SolarCity (SCTY)

[SBenson]

@neroden, That is if they are actually getting out of them PPAs/leases. They are getting into them as fast as they are getting out!

When majority of their sales are cash sales (or financed by third parties directly to homeowners) then I would feel comfortable.

Current business model is a suicidal rope. Yet, they have no easy way out or else we would have seen it by now don't you think? are they really this dumb to continue with this while fully realizing that they are choking themselves? Under Tesla I expect a fundamental makeover. There will be massive layoffs and the division will re-start much smaller.

 

[neroden]

@neroden, That is if they are actually getting out of them PPAs/leases. They are getting into them as fast as they are getting out!

Good point, but are they? They have been slashing growth. Maybe they are getting out faster than they are getting in. I'm fine with lease sales if they're *pre-financed*, that is, a fund has already committed to finance them.

When majority of their sales are cash sales (or financed by third parties directly to homeowners) then I would feel comfortable.

Yeah. They have stated that this is their goal, which makes me a lot more comfortable; it says to me that the management knows what the problem is and wants to fix it. If they didn't know what the problem was and weren't trying to fix it, *then* I would be very unhappy with SCTY. (As I was until I found those quotes from management.)

Under Tesla I expect a fundamental makeover. There will be massive layoffs and the division will re-start much smaller.

Musk did clearly imply massive layoffs in the sales teams.

 

[TheTalkingMule]

I would be willing to wager that the rebranded Tesla solar offering will be of the PPA variety, especially once battery storage integration is more standard. Perhaps a hybrid of some sort, but certainly full service rather than just "install and walk away".

 

[Rarity]

The Buffalo factory looks to me like they can compete directly with SunPower at a lower cost.

I wonder how big the premium market is or is expected to become, considering that SunPower is valued at only $1.2 billion.

 

[neroden]

I wonder how big the premium market is or is expected to become, considering that SunPower is valued at only $1.2 billion.

Good point. Hard to estimate. I know SunPower panels are popular around here; it really is a selling point and I can think of four installers who use them for marketing value. Musk doesn't want to compete in the cutthroat cheapo-panels-from-China market.

Given the price of batteries -- even after the Gigafactory cuts battery costs -- I think most people who want a home battery system will be in the premium market. Which may have something to do with Musk's thinking.

 

[gene]

SolarCity, Berkshire's NV Energy settle Nevada rooftop solar dispute

Solar City suit vs. NV Energy is settled.

 

[stealthology]

Stupid question, but if/when the SCTY deal goes through, will the price of the actual contracts change? I know SCTY LEAP's become TSLA 'mini' LEAP's, and the strike prices change. Ie. an SCTY 20 strike will become a ~181.9 strike TSLA contract (181.9 x .11).

I'm mainly curious if I'm in a situation where I'm slightly out of the money when the conversion occurs, if there a good chance I could get a pretty large bump in value overnight.

 

[rallykeeper]

I look at the "monetization" transactions as SolarCity getting out of a bad business model (PPAs/leases). I don't really care whether they get out of it at a profit or a loss, as long as it's a small loss. Once all the PPAs/leases are monetized, SolarCity will no longer have banking (duration mismatch) risk.

Then SolarCity becomes a bet on the Buffalo factory. Make your own decisions on that; I personally am quite optimistic, because right now nobody else is competing in the SunPower "premium" space. The Buffalo factory looks to me like they can compete directly with SunPower at a lower cost.

I kind of agree with your point about monetization (not sure entirely, though).

I started to make this point in the TSLA Short-term thread, but backed away.

I think the sale to Soros is a really good indicator about the true economic price Tesla is paying for SCTY.

Optimistically (I'm backing into some numbers), it looks like Tesla may be able to monetize all the older transactions at admittedly less than the current 6% discount rate and still produce $1.5-$2 billion in current cash. That's the no-brainer part of this transaction to me.

 

[neroden]

Stupid question, but if/when the SCTY deal goes through, will the price of the actual contracts change? I know SCTY LEAP's become TSLA 'mini' LEAP's, and the strike prices change. Ie. an SCTY 20 strike will become a ~181.9 strike TSLA contract (181.9 x .11).

Right. So here's how it works to my understanding.

You have 1 contract for SCTY $20 strike price. (Put or call doesn't matter.) This is a contract to (buy or sell) 100 shares of SCTY for $20 x 100 = $2000.

Now 100 shares of SCTY become the right to receive 11 shares of TSLA.

This becomes 1 contract for TSLA1... This is a contract to (buy or sell) 11 shares of TSLA for $2000. I *believe* it is still listed as a "$20" strike. ($20 x 100 "multiplier" despite being 11 shares.) I could be wrong about this. We'll see when it happens.

The actual *price* of the contracts -- the premium -- will of course vary day-to-day in the market, but after the merger, you'd expect it to be related to TSLA's price.

I'm mainly curious if I'm in a situation where I'm slightly out of the money when the conversion occurs, if there a good chance I could get a pretty large bump in value overnight.

If the merger goes through, after the conversion whether you're "in the money" will depend on the TSLA price (SCTY won't have a separate price any more). So this is really entirely about the "discount" on SCTY relative to TSLA prices right now.

