There are some more strong indications of it recently as well.
In just about every recent CC, management said that ABS will be bigger and more frequent. But what we are seeing now is infrequent and tiny ABS. Lyndon said they had some 100s of MWs that can be put into ABS in town halls and such. But the latest round is for partly 85MWs or something. I don't have patience to dig up exact numbers but what has been said vs what’s happening is roughly a factor of 6 or more.
Stepping back a bit, in case of a company like Tesla when a car is delivered, the burden of finding money for it is largely on the purchaser. Tesla immediately makes money on sold cars. In case of SolarCity they get a contract with tiny-tiny money trickling in each month. Unless this contract is used somehow to raise money SolarCity is doomed. So SolarCity took up the burden of finding money on to itself. But what we are seeing is, they can't finance these contracts completely away. It appears only a portion of the contracts, and that too only a portion of the cash-flows of the portion of the contracts are financeable.
In any case, owing to their business model AND in the interest of growth it appears that they pushed themselves to the edge.
So now they are left with limited options. The recent news that management is looking to outright sell the contracts to 3rd party investors attests to the growing cash/credit pressures. If this doesn't work out, I don't know what will. On the other hand, I am very skeptical that this will be sustainable. In any case, it's hard to pin hopes on an unknown funding model for billions and billions of dollars every year.
SolarCity's clock is ticking. I think utmost they have a quarter or two to right the ship. It is extremely unlikely that they will deliver the 1.25GW installs this year. There is simply no capital for it.
Just to drive home the point, cash-flow-neutral for tesla is very different from that of solarcity. Tesla needs third party capital only to grow, to make investments for the future. SolarCity needs 3rd party capital simply to run the business (even when not growing at all).
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Another note, the convertible bonds that trade in the market is pricing in a default at this point. The Nov 18 one has a yield of 22% and Nov 19 one has yield of close to 20%. In addition to high yields, the inverted yield curve is usually an indication that a default is in cards.
At this point SCTY is a dead man walking, praying for a miracle.
The macro winds certainly don't help, like the energy sector getting hammered and banking sector gradually getting into a credit crisis and such. But I honestly think SolarCity is going through some sort of liquidity crisis of it's own.
Lets begin with this:
| Period | 2014 Q1 | 2014 Q2 | 2014 Q3 | 2014 Q4 | 2015 Q1 | 2015 Q2 | 2015 Q3 | 2015 Q4 | |
| Debt and Cash: | |||||||||
| Debt – Recourse | $M | ($153.40) | ($204.70) | ($154.00) | ($143.70) | ($284.20) | ($425.00) | ($522.00) | ($602.50) |
| Debt – Convertible | $M | ($230.00) | ($230.00) | ($730.00) | ($796.00) | ($796.00) | ($796.00) | ($796.00) | ($909.00) |
| Cash & Short-Term Investments | $M | $519.60 | $405.30 | $733.50 | $642.70 | $575.80 | $489.10 | $418.40 | $393.90 |
| Current Portfolio Value | |||||||||
| Cumulative MW Deployed under Energy Contracts – EoP | GW | 0.6 | 0.7 | 0.8 | 1 | 1.1 | 1.3 | 1.5 | 1.7 |
| PowerCo Portfolio’s Pre-Tax Unlevered NPV remaining | $M | $1,030 | $1,212 | $1,445 | $1,735 | $2,032 | $2,391 | $2,790 | $3,235 |
| Debt – Non-Recourse | $M | ($206) | ($324) | ($448) | ($485) | ($617) | ($731) | ($1,013) | ($1,242) |
| PowerCo portfolio Pre-Tax Unlevered NPV Less Debt | $M | $824 | $888 | $997 | $1,250 | $1,415 | $1,660 | $1,777 | $1,993 |
| Actual contracted $s with proper discounting | $515.00 | $606.00 | $722.50 | $867.50 | $1,016.00 | $1,195.50 | $1,395.00 | $1,617.50 | |
| Contracted debt vs contracted future revenue | $445.20 | $252.60 | $124.00 | $85.50 | ($105.40) | ($267.40) | ($517.60) | ($742.10) |
All of the data is from their slide-1 except last two lines. The last-but-one line is my estimate of NPV of actual contracted amounts with proper discounting. In my view it's roughly half the quoted NPV. The last line is basically debt vs contracted-revenue.
