SolarCity (SCTY)

[NigelM]

Yea, but Elon and other TSLA-SCTY joint holders aren't voting here.

Potential for conflict of interest here is pretty darn high and it's a fair discussion as to how many of the board members should recuse themselves. If you take out all the connections and overlaps you're basically left with one person on the SCTY board and one person on the TSLA board. Interesting article on Bloomberg today in which they included this graphic:

 

[kenliles]

Potential for conflict of interest here is pretty darn high and it's a fair discussion... Interesting article on Bloomberg today in which they included this graphic:

"Close ties among board members may raise questions with investors"

Very true.
And I suspect, evidenced by the same graphic;
the inevitable answer to those questions (after a lot of contentious opinion),
will be another question;
Why were these entities ever considered to be different companies?
The obvious answer--, they never actually were...

 

[neroden]

Hey all,

Quick question. How does the conversion of SCTY stock to TSLA work. Tesla announced that the offer was to convert at 0.122x - 0.131x of Tesla shares. Is this dependent on the fluctuation of TSLA stock price or is that locked in presuming Solar city accepts that bid?

It means they haven't really decided on the conversion rate yet. It could change before the final offer.

 

[Foghat]

Potential for conflict of interest here is pretty darn high and it's a fair discussion as to how many of the board members should recuse themselves. If you take out all the connections and overlaps you're basically left with one person on the SCTY board and one person on the TSLA board. Interesting article on Bloomberg today in which they included this graphic:

So JB is going to represent Solarcity's interests in Tesla's buy out of Solarcity... Yeah, these deal terms are going to be fair to Solarcity shareholders. And not too confident in tesla centric investors Nancy and John. Although, Nancy did try to make a public effort to promote Solarcity a few times in the recent past.

Overall, this is a CF for actual representation of Solarcity shareholders interests.

Again, love the merger, hate the deal.

 

[angstrom]

So JB is going to represent Solarcity's interests in Tesla's buy out of Solarcity... Yeah, these deal terms are going to be fair to Solarcity shareholders. And not too confident in tesla centric investors Nancy and John. Although, Nancy did try to make a public effort to promote Solarcity a few times in the recent past.

Overall, this is a CF for actual representation of Solarcity shareholders interests.

Again, love the merger, hate the deal.

By the time this completes it may be more merger than acquisition.

 

[Foghat]

I really want to hear the Solarcity board and the CEO explain to Solarcity shareholders how this is a great deal.

I want them to explain to scty shareholders how this valuation is better then how they see their valuation 2-5 years from now on their own.

It's severely hard to justify in most scty investors minds since there is long standing documented evidence as well as recorded statements of both Elon and Lyndon Rive saying market cap was significantly under valued when it was over double current offer price from 2014-2016.(and even at Ipo 2012 where he considered 18 undervalued in media interview!)

As an example, Go back to q3 conference call and the last question on the conference call asked how frustrating is it that the stock in the 30's was way undervalued and Lyndon replied with frustration I don't know, I wish I knew.

Undervalued has been a constant theme for about two years now, and now that the stock is in a multi year low trading range and all the sudden solacity management says this deal is great for shareholders?

Elon, don't smack down your scty shareholders, give them an actually fair valuation please.

For those long term holders, I think an attractive convertible bond would be widely popular if you want to limit dilution. Work with the scty shareholders who know the long term value of this company.

 

[Krugerrand]

I really want to hear the Solarcity board and the CEO explain to Solarcity shareholders how this is a great deal.

Simple. Tesla is going to be a $1 Trillion company when all is said and done. The TSLA shares you get in exchange for your SCTY shares will garner you way more money than your SCTY shares ever would have.

 

[gigglehertz]

Simple. Tesla is going to be a $1 Trillion company when all is said and done. The TSLA shares you get in exchange for your SCTY shares will garner you way more money than your SCTY shares ever would have.

Maybe WAY long term. The 52 week high for SCTY was roughly triple current sp and arguably a cash flow positive squeeze had some chance of pushing it up higher, but 52 week high for TSLA was only 50% higher than current. Put simply I would stand to make more money in the next couple of years with SCTY than TSLA. Given .122 - .131x conversion TSLA would have to shoot up to $700/share for me to make the returns I was looking at with SCTY to $100. Neither is guaranteed but one is a hell of a lot more likely at least by the time the Model 3 ships.

 

[neroden]

I think this is highly relevant to the future of SolarCity (from February 18th)

SolarCity Kills Its MyPower Loan Product

This article implies that SolarCity is already making a pivot away from highly structured finance deals to simpler bank loans. As a Tesla stockholder, this is what I *want* them to do to convince me that the merger is a good idea.

SolarCity wants to create products that make the company's valuation independent of whether the company is selling systems via loans, PPAs or for cash. “That’s the ideal goal,” said Rive.