I mean, obviously it's possible that the day after the merger takes place, horrible news comes out and TSLA stock crashes.

 

[stealthology]

Thanks neroden, you've been a huge help over these past few weeks.

Just to be sure I understand: Let's say when the merger goes through, there's still a 25% arbitrage/'discount' and I'm just barely out of the money. The next day, assuming Tesla's share price holds steady, I should definitely see the premium increase at the very least by 25%, correct? I understand there's many variables at play, but just in a general sense. Thanks.

 

[Nomad]

What happens to SCTY stock when the merger goes through? Does one get $25.37 of TSLA per share of SCTY with any remainders being converted to cash? ... or is it converted at the 0.110 value based on the rolling average at the time it goes through?

Because if one simply gets $25.37 of TSLA, who wouldn't be buying up SCTY shares right now for a quick and easy gain?

 

[dandurston]

You get .11 shares of TSLA for each share of SCTY if the merger goes through. The rolling average doesn't matter since it's based on a ratio, not a price. You do not get $25.37 worth of TSLA for each SCTY share (e.g. if TSLA were to fall to $25.37/share you would not convert 1 SCTY to 1 TSLA). $25.37 is what .11 shares of TSLA was worth back when the deal was announced, but now both stocks have fallen so .11 of TSLA is worth $22.

The ratio of .11 is actually quite a good deal now, with SCTY trading at .085 (e.g. 30% lower). The fact that SCTY isn't trading at .11 means there's a lot of uncertainty over whether the deal will go through.

 

[phigment]

52 week low hit today. Pretty high volume. Hopefully the bottom!

 

[doggusfluffy]

52 week low hit today. Pretty high volume. Hopefully the bottom!

According to the short thesis...this is merely the calm before the inevitable fall into bankruptcy due to institutional investor merger revolt...I guess.
From the Morning Energy:

PROBE OF SOLAR CREDIT USE EXPANDS: Sen. Orrin Hatch and Rep. Kevin Brady, the heads of their chambers' finance panels, are expanding a probe into whether the administration lacked the proper controls in providing green energy incentives to solar utility and residential firms. According to a list obtained by ME, the lawmakers sent letters Wednesday seeking information on federal tax incentive usage to the residential solar companies of SolarCity Corp., Sunrun Inc. and Sungevity Inc., as well as the solar utility companies of SunEdison Inc., Abengoa SA, NextEra Energy Inc. and NRG Energy Inc. The investigation, which began in March, has found the Treasury Department and IRS lack adequate controls over the tax incentives they dole out to “green energy” companies.

READING GLASSES: RGGI SHOULD GO BIGGER: The states in the Regional Greenhouse Gas Initiative should accelerate the program to reduce carbon emissions twice as fast, Environment America says in a report out Thursday. The report touts success stories of businesses that reduced their carbon footprint thanks to grants from the Regional Greenhouse Gas Initiative. The nine-state shared cap-and-trade program uses some of its revenues from selling carbon allowances to help businesses green up their operations. Among the businesses highlighted in the report are Smuttynose Brewery in New Hampshire, which used the money to improve its energy efficiency, and SolarCity, which is using RGGI money toward its mammoth solar panel plant in Buffalo, N.Y. With those successes in hand, Environment America believes the RGGI states could be more aggressive and cut carbon further, faster.

 

[phigment]

Nevada Regulators Approve Agreement to Grandfather Solar Homes

Looks like it's approved. And that's likely what caused the spike in shares at 1:14 today.

 

[drinkerofkoolaid]

52 week low hit today. Pretty high volume. Hopefully the bottom!

I'd say that seems likely. A 7.2% swing today gives you an idea of what is possible. Also, notice all of the massive buying throughout the day. A lot of 200k-300k lots.

 

[Cosmacelf]

Tesla hit with shareholder lawsuits trying to block this merger. Two shareholders are pension funds:

Tesla’s Merger With SolarCity May Be Delayed by Lawsuits

 

[30seconds]

Not sure how a lawsuit can block a merger. Lawsuits and mergers pretty much occcur hand in hand

 

[renim]

FWIW

Price Quotes_EnergyTrend PV
Today's Taiwanese Multi-Si Cell (Per Watt) are now 20cents per Watt
That means that PV panels will be about 30cents per watt in about 6-9 months time.

this is a great positive for the solar industry generally, but very negative for SCTY for 2 reasons
1stly) current SCTY asset base essentially valueless on a replacement basis.
2ndly) SCTY solar factory in USA is likely to be uncompetitive on a mass market basis, and restricted to niche products.

 

[pGo]

FWIW

Price Quotes_EnergyTrend PV
Today's Taiwanese Multi-Si Cell (Per Watt) are now 20cents per Watt
That means that PV panels will be about 30cents per watt in about 6-9 months time.

this is a great positive for the solar industry generally, but very negative for SCTY for 2 reasons
1stly) current SCTY asset base essentially valueless on a replacement basis.
2ndly) SCTY solar factory in USA is likely to be uncompetitive on a mass market basis, and restricted to niche products.

SCTY is evolving business model where they are trying to get to 50% installation where they sell the system. It will compete with thousands of contractors using cheaper Chinese panels. Most of these panels have 20 years + warranty and last even longer. It is hard to see value with scty business model.