As you see the contracted-debt has completely ballooned the contracted-revenue.
My suspicion is that they basically are running out of borrowing options. There are some more strong indications of it recently as well.
In just about every recent CC, management said that ABS will be bigger and more frequent. But what we are seeing now is infrequent and tiny ABS. Lyndon said they had some 100s of MWs that can be put into ABS in town halls and such. But the latest round is for partly 85MWs or something. I don't have patience to dig up exact numbers but what has been said vs what’s happening is roughly a factor of 6 or more.
Stepping back a bit, in case of a company like Tesla when a car is delivered, the burden of finding money for it is largely on the purchaser. Tesla immediately makes money on sold cars. In case of SolarCity they get a contract with tiny-tiny money trickling in each month. Unless this contract is used somehow to raise money SolarCity is doomed. So SolarCity took up the burden of finding money on to itself. But what we are seeing is, they can't finance these contracts completely away. It appears only a portion of the contracts, and that too only a portion of the cash-flows of the portion of the contracts are financeable.
In any case, owing to their business model AND in the interest of growth it appears that they pushed themselves to the edge.
So now they are left with limited options. The recent news that management is looking to outright sell the contracts to 3rd party investors attests to the growing cash/credit pressures. If this doesn't work out, I don't know what will. On the other hand, I am very skeptical that this will be sustainable. In any case, it's hard to pin hopes on an unknown funding model for billions and billions of dollars every year.
SolarCity's clock is ticking. I think utmost they have a quarter or two to right the ship. It is extremely unlikely that they will deliver the 1.25GW installs this year. There is simply no capital for it.
Just to drive home the point, cash-flow-neutral for tesla is very different from that of solarcity. Tesla needs third party capital only to grow, to make investments for the future. SolarCity needs 3rd party capital simply to run the business (even when not growing at all).
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Another note, the convertible bonds that trade in the market is pricing in a default at this point. The Nov 18 one has a yield of 22% and Nov 19 one has yield of close to 20%. In addition to high yields, the inverted yield curve is usually an indication that a default is in cards.
At this point SCTY is a dead man walking, praying for a miracle.
TheTalkingMule
Distributed Energy Enthusiast
They just did an ABS like 2 weeks ago for like $185M.
Edit to add: The logic here being that in an environment where investor appetite has always far outstripped supply, these guys are going to have a hard time finding people willing to make 5% off the energy production of consumers with 740+ credit ratings and stable homeownership? As treasury rates plummet to zero? How does that make logical sense?
Hearing so much of this weird logic today. Everywhere. I heard banks are no longer going to make any money.
Edit to add: The logic here being that in an environment where investor appetite has always far outstripped supply, these guys are going to have a hard time finding people willing to make 5% off the energy production of consumers with 740+ credit ratings and stable homeownership? As treasury rates plummet to zero? How does that make logical sense?
Hearing so much of this weird logic today. Everywhere. I heard banks are no longer going to make any money.
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That was MyPower loans which has been in works for a while, almost 3 months or so.
The latest round for $57.5mln PPA/lease ABS is a dead give away that they reached a dead end of how much ABS they can do with their portfolio of contracts.
TheTalkingMule
Distributed Energy Enthusiast
From what I gather Florida is actually a pleasant surprise over the last year or so. They should be firmly in the corrupt anti-solar bucket with Nevada/Arizona/ect, but for some reason pro-solar legislation is finding major traction there.
It doesn't help the Koch agenda that Miami has been perpetually under water for the entire winter. Maybe these folks are getting the message? Maybe it's that older people are both cash flush and thrifty. The prospect of halving energy expense is to much to hold back with simple politics.
And a strong buy recommendation. Hopefully no one acted on this guys advice this morning:
SolarCity Drops 25%: Raymond James Sees Present Value, Axiom Sees Unrealistic Outlook - Tech Trader Daily - Barrons.com
SolarCity Drops 25%: Raymond James Sees Present Value, Axiom Sees Unrealistic Outlook - Tech Trader Daily - Barrons.com
TheTalkingMule
Distributed Energy Enthusiast
I was fairly sure I read that deal was a mix with mostly PPA deals. Can't seem to find details by googling either, weird because I can remember reading them a couple weeks back.
