
Shareholders approve Tesla Solarcity acquisition - astdb
https://techcrunch.com/2016/11/17/shareholders-approve-tesla-acquisition-of-solarcity/
======
chollida1
SolarCity shareholders approved the deal early today. The government also
approved the deal, by not blocking the deal, so this is going to happen.

Here is Bloomberg's stub article on the deal.

[https://www.bloomberg.com/news/articles/2016-11-17/tesla-
sha...](https://www.bloomberg.com/news/articles/2016-11-17/tesla-shareholders-
approve-solarcity-merger-by-85-vote)

They tend to write tweet length articles for breaking news like this so google
can index them and then flesh out the article as details become available.

The after hours trading is heavy as this comes the day before monthly option
expiry, so there is alot of factors at work here.

\- The merger arb group is trying to arb out the last bit of profit as the
deal is now confirmed.

\- The option traders are now looking at their new exposure due to the Tesla
jump

\- The shorts are getting hammered, again, and now have to decide if they
really want to hold a short position in a stock with little external catalysts
to move it downward before the end of the year.

~~~
semi-extrinsic
> little external catalysts to move it downward before the end of the year.

I agree with the "before the end of the year" qualifier. In the longer term,
one interesting external catalyst recently came up: Norway's largest political
party Ap, who are likely to win the election next year, have said they will
reduce the tax breaks on EVs costing more than ~$50k, essentially letting the
tax breaks only apply to the part of the price below $50k. This would increase
the price of a Model S by >$20k in Norway.

(Norway has been one of Tesla's biggest markets outside the US; in 2015 10% of
all Teslas sold went to Norway.)

------
noname123
Hi, I was wondering if any peeps who have read any of TSLA or SCTY research
reports by any Street analysts (not that those people can be trusted) or have
done due diligence as a investor care to share about,

(1) Projection of what exactly is TSLA's market share for the next five years
with the introduction of Chevy Bolt on the lower-end; and potential new
competitors like GOOGL and self-driving/electric cars of traditional auto
makers on the higher-end.

(2) Profit margin of TSLA cars without the green credits from gov't and tax
breaks from any US gov't alternative energy research incentives; any risk from
regulatory landscape due to the most recent US regime change.

(3) The trajectory/projection of household solar panel adoption pegged to the
trajectory of traditional energy cost trends (e.g., natural gas and oil
commodity price due to recently supply glut); the break-even number of new
households growth for SCTY division or a number that Crude/Gas need to stay
above.

(4) Cash flow projection for TSLA/SCTY as far as I understand it, combined
entity relies heavily on fundraising via gov't grant, issuing new bonds and
occasional issuing of new equity shares. What percentage of TSLA net revenue
goes to meeting bond payments, and what percentage of net income comes from
financial engineering vs. sales of cars?

These questions I think could shed critical (both positive and negative) light
to otherwise generally very positive but shallow coverage of TSLA on HN?
Thanks in advance for any inputs by more informed peeps!

~~~
dave1619
(1) Tesla is aiming for 1 million cars in 2020. At an average price of
$45,000/car ($42k for Model 3/Y but higher for Model S/X) that would be $45
billion a year in revenue. And they would still likely be growing fast at that
point, with expansion in Europe and Asia.

(2) Current gross margin is 25%, but is trending up as they scale Model X.
Model S/X gross margin is likely going to be 30% within a year. Tesla is
targeting a gross margin of 25% on Model 3. This gross margin is excluding ZEV
credits.

Tesla will soon use up the federal tax incentive ($7500 going to buyer) as
they pass their 200,000th car sold in the U.S. But they still will have state
and ZEV incentives that aren't depending on the federal government. There is
risk with the new administration possibly delaying Tesla's autonomous driving
plans.

