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Tesla Makes Offer to Acquire SolarCity (teslamotors.com)
708 points by runesoerensen on June 21, 2016 | hide | past | web | favorite | 389 comments

Some people are questioning the reason behind this offer. Read between the lines here, folks. Musk has borrowed heavily to invest in SolarCity and Tesla, and with the ongoing rout in SolarCity shares he is facing a margin call:

http://www.nytimes.com/2016/06/22/business/dealbook/tesla-so... "But the transaction highlights the unusual moves that Mr. Musk continues to make to support the various arms of his empire, where he is the largest shareholder of each company.

He has taken out loans to buy up shares in Tesla and SolarCity, some backed by his personal stock holdings in both companies — a risky move that leaves him exposed to margin calls if their stock prices slide too far."

And if there's a margin call, Musk has to sell a lot of his shares to cover, which imposes considerable risk on the stock price of his companies. From Tesla regulatory filings:

"Tesla has warned investors in U.S. regulatory filings what could happen if Musk had to sell the shares. "The forced sale of these shares pursuant to a margin call could cause our stock price to decline and negatively impact our business.""

This is just CYA for Musk, dressed up with happy talk about vertical integration and increasing synergy and such.

Edit: I completely forgot about the massive debt that SolarCity owes to SpaceX- all the more reason to prevent SolarCity from collapsing: http://electrek.co/2016/03/22/elon-musk-spacex-solar-bonds-s...

"Last year, SpaceX already purchased solar bonds from SolarCity on two separate occasions: another $90 million followed by $75 million. SpaceX’s involvement in SolarCity’s Solar Bond Program is set to total around $255 million"

Trying to read between lines, but it's not all that obvious to me what is going on. Considering Musk's history with big, risky, personal debts I would not discount the possibility that he is doing something like that here.

Tesla has been making seriously interesting progress in terms of products. It's far outside the norms of " disruptive tech" that we've gotten used to with the giant successes of the last decade or two (Google, Facebook, Uber...). To be Facebook or Uber, you need to put out your version of the software, be popular, lucky on your timing and (ideally) dig a network effect moat. There's a lot of risk, but not a lot of capital is involved.

Musk seems to love capital intensive ideas. There are definitely some advantages to it. Tesla doesn't worry about competition from proverbial college dorms. The competition they need to worry about is from the likes of Google (or maybe Uber in the future) or the major manufacturers. Neither seem like very strong competition. Tesla have ideas that require billions to try mostly to themselves.

Anyway, I wouldn't discount everything as corporate smoke screens and CYA. There is at least a decent chance this is what it sounds like. Tesla want a Solar arm. This purchase makes sense ...and it also lines up well in terms of converting debt-equity-risk-position-whatnot-intertwined-financial-magic.

It is important for a business to be thinking long-term. As we all know, that is Elon's real strength. But the financials of this deal make little sense to me and many investors view this decision as reckless. Tesla is a cash burning company- they had to do another large capital raise just last month. SolarCity is a cash burning company with considerable debt. When Tesla buys SolarCity they must fund the day to day cash burn and also assume SolarCity's multi-billion dollar long-term debt burden. With the Model 3 ramp-up Tesla already has massive cash requirements. SolarCity will add fuel to the cash bonfire.

I never know what to think when people bring up "investor concerns" in cases like this. I mean, I get that investors are owners. But, Tesla is public and the stocks (are there bonds?) are liquid. This company has both stated and demonstrated a big appetite for very high risk-reward. If investors don't like it, they can take their win and get out of Tesla.

This is (in some sense ;-) the opposite to the criticism in your earlier comment. Tesla is doing what Musk said they'd do, take lots of risk and try to lead a shift away from fossil fuel. So far we've seen a surprisingly good car and a very promising looking battery, some charging stations… Now he says he's adding solar, with it more risk and more potential. Damned as a liar if he's doing some financial engineering while talking visionary risk taking. Damned as a loose cannon if he does what he said before (presumably) you bought the stock and pursuing some massively risky vision.