Anywho....these scenarios seem very unlikely to me. Every ABS offering to date has been oversubscribed. This is basically a free 5% return in a world where you have to pay the Treasury to sit on your money. Show me a better 5% bet right now than the Sun continuing to shine on rich people's houses.
Here is the link to $185Mln MyPower deal - SolarCity Completes Industry's First Securitization of Distributed Solar Loans (NASDAQ:SCTY)
The 5% is NOT risk free.
Risk is in the eye of the beholder. The latest Kroll ratings document was pages and pages of net-metering stuff. It's to the investment community to decide how much of that risk they are willing to take. SolarCity is doing all sorts of things like over-capitalization and such to appease to the investors.
Most importantly, SolarCity has NEVER been able to finance away all of their cashflows. They only get a portion of funding through financing.
As you see from the table above they borrow gobs of money in a recourse (non-asset-backed) basis as well. Their debts are monumental and increasing every quarter. If they can do it all with asset-backed financing, why do they take on the more expensive recourse debt at all? They clearly are hitting limits on their asset backed financing.
The point is that the debt they got into is unsustainable. More importantly, I don't know if they can even run the shop (even at 0 growth) without taking on more recourse debt.
There is near 0 chance they will do 1.25GW installs this year.
Well, of course unless Musk pulls off some miracle.
jhm
Well-Known Member
Hey, Benson, it would be helpful if you could explain your calculations in the last two lines. I can't figure out the math you are using, so I'm not in a position to understand the conclusions you are drawing. So please walk us through the math.
The simpler observation to make here is that cash and CE has fallen $182M over the last 4 quarters and $24.5M in the last quarter. So while they are substantially cash flow negative, the burn rate has improved in this last quarter. Moreover the last quarter is a low solar output quarter. So the net cash was only a decline of about $0.10/W deployed. Thus, had their cost been just $2.61/W instead of $2.71/W, they would have been cash net neutral.
So I think the first order of business is to move to cash flow positive. Then we can worry about longterm value creation. If you are concerned about solvency, cash flow is much more critical that any sort of longterm NPV.
TheTalkingMule
Distributed Energy Enthusiast
They are already now financing/monetizing more than 100% install costs, so to me that is already a massive step toward positive flow. Maybe I'm missing something here, but the trends seem right to me. The absolute values of debt are scary to a degree, but this is a fluid operation and this was the exact plan. No?
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I saw a much more detailed piece somewhere, I know I did. Maybe a Credit Suisse PR? I'll look around.
I'd rather see residential growth, but they will get to 1.25 to appease the investors. Remember we're ITC-extended now, that makes commercial an easy sell almost everywhere. If they needed to(and they may), they could pivot a bit to focus more on commercial at the expense of residential.
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Of course it's unsustainable, they're trying to build out a nationwide operation to become the largest energy provider in the US. That's the problem. Every model (including yours) is assuming static costs, that's just silly. I'm pretty sure Standard Oil wasn't cash-flow positive while Rockefeller was running around buying up everything in sight.
I saw a much more detailed piece somewhere, I know I did. Maybe a Credit Suisse PR? I'll look around.
This would worry me as well except that the growth of easy commercial installs will be massive in the middle of the year. They can pick up giant gobs of MWs at a time to close the gap.
I'd rather see residential growth, but they will get to 1.25 to appease the investors. Remember we're ITC-extended now, that makes commercial an easy sell almost everywhere. If they needed to(and they may), they could pivot a bit to focus more on commercial at the expense of residential.
Your insider trading hypothesis has been debunked many times before. Why do you bother? Elon alone just bought more TSLA shares in the last week than all insiders put together sold in the last year. (Oh, and I fixed your font size for you.)
TheTalkingMule
Distributed Energy Enthusiast
There's a lot to talk about right now, can you keep it down if you have nothing new to add? You're clogging up the thread.
I live in FL half the year or more and couldn't agree more (at the state level). From Orlando south there are some very strong districts of support for Alt energy etc. however and its growing rapidly. If that ever converts to a Dem or more moderate Governorship (currently the direction of change), it has the potential to change rapidly. If not, it will become the biggest market for Solar-Storage off-grid in the nation as that cost drops in coming years. I see it as a big spring being compressed, and when it releases S-City and others would be wise to be ready! Thanks for the link
Purely Anecdotal
I spent four years as a Solar Rebate Inspector with the Los Angeles Department of Water and Power. My assigned territory included Beverly Hills, Bel Air, the Pacific Palisades, Venice and cities south to LAX. I mention this only to add color to my observations. These are some of the wealthiest communities in the world. I also performed a significant number of inspections in middle class neighborhoods throughout the San Fernando Valley.