(4) For cash flow analysis, look at Tesla's most recent Q3 financials. It was
a breakthrough quarter, as they are selling 25k cars/quarter (100k cars/year
run rate). Financials show that S/X gross profit now covers all operating
expenses. And when you deduct depreciation expenses and stock-based
compensation, Tesla is actually cash flow positive by a large amount (over
$400M just last quarter). They used some of that cash for capex, but still
have over $100M left over. Tesla's finances have turned a corner, and they
look very positive. For Solarcity, they had good Q3 earnings as well. Looks
like Solarcity will not impact cash flow for Tesla in Q4 as Solarcity look to
be cash flow positive in Q4. Next year, Solarcity's cash flow is projected to
be neutral.

~~~
spoinkaroo
Absurdly optimistic. Gross margin is ~20% excluding ZEV on their very high end
models, the average price per car will be closer to 60k in 2020, probably
around 55k (35k base will probably go to 60-70k with add ons), and Tesla will
(maybe) be selling 300-500k cars annually in 2020.

3) accurate

4) Model 3 will be very capital intensive, especially in light of unforeseen
problems such as recalls, competition (unlikely in the near term), and
consumers opting to get the base model instead of the decked out one. I don't
pay attention to solarcity, but generally have mixed vibes about the company.
SpaceX, on the other hand, has very positive prospects IMO.

~~~
dave1619
"Gross margin is ~20% excluding ZEV"... where are you getting your data? Have
you checked their latest Q3 earnings report?

Here's a quote from their Q3 shareholder letter: "Q3 GAAP Total automotive
gross margin was 29.4%, while non-GAAP Automotive gross margin was 25.0%
excluding SBC and $139 million of ZEV credit revenue."

source:
[http://files.shareholder.com/downloads/ABEA-4CW8X0/212351657...](http://files.shareholder.com/downloads/ABEA-4CW8X0/2123516573x0x913801/F9E5C36A-AFDD-4FF2-A375-ED9B0F912622/Q3_16_Update_Letter_-
_final.pdf)

------
a13n
I found a cool risk arbitrage play here that others may find interesting.

When the deal was announced, it mentioned that SCTY shares were to be
converted into TSLA shares at a rate of 0.11 TSLA/SCTY. Yet SCTY shares were
priced at close to 0.097 TSLA/SCTY.

This means there was roughly a 12% profit to be made by buying SCTY shares and
shorting the equivalent value of TSLA shares, assuming the deal goes through.

I ended up only buying SCTY shares, effectively buying TSLA shares at $182
(when it was at $203). Now TSLA is at $189 so I only made about 4% but had I
shorted TSLA at the same time I would have made the full 12%.

All over the course of a just a few months, not bad. It seemed pretty obvious
to me that the deal would go through - though hindsight is 20-20.

It's also interesting to consider that now that SCTY has little downside risk
and 20% of SCTY shares are held short, if there will be a short squeeze. Seems
like SCTY shares are locked at exactly 0.11 * TSLA so I guess I don't see this
happening.

Fun, profitable learning experience. :)

~~~
devilsavocado
You've described the basic merger arbitrage strategy. There are many hedge
funds that exclusively do this type of stuff.

It's risky though. When a deal doesn't go through you can lose a lot more than
12%

~~~
a13n
Yeah I'm pretty risk tolerant, I went in willing to hold SCTY for the long
haul even if the deal fell through.

~~~
ericd
It's not clear there would have been a long term to hold it for, their
financials weren't exactly pretty, and given how heavily dependent they were
on debt raises, a rising interest rate environment would have been tough on
them...

------
danm07
Not a big surprise. Shareholders would approve the acquisition of Theranos if
it were Elon at the helm.

------
einrealist
This is great news. I wish Tesla and Solarcity all the best. I wish you can
render Trump's policies meaningless and help our world to survive.

BTW. After my school in Germany, I had my civilian service in a society called
"Solar City <redacted>". It made my mind about alternative energy and it will
never change!

------
ctdonath
Eager to see how this works out. When I had an EV, figured that running it on
home solar would cost about half the price the car. With the introduction of
"invisible" collection, it's gotta take off.

------
pavlakoos
It would be a pity if they wouldn't.

------
woofyman
Edit: congress is investigating solar companies, including Solar City on the
tax subsidies they receive.

~~~
Goronmon
Wow, that site is pretty terrible. The only sources it seems to reference are
the site's own articles.

~~~
huac
Plenty of places do this now to keep click traffic (and thus ad viewing-ness)
in house.

~~~
__derek__
Yes, legitimate news outlets do this _with actual reporting to back it up_.