I mean… hmmm… there are lots of companies you can invest in. One way they differ is in risk-reward potential. I think it works better if/when CEOs can decide on strategy and investors can decide to buy/sell shares. Catering to investors that want to hold but also to moderate the company's strategy encourages herding, averaging out of strategies.

I'm not an investor in Telsa so I guess I don't have a dog in the fight. But… I have to say I'm excited to see a CEO (seemingly) not driven by bad incentives take big risk. I think investors in Tesla should be the most risk tolerant ones.

Judging by the stock price today, I think that may be exactly what happened, but only just a bit. Stock is down 8%, some investors have decided to get out of tesla.

It also makes sense from a business prospective, where one tests and develops the new ideas in a separate environment and upon success - integrates the said proven healthy ideas into the trusted larger body.

I'm sure that's part of it, but I think Apple working on a car and filing to become a power company has something to do with it. I think Apple will be a much more more direct competitor to Tesla than I would have thought a year ago if this actually happens.

Some weeks ago Elon Musk said that he thinks that Apple is a bigger competitor than Google but that Apple is coming (too) late to the show.

Elon also said the car market is huge, very huge. So Tesla and Apple are just small compared to others.

If you talk about car competition you should take a look at the big players. Volvo for example is already running tests with complete autonomous cars (100 people driving them). And almost all other brands have self driving cars and electric cars.

So I don't think Apple as a competitor has anything to do with it. Apple is just too small in this industry (for now).

And as for Apple becoming a power company: it's still unclear what Apple is going to do with it in the future. For now they are just selling the excess power they create with the solar panels on the campus and other places.

> Elon also said the car market is huge, very huge. So Tesla and Apple are just small compared to others.

Yes, but they'll probably tend to be competing for the same, much smaller, portion of it.

That was at the Recode conference I believe. The interview can be found on YouTube. Well worth the watch.

I would like to add that Apple has a history of changing markets it enters, and in such a way that Apple takes most, if not all of the profits. Smartphones is a gigantic market, and all the profits belong to Apple.

you might want to check your numbers on that. based on real numbers, android is kicking iOS by a good margin, and samsung is selling way more units then apple. i think you've drinking too much of apples kool-aid.


"With 17.2% of the smartphone market in 2015, Apple captured 91% of the profit."

Source: http://fortune.com/2016/02/14/apple-mobile-profit-2015/

I would love to see a Tesla laptop, or Tesla phone, being powered directly from my Tesla Sunbeam Convertor. Totally ready to ditch Apple if that happens.

Using Windows 10?

^ This made my day

Ofcourse with Sailfish OS, because the Scandinavians love Tesla.

Tesla Linux, of course. Duh.

Wow. Sounds like a huge shell game that Musk has set up among his companies. It's betting big, which should be expected from Musk, but it seems a bit odd to be so personally intertwined with public companies and making decisions accordingly. It also seems unduly burdensome to the companies in the "portfolio" which might otherwise perform well.

In fact, it's really the two more innovative companies that seem to be heavily subsidizing the more commodity-oriented business (SolarCity) and taking on its risk. Not sure I understand that play.

How do the chaebols like Samsung, Hundai, or LG in Republic of Korea handle financial matters like this?

Also Apple regularly fronts loans to its suppliers to purchase the equipment needed to produce the devices that Apple then purchases from them, right?

Fronting loans to suppliers isn't even remotely in the same legal or regulatory ballpark, unless Apple owns a meaningful stake in those companies. Fronting loans is extremely common; what Musk is doing in commingling, and at the scale he's doing it, is extremely rare today (it used to be a lot more common pre ~1970s or so, the vast expansion of financial regulations and increase in the SEC's powers, have limited it in recent times).

Even if Musk ends up in prison for some ludicrous financial crimes, he still built a frickin' rocket company and got us properly on our way to frickin' Mars.

So, I think he has a seriously larger scope of riskiness to him. I mean, frickin' rockets ..

Well shareholder protections in Korea are much weaker. Cronyism is how it happens.