 

[Foghat]

I think this is highly relevant to the future of SolarCity (from February 18th)

SolarCity Kills Its MyPower Loan Product

This article implies that SolarCity is already making a pivot away from highly structured finance deals to simpler bank loans. As a Tesla stockholder, this is what I *want* them to do to convince me that the merger is a good idea.

This actually was a successful year long loan program just not one that opened the market like they wanted. They tried to make it like the ppa/lease program, but the 30% ITC balloon payment(and the application of the ITC in general) didn't push the "own the equipment" market further. They did successfully do an investment grade rated mypower ABS, but this fund wasn't going to grow big enough fast enough to be sufficient capital raising vehicles as well. Innovative, but complicating and time consuming as well.

They now have a more traditional loan program in 14 states. We'll see how this develops, probably see some numbers in q3 and q4.

The financing generally goes like this:

Revolver debt(like a credit card) and "solar bonds" to pay for projects in construction.

They bundle a large number of installs for investors to own a piece of it in order to take advantage of the 30% ITC, aka Google has a big tax bill, takes 30% ITC from Solarcity installs and applies to said tax bill.

Solarcity takes the tax equity capital from Google and buys more systems.

Once these systems are installed and generating monthly revenue, Solarcity then packages those monthly revenues through asset backed securitizations. since these rates are sub 6%, they use this capital to pay off tax equity(which is 9-12% rates), debt, as well as invest in buying more systems.

As solarcity grows, more installs are installed, and thus bigger tax equity or more frequent tax equity capital is raised, and the process continues to more growth and more installs.

That's pretty much outside any equity raises as well.

 

[tander]

Anybody know what happens to SCTY LEAPS now? I think the merger is probably a good idea for the two in the long run, the Rives have done a great job but I think SCTY has gotten big enough that Musk is probably better suited for the job now. But not sure this is gonna be a good thing for the LEAPS.

 

[doggusfluffy]

New York utilities and solar companies compromise on price of solar energy sold to utilities - The Buffalo News

The proposal would keep the current net metering system in place until 2020. It would gradually phase in a new formula that considers the wholesale price of power, the environmental benefits of solar energy and whether the project is located in an area that stands to benefit the most from having more solar capacity. The location of the project is a key part of the pricing formula. Putting more solar in an area where power supplies are tight could have a bigger impact by allowing the local utility to save money by not having to invest in new power plants or power grid improvements.

 

[neroden]

That's my state! I happen to live in an area with increasing power demands and poor grid interconnects, so they should pay well for solar under the new model....

 

[TheTalkingMule]

There needs to be some kind of nationwide FERC intervention to push the whole nation to a more free market model. Lock in net metering for 1-5 years where appropriate, lock in grandfathering and force the state regulatory bodies to do their job(creating a transition plans).

It's embarrassing how poorly we're handling this as a nation, Germany took all these steps with ease 4 years ago. It cost them nearly nothing, and they've had a mature $2/W install industry ever since. They've more than paid back any net cost with their current net export levels. Obviously their energy market is wildly different than most in the US, but the economic principles are the same.

 

[jhm]

@jhm What's your take on the offer?

Well, I've been on vacation, sipping wine along the Russian River.

My SCTY position is about 10% of the size of my TSLA position, which is in line with the offer. So this makes me indifferent to the valuation of SCTY. That is my allocation is in line with the post-merger combination, so even if SolarCity is undervalued in this deal, I suffer no loss of value in the combined company. Understandably, SolarCity investors who are much more heavily exposed to SolarCity than Tesla will not be so indifferent to a potential undervaluation. I can sympathize with that, but my eyes are more set on the prospects for the combined company than the pricing of the deal.

I think that the combined Tesla - SolarCity company will be a force to be reckoned with, the most important energy company going forward. Naturally, both companies are premised on transforming the energy status quo. They face numerous structural and policy oriented obstacles. This is not about growing out two promising companies in established industries. This is about kicking multiple entrenched industries out of their respective comfort zones and transforming energy infrastructures. Thus, it is enormously beneficial that Tesla be one strong, unified entity with some real economic heft.

Consider the debacle in Nevada. State politicians bent over backwards to attract Tesla's Gigafactory, but allowed utility politics to evict SolarCity from the state. Would this have happened had Tesla and SolarCity been one company? We may never know, but why would Nevada want to ruin its relationship with one of the state's most promising employers? So I think that being a combined entity may matter more than we know.

Clearly SolarCity wants to negotiate deals with utilities to provide grid services. And utilities, like NV Energy, are to work with Tesla to get Powerpacks. Imagine the irony of NV Energy trying to cut a good deal with Tesla after its anti-competitive mistreatment of SolarCity. The combined Tesla-SolarCity company will wield substantial bargaining power in negotiation with utilities. And this may be essential for restructuring the power industry.