I made it point to ask each client I met with “Why have you invested in solar power?” From 2010 until early 2012 an overwhelming majority said their decision was environmental. Since that time, more and more of customers mentioned finances as a motivating factor.
I have found it interesting the number of elderly that have invested in solar.
On one occasion I went to inspect a home, and met a woman I assumed to be in her eighties or maybe even older. She was striking in her beauty. You know that rare woman with the bone structure of a model. Even in the twilight of her years, my first impression was that she had lived a life of privilege. The sort of woman whose beauty creates a charmed existence.
When we began to speak, I realized how shallow my first impression was. Despite her years, she was bright, intelligent, witty and charming. Eventually, I got around to asking her my rehearsed, hackneyed question. Why have you invested in solar power? Now I should probably mention, I am six feet six inches tall and weigh about 250 pounds. The elderly lady I was speaking to was about 5 feet tall, and couldn’t have weighed one hundred pounds. She spun around, pointed her finger directly in my face and said, because I like sticking it to the man. All my life, the utilities have dictated what I pay for electricity, the oil companies have dictated what I pay for gasoline. I’m taking control of what I pay. Above this, I’m setting an example for my children. Solar power makes great sense.
This woman made an impression on me that I will carry for the rest of my life. People can and do change the world.
I am no longer working as a Solar Power Inspector. Being privy to the number of solar installations in Los Angeles, I know that we have just scratched the surface. Solar Power is a target rich environment.
Anyone that is peddling SolarCity’s lack of demand, is ill-informed. SolarCity is a dynamic sales organization, backed by an installation team that simply executes. They have an extraordinary work ethic, and they get the job done right the first time. I know this from first hand experience.
Short SolarCity at your peril, they are an organization of true believers, backed by an enormous customer base of true believers. Just my two cents based on speaking directly to hundreds and hundreds of their customers.
I spent four years as a Solar Rebate Inspector with the Los Angeles Department of Water and Power. My assigned territory included Beverly Hills, Bel Air, the Pacific Palisades, Venice and cities south to LAX. I mention this only to add color to my observations. These are some of the wealthiest communities in the world. I also performed a significant number of inspections in middle class neighborhoods throughout the San Fernando Valley.
I made it point to ask each client I met with “Why have you invested in solar power?” From 2010 until early 2012 an overwhelming majority said their decision was environmental. Since that time, more and more of customers mentioned finances as a motivating factor.
I have found it interesting the number of elderly that have invested in solar.
On one occasion I went to inspect a home, and met a woman I assumed to be in her eighties or maybe even older. She was striking in her beauty. You know that rare woman with the bone structure of a model. Even in the twilight of her years, my first impression was that she had lived a life of privilege. The sort of woman whose beauty creates a charmed existence.
When we began to speak, I realized how shallow my first impression was. Despite her years, she was bright, intelligent, witty and charming. Eventually, I got around to asking her my rehearsed, hackneyed question. Why have you invested in solar power? Now I should probably mention, I am six feet six inches tall and weigh about 250 pounds. The elderly lady I was speaking to was about 5 feet tall, and couldn’t have weighed one hundred pounds. She spun around, pointed her finger directly in my face and said, because I like sticking it to the man. All my life, the utilities have dictated what I pay for electricity, the oil companies have dictated what I pay for gasoline. I’m taking control of what I pay. Above this, I’m setting an example for my children. Solar power makes great sense.
This woman made an impression on me that I will carry for the rest of my life. People can and do change the world.
I am no longer working as a Solar Power Inspector. Being privy to the number of solar installations in Los Angeles, I know that we have just scratched the surface. Solar Power is a target rich environment.
Anyone that is peddling SolarCity’s lack of demand, is ill-informed. SolarCity is a dynamic sales organization, backed by an installation team that simply executes. They have an extraordinary work ethic, and they get the job done right the first time. I know this from first hand experience.
Short SolarCity at your peril, they are an organization of true believers, backed by an enormous customer base of true believers. Just my two cents based on speaking directly to hundreds and hundreds of their customers.
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