Say what you will about shareholder activism, my impression is that Japan/Korean corporate governance has a lot of issues from a lack of it.

If I'm not mistaken, Solar City bought a solar panel manufacturing outfit in Buffalo about 9 months ago when it seemed that solar panels would be hit with a supply shortage. I think now the supply of panels has rebounded much faster than expected and perhaps this has put Solar City in a difficult spot financially.

Buffalo local here, going off memory; They received about $700 million from the state to build a huge plant and create ~3,000 jobs. - http://www.nytimes.com/2015/10/26/nyregion/cuomo-bets-on-sol...

There's an air of corruption around it because the AG issued subpoenas, but it seems like there's no real fire behind the smoke.

Publicly it's been discussed much in the same way the Gigafactory is, an opportunity to own production and drive costs down in one fell swoop.

Relevant quote on your conjecture about it being a poor decision in the face of underestimating supply: "Although manufacturers are starting to boost idle production to match increasing global solar demand, SolarCity isn’t interested in conventional crystalline-silicon panels. “We’re seeing high-volume production of basic panels, but not high-volume production of advanced panels,” said Musk." - http://www.greentechmedia.com/articles/read/solarcity-just-a...

Thanks for this. From what you've said it seems trouble with that plant is not a reason for a buyout. Perhaps their advanced panel plant is looking particularly good but the Solar City share price is down and so it's a good time for a buyout by Tesla. Certainly batteries plus panels is the killer app so it makes sense for them to be together at some point.

An alternative way of looking at it (that comes to the same thing): Solar City is now cheap.

Can someone explain why would he take out loans to buy up shares in the first place? Just to increase his personal holdings for a hopefully larger return? To ensure he is the largest single stockholder? I'm not that knowledgeable about investing, but when I was reading up on margin trading just now I learned you cannot do it on an IPO. That means the money from his purchase wouldn't have gone to Solar City/Tesla but just whoever happened to own the stock he bought. So am I correct in concluding that his purchase would not directly benefit the companies?

I believe his original, public statement on this was to show how confident he was in Tesla as a company. Because outsiders were knocking him left and right and commenting on his unimpressive share holdings at the time.

Some people think SolarCity is doing terribly because they're losing so much money. Actually them losing money is an incredibly great sign for the long run (assuming they don't run out of money - which Elon won't let happen).

Here's how their business model works:

- They will install solar panels on your house for free (or cheaper than the full cost).

- You pay them a much lower rate than what the public utility company charges for the electricity generated from those solar panels.

- You save tens of thousands of dollars and lower your carbon footprint by hundreds of thousands of pounds of CO2 over 20-30 years.

- They lose a ton of money installing those expensive panels but make a TON of money in the long run selling you that electricity that is generated for next to nothing.

So as you can see, SolarCity losing money is actually a good thing because it means they're making so many damn sales that in 10 years they're going to be reaping the profits from those sales like crazy.

Unfortunately, their business model and pricing is far from competitive in some areas of the United States. I inquired into their services, and when it came to pricing, they were at least 50% over the average of all service providers and plans, and in the bottom 10% as far as price per kw/h.

Also, the home owner has no ownership stakes in any of the hardware. That's great during the service period (10 years if I recall), where they maintain and manage the hardware. However, at the end of the term, you are offered to buy the equipment with a hefty baloon payment. To the point ehere you'd be better off and come out FAR ahead by paying out of pocket from the onset and own the equipment outright.

None of that is saying bad things about Solar City's balance sheet in the 5-20 year horizon -- quite the opposite.

The lease payments do not make it to SCTY's balance sheet, they're securitized and sold as SolarBonds, a financial beast of their own, with no secondary market, no default protection and no rating from a ratings agency.

I've currently invested in Solar Bonds, and am comfortable with the risks they present. I don't need a secondary market and I'm not worried about vast amounts of people no longer paying their electric bill.

I treat it like a riskier CD, no more no less.