On a technical note, as related, but separate companies, Tesla Energy could not favor SolarCity over utilities or other solar competitors. They would have had to offer comparable, competitive terms selling Powerwalls and Powerpacks to all of SolarCity's competitors. However, as a combined entity SolarCity will have access to Tesla Energy products at internal costs. It is striking that Tesla upped the price of Powerpacks from $25k to $47k recently. This is what utilities will have to pay, while as a subsidiary SolarCity will have access to much lower internal prices. Thus, as a combined company, Tesla will not need to accept any offer from utilities that might advantage that utility over rooftop solar within their service area.

I am clearly biased in favor of distributed power. My expectation is that the combined Tesla will emerge at the most powerful player advancing distributed power. The negotiating power that the merger creates is well worth the deal in my view, and it is timely to do this combination before Tesla steps out to negotiate new factories with states and countries.

 

[doggusfluffy]

Inside the Deal That Shaped San Diego County’s Power Picture | The California Report | KQED News

“Our rates are among the highest in the country and people like to say, ‘Oh, it’s because California has all these different special requirements.’ But not true,” Powers said. “It’s just that we have a compliant PUC that basically finds a way to approve all of these projects that are unnecessary projects and is conducting us along a renewable energy path that the utilities have blessed.”

Blessed because building more plants and putting up more transmission lines is the way utilities make money. They don’t earn it by how much electricity they sell. They earn a guaranteed return on their invested capital — 10.3 percent, according to the commission. (The utility requested 11.65 percent on Palomar, but the commission rejected that.)

 

[Lessmog]

Well, I've been on vacation, sipping wine along the Russian River.

My SCTY position is about 10% of the size of my TSLA position, which is in line with the offer. So this makes me indifferent to the valuation of SCTY. That is my allocation is in line with the post-merger combination, so even if SolarCity is undervalued in this deal, I suffer no loss of value in the combined company. Understandably, SolarCity investors who are much more heavily exposed to SolarCity than Tesla will not be so indifferent to a potential undervaluation. I can sympathize with that, but my eyes are more set on the prospects for the combined company than the pricing of the deal.

I think that the combined Tesla - SolarCity company will be a force to be reckoned with, the most important energy company going forward. Naturally, both companies are premised on transforming the energy status quo. They face numerous structural and policy oriented obstacles. This is not about growing out two promising companies in established industries. This is about kicking multiple entrenched industries out of their respective comfort zones and transforming energy infrastructures. Thus, it is enormously beneficial that Tesla be one strong, unified entity with some real economic heft.

Consider the debacle in Nevada. State politicians bent over backwards to attract Tesla's Gigafactory, but allowed utility politics to evict SolarCity from the state. Would this have happened had Tesla and SolarCity been one company? We may never know, but why would Nevada want to ruin its relationship with one of the state's most promising employers? So I think that being a combined entity may matter more than we know.

Clearly SolarCity wants to negotiate deals with utilities to provide grid services. And utilities, like NV Energy, are to work with Tesla to get Powerpacks. Imagine the irony of NV Energy trying to cut a good deal with Tesla after its anti-competitive mistreatment of SolarCity. The combined Tesla-SolarCity company will wield substantial bargaining power in negotiation with utilities. And this may be essential for restructuring the power industry.

On a technical note, as related, but separate companies, Tesla Energy could not favor SolarCity over utilities or other solar competitors. They would have had to offer comparable, competitive terms selling Powerwalls and Powerpacks to all of SolarCity's competitors. However, as a combined entity SolarCity will have access to Tesla Energy products at internal costs. It is striking that Tesla upped the price of Powerpacks from $25k to $47k recently. This is what utilities will have to pay, while as a subsidiary SolarCity will have access to much lower internal prices. Thus, as a combined company, Tesla will not need to accept any offer from utilities that might advantage that utility over rooftop solar within their service area.

I am clearly biased in favor of distributed power. My expectation is that the combined Tesla will emerge at the most powerful player advancing distributed power. The negotiating power that the merger creates is well worth the deal in my view, and it is timely to do this combination before Tesla steps out to negotiate new factories with states and countries.

Glad to see you back, refreshed after your tonic! Just a minor pit to nick: an order of magnitude off on the Powerpacks.

Apart from that, agree with your analysis.

 

[jhm]

Glad to see you back, refreshed after your tonic! Just a minor pit to nick: an order of magnitude off on the Powerpacks.

Apart from that, agree with your analysis.

Thanks. Not sure what pit you are nicking. Tesla's design tool still has 1 Powerpack at $47,000. Is there something I'm missing?

 

[Lessmog]

No, sorry. I missed the suggested denominator of 100kWh, is all I can say. Retracting the picknit; the rest stands.

 

[Drivin]

On a technical note, as related, but separate companies, Tesla Energy could not favor SolarCity over utilities or other solar competitors. They would have had to offer comparable, competitive terms selling Powerwalls and Powerpacks to all of SolarCity's competitors. .

Since when?
What exactly prevents them from offering different deals to different companies?