> I'm not worried about vast amounts of people no longer paying their electric bill

No one was worried about vast amounts of people no longer paying their subprime mortgages either. Not saying your investment strategy is wrong, but "predictions are difficult, especially about the future".

Significant difference between "triple A" sausage CDOs stuffed with subprime junk and Solar City obligations.

Among other differences, instruments tend to be a bit better priced when you're not lying about what's in them!

Yes they do. Solar Bonds are unsecured Solar City debt.

If the lease payments backing the bond stop, Solar City will attempt to rectify the situation, but it's not responsible for the remainder of the debt in any fashion. This specific aspect of operation is similar to other online servicers, like LendingClub, which would not compensate you in the event of a peer-to-peer loan default.

The prospectus https://solarbonds.solarcity.com/assets/bond_document/180/?f... lists the following risks (among others).

• your inability to initiate bankruptcy proceedings against SolarCity;

• the lack of certain “customary” investor protective covenants in the indenture;

• your inability to require us to repurchase the Solar Bonds upon a change of control of SolarCity;

• lack of cross-default provisions in the indenture with respect to our other debt; and

• the lack of an underwriter to conduct third party due diligence and other types of “gatekeeper” actions typically taken by an underwriter in an underwritten public offering.

The buyers likely can't afford to outright buy. Being the cheapest isn't usually the best idea in business either. Apple does pretty well being much more expensive than the average.

I think the key here is batteries. The utilities will fight (lobby) to give themselves the upper hand when it comes to buying solar power from consumers. Tesla plans to make lots of batteries. Batteries also happen to be good solution to these legislative issues.

A match made in... the backroom?

It's not about brand at this point, it's about economies of scale and production?

Its about sidestepping regulatory capture. If you can drive battery costs down far enough, you don't need net metering subsidies than can be taken away on a whim.

This is an underrated observation.

Converting to metered grids (on which consumers can sell) costs a small fortune, often for very little benefit. Even environmentalists have been weighing in against it as wasteful.

Tesla's home battery solution offers an obvious response to this situation - you can minimize or avoid grid sell-off by doing in-home storage to smooth demand. That has the potential to make SolarCity an incomparable player in non-metered markets, keeping with Musk's general "no viable competitors" ethos.

Also, Tesla automobiles are giant batteries themselves. If you're looking at demand shifting, it's rarely a bad thing to have two days of storage capacity plugged in all night. I think that is where the true magic happens, converting non net metering markets to profitability.

>The utilities will fight (lobby) to give themselves the upper hand when it comes to buying solar power from consumers.

You aren't just whistling Dixie... http://www.solarcity.com/newsroom/press/following-nevada-puc...

I doubt losing Nevada as a market did anything to help SolarCity's bottom line.

Phones have other differentiators than price. Much less so with electrons.

Ha, power companies don't even sell you electrons! The electrons just wiggle a bit back and forth.

well then think of it like the perks package. solar city allows people that couldn't afford solar to afford solar (at least up front). electrons are electrons, sure just like a job is a job but some jobs have a beer fridge and some jobs do not

I think this highlights an upside of the deal - Tesla customers are uniquely willing and able to pay for a pricey solar installation up-front.

To expand on this, it seems clear to me that Tesla should be in the business of selling home solar installations. The question is whether this the right way to get into the business. This was a cheap way to get 1/3 of the market.

A Tesla - SolarCity partnership, like what you describe, in no way requires joint ownership.

On the 1 hour and 32 minute Tesla conference call this morning Elon mentioned:

-there is redundant/duplicate hardware between solar panel & the Powerwall installations

-substantial drop of cost of sales for SolarCity between 30-50%, also drop on tesla's side

-biggest asset is SolarCity's installers

-also some strengths in the SolarCity's sales side

-a special deal with SolarCity would be a conflict of interest

-a seamlessly integrated product/system is just better, and "you aren't wondering if you should blame the solar company, the battery company or what if you are the end customer"

-installation crew can do everything in one visit instead of two or three

Other interesting note:

-Elon explicitly said Tesla has the potential to be a trillion dollar market cap company

My take on it is if the deal is viewed solely based on past performance and traditional financial analysis it probably has big issues. If viewed from a future standpoint where Tesla pulls off things like the Model 3 successfully, it could be a pretty good deal for Tesla. A bigger question for shareholders is what kind of shareholder dilution could occur between today and say 5 years from now on whatever roadmap Elon is imaging and isn't public.

There is an existing partnership where SolarCity sells and installs Tesla batteries.

I think Tesla's ability to sell another company's installations is limited by the impression they are trading on their brand. ie. a "Trump Steaks" problem.

I know an engineer who came to this conclusion too.

I can't tell if you're being tongue-in-cheek.

SolarCity's business model is incredibly risky. [0] They've already gotten shut down when trying to "sell you that electricity."[1]

[0] https://news.ycombinator.com/item?id=11520789

[1] http://www.bloomberg.com/features/2016-solar-power-buffett-v...

If the failure mode is "public utilities have achieved regulatory capture", then isn't having something like Tesla come in with billions of dollars of support an effective solution?

You're asking a different question, in a very loaded way.

Bringing your question back to SCTY, one of the critiques of SCTY in NV was that SCTY was expecting/betting to be able to sell back electricity to the grid at retail (not wholesale) rates via net-metering. Inarguably, this was a threat to the utility and its ability to re-coup its large capital investments (sunk costs) in the grid.

There are other solar companies whose business model doesn't rely as directly on "billions of dollars of (taxdollars in) support."

There are two different regulatory things going on here. The first is a tax rebate for installing solar. The second is a policy requiring utilities to purchase excess energy from people with solar installations. My interpretation of the article you linked was that the utilities were attempting to conflate these by arguing that the money to pay consumers for their excess power originated from the public, and that they're attempting to place caps and how much energy can be sold back to the grid and don't care much about the installation subsidies.

From what I can tell, the biggest jumps in Solar City's business were when the caps on excess power were lifted. Which makes sense. Rebates are nice and reduce their risk and increase how deep they can go in, but increasing the net metering cap from 3% to 10% more than triples their revenue and cuts their return period to a third what it was. Those caps are not subsidized, in fact often being implemented as trivial accounting tricks where a user gets credits during the day that they can spend that night or next month.

1) if people get script money, which they spend on energy, they effectively get to use the utility as a battery - at a cost for the utility.

2) The utility can't (and honestly, shouldn't) directly shoulder that cost, so they pass it on to other clients.

3) net-metering cap serves as a limit to prevent the utility from being unsustainable, because the rooftop energy business can't survive without it.

What SolarCity effectively wants is to move the cap so that they get more parts of a pie which they are stucturally forced to share with the utility. Effectively, we're witnessing the woes of a growth-hacking model in an environment where the main source of margin and growth is regulatory decision.

Net metering is effectively a subsidy for solar for customers with solar once you take into account things like the cost of maintaining the grid, and will become more and more of one as tech improvements and economies of scale drive down the cost of utility-scale solar and the actual free-market price of power at peak solar times compared to the rest of the day.

Eventually that's true. However, we have yet to hit that point as solar is still a small fraction of electricity production in the US and the daytime peak is huge.

Utilities must build for worst case load. This going to be a nightmare for utilities. To learn more, read about the duck-curve http://instituteforenergyresearch.org/solar-energys-duck-cur...

Not exactly how it works. The projects are leveraged off balance sheet with separate, often tax advantageous entities owning the panels in a complicated lease buyback structure. 'Losing money is a good thing' is not true if you understand time value of money and debt leveraging. I haven't done much research but Solar City is probably hurting now because Nevada renagged on gridnbuyback provisions and lots of other states are eliminating residential incentives and subsidies for solar.

Also although they were the first to do some of the complicated financing stuff, rooftop solar installation has turned into a very low margin business with lots of competition in most markets. It's not really groundbreaking stuff they are doing.

Who owns the panels seems like an implementation detail. Don't agree with you about time value of money for the long haul.

I totally understand the business model, but I'm betting this was a really tough pitch to VCs when SolarCity was just starting up.

"We'll be lucrative by the early 2020s, assuming solar starts seeing widespread adoption" carries a lot more weight now than it would've a few years ago, just because of the explosion of programs and services like Project Sunroof.

Given a fund is generally liquidated after 7 years, yes. But at first glance it actually sounds like a decent model.

I believe that the regulatory environment for solar is becoming rather un-cooperative. I also think that the solution to the uncooperative (Utilities don't want to pay for solar electricity) situation is a Tesla product, batteries! It makes sense to me. It also reeks of backroom planning.

Losing money is a great sign? That doesn't make any sense.

At most you can infer then that them losing money is no sign at all, because losing a lot money can also be a sign of failure obviously.

> You save tens of thousands of dollars and lower your carbon footprint by hundreds of thousands of pounds of CO2 over 20-30 years.

Most consumers don't give an eff about carbon footprint unless it saves them money or the pollution does affect them directly. Also I dont think there are too many people in USA spending tens of thousands of dollars in electricity bill.

Solar Panale is a great idea if there is technological breakthrough but else it a tried and failed model.

> Also I dont think there are too many people in USA spending tens of thousands of dollars in electricity bill.

They do spend that much, the average in the US is $115 a month, and the spread is lowish, ranging from $90 to $130 a month between states, and up to $150 in outliers like Alaska. Or in other words, a US average of nearly $1.4k a year.

A 10 year horizon puts total electricity expenses at $14k, a 30y horizon you mentioned puts it past $40k.

However, those are not savings like the guy implied that you replied to. Solar today tends to lower your bill by maybe 5-10% on average over large amounts of customers tops. So savings would be a few thousand bucks, not tens of thousands.

More importantly, that's a rate for today, and it remains to be seen how that will develop into the future.

The big untold truth for customers is that there's a high probability that electricity prices will come down sharply. Renewable energy resource price points are dropping fast, both on the hardware side, the soft-market side, and spurred on by subsidies. We've already seen crazy low record rates, like the latest PPA (power purchase agreement) was as low as 3 cents. PPA's set electricity prices for contracts that last well into the future, so they're essentially the industry's prediction for where the market will go. (i.e. a 20 year contract at 3 cents per kwh might look silly when the price is 5c today, but it implies industry experts expect the price to drop such, perhaps to 2 cents near the end, that the average cost level over 20 years will drop below 3c.)

Those PPAs will spread and start to affect electricity prices, 3 cents already undercuts wholesale prices of most coal, gas and nuclear capacity for example. And those wholesale prices will push down retail prices, too, such that existing solar installations on average over 20 years may actually turn out to be more expensive than the market rate, i.e. no savings at all, because their financing assumes rates to stay stable, or drop less than they likely will as far as I can see. I'm still a huge fan of solar and urge anyone to consider it, but as an investment as a consumer I think it's financial benefits are oversold.

Don't forget the carbon credits: by owning the panels on your roof, solarcity (and others in the same business like sunrun) own the carbon credits. Which they can then sell in the carbon markets.

When you buy your own panels, there's no way to cash in on the carbon credits. I'm waiting for some startup to provide a way to market them...

Sharing or selling those carbon credits to the local utility seems like a way to make them less likely to fight installation of solar.

Actually if SolarCity used a realistic discount rate to measure the value of their future cash flows which extend 40 years out, the company would be massively insolvent. Ahhh, the beauty of non-GAAP accounting...

How are they dealing in non-GAAP accounting? I thought GAAP had been essentially mandated in financials after the dot com crash.

The pitch for user adoption seems to be that it will be cheaper and eco-friendly. But I question that, for example if your solar panels break or malfunction. You will always be paying for energy outside of solar as a back up.

Hahahahahaha what? That's not how balance sheets work

I really hope you are joking, because what you are describing is basically the business model of Ponzi schemes.

Not at all. In a ponzi scheme the later investors pay for the profits of the earlier investors. In this case Tesla is taking a loss on customers but turning a big profit in the long run regardless of whether later customers sign on.

No, this is the "razor and blade model"

This could be an all time Machiavellian move just to punish the Solarcity shorts on Wall St., which include Jim Chanos and others. The after hours bump to SC is killing the shorts and that might be the point more so than the deal actually closing.


It's very unlikely they would do something like this just to punish short-sellers.

Also, Tesla is also popular among short-sellers, and it dropped in value (which was expected), so it wouldn't make any sense to 'punish' short-sellers in SCTY only to 'reward' them in TSLA.

Exactly. They are going to corner the energy market with this move. Solar has arrived.

That would be pretty interesting, but is it legal? Is it just illegal to manipulate stocks for gain (or personal gain), or is any manipulation (if provable) illegal? It seems a fuzzy rule based the SEC description[1], which is probably why it's so hard to go after people for it.

1: https://www.sec.gov/answers/tmanipul.htm

I don't think that an official offer from the board of directors of a company that is legally binding if accepted is "market manipulation".

What if you know it won't be (such as a condition of the offer being incompatible with a prior contract you know about on the other side)? At what point does it cross from marketing to market manipulation? Both have an intended side effect. Just increased media exposure for a period could be a side effect.

I'm not making a case, I'm actually wondering.

>What if you know it won't be (such as a condition of the offer being incompatible with a prior contract you know about on the other side)

I'm pretty sure that's intent to commit fraud.

ANAL, ANA-Finance Guy. I'm pretty sure the "intent" is the important part here if the primary purpose of a financial move is to manipulate the market that's where you start getting into trouble. Making a non-sincere offer and publishing it in order to create media traction that would have a major impact on the market can quite possibly be illegal.

That said if the offer was intentionally non-sincere only an idiot would publish it as part of the PR, 30% premium on a stock however seems to be a pretty sincere and good offer to me tho.

It's fraud to offer someone a deal you know they aren't allowed to accept? It might be fraud to let it go through with prior knowledge, but if you clued them in that they shouldn't do so before hand, then I'm not sure how you could be found at fault for someone else's breach of contract.

It's probably only distinguished by whether you admit your intention was to never have the deal succeed, or claim that you came by the knowledge, or at least the understanding, after the initial offer.

There's an interesting calculus potentially at play: there can be a sincere intent that the offer be accepted, but the offer might have never been made were it not for the positive side-effects that mitigate the downside.

The market will self-correct back to previous levels if the offer is not accepted.

Well, in this case, the question is will some people that have shorts and have to pay higher premiums decide to drop them if the offer sits for a while and continues to affect the market, if they expect it to go through? Does getting more exposure in the media affect the companies in a lasting way beyond the timeframe of the deal?

In a perfectly rational and efficient market the answer would be no. I don't think we're in a perfectly rational and efficient market. So I guess the question is whether the market is irrational enough or inefficient enough that there's some way to game the side-effects of this usefully.

Jim Chanos is also short TSLA (which is down 12% right now). So we don't know what the net effect on his trade is.


This only stings the shorts if they don't go through with it. Otherwise they're paying a premium and stinging themselves too. And if the shorts can hold on, and they don't go through with it, then the stock price will go back down.

One simple way this could really help is just in naming. Tesla Energy is sure to turn more heads than SolarCity as Tesla is a household name now that people generally have good associations with. SolarCity always sounded a bit generic.

Where is Tesla a household name? I never have any exposure to Tesla other than on Reddit and HN. Even now I know little about the company and my main thought is "some new company making electric cars that sound expensive, have unknown longevity, unknown reliability, and unknown depreciation, and will be hard to service."

On the other hand, Solar City reps harangue me to buy their product every time I go to Home Depot, and I see their trucks all over the road. I have no favorable impression of them either--I think "if solar is so great, why isn't my utility doing it, and why would I sign a long-term contract with some dude who hangs out at Home Depot and harasses people." But I don't see "Tesla Energy" having some kind of excellent brand equity.

> if solar is so great, why isn't my utility doing it

For the same reason many market incumbents find themselves unable to innovate. It eats away their existing revenue streams or erodes the value of their current strategy.

If you've invested heavily in non-solar energy infrastructure and that's the majority of the market, you can either invest in solar and add it to the mix, in which case new demand may fall on it, but it's likely to also start eating your existing demand (there are renewable energy source mandates), or you can fight it and try to maximize your profits on what you have. One is a long term strategy, and one is a short term strategy, but not all companies (boards, shareholders) are focused on long term. e.g.

If Linux/UNIX is so great, why didn't Microsoft create a distro (a decade or two ago)? Or, if free software is so great, why don't Microsoft start giving away their software? Because, it makes them less money. It has nothing to do with what's better for the customers (presupposing either of those are better, for the sake of argument).

If Linux/UNIX is so great, why didn't Microsoft create a distro (a decade or two ago)?

Actually, they did! Xenix was Microsoft's Unix distro, licensed and derived from AT&T's System V source.

During the late 1980s it was the most popular Unix variety of all, measured by number of installations.

That makes complete sense, as when it was available it wasn't in competition with DOS, and once they started doing more multi-user stuff, it was (mostly) abandoned.

Tesla is a household name among everyone I know up and down the West Coast, and among every single car or motorcycle enthusiast I know.

But then, both your comments about Tesla and SolarCity seem to be feigning ignorance as a way to disguise your denigration. Hint: Solar (on-prem) is a way to deprive your electricity company of revenue, which is why they're not doing it.

Of course, they use it as some component of their electricity mix, and then bill you for it.

Utilities are under constant pressure to provision capacity to meet rising electric demand. If the on-premises Solar City model (front the cost of the system and installation in exchange for being able to sell the electricity produced) was proven they would be doing it. Building new generating capacity is hugely expensive and almost always a major political battle to get approved.

Many utilities are investing heavily in utility-scale solar and wind installations. But the reality is that on-premises solar is still a gamble. Nobody is yet making money at it, quite the contrary.

> If the on-premises Solar City model (front the cost of the system and installation in exchange for being able to sell the electricity produced) was proven they would be doing it.

No - this completely ignores the way the electric grid, generation, and distribution work. Just because 'utility solar' is more efficient for large scale generation, that doesn't mean it doesn't also make sense for individuals to be able to produce their own electricity.

My solar system has a break even point of 5.9 years - in another 3.4 years I will be pocketing several thousand dollars per year that would otherwise be going to PG&E. Doesn't sound like a gamble to me.

SolarCity's business model relies on net metering laws that effectively force the utility company to do all that distribution work for free and buy the solar energy for a higher-than-market price, all subsidized by other customers.

Yup. Rent-seeking is as old a business plan as government...

The question is, would you have had higher returns investing in a large-scale solar project?

I have achieved breakeven over buying some produce from the grocery store by growing it in my back yard, but that doesn't mean it's the future of agriculture. I guess it would help if the local Whole Foods were required to buy my excess lemons at the $1/each sticker price.

Growing your own produce is a net negative 'investment', even when you don't factor in the labor cost. On-premises solar starts making money after a few years (or today, depending on circumstances - I took out a subsidized loan to finance them, so no initial outlay, and had lower costs the day they were installed); centralized solar might make (a few percent) more but you can't leverage, you don't have control over anything (CEO 200% salary hike? 'sure', says the board, 'we're paying a 10% dividend aren't we? That's huge by industry standards!'), and you run the risk of losing everything (whereas solar panels are on your roof and unlikely to be a total loss).

So very different risk profiles, hence very different risk/reward trade-offs.

> The question is, would you have had higher returns investing in a large-scale solar project?

If you are lucky. If you are not, you've just invested in Solyndra (yes, I know they are manufacturer and not producer, doesn't matter). Local solar is much less risky.

You seem to be under an impression that utility companies are super-efficient, extremely innovative and unusually - for companies of their size - willing to try unproven business models (the whole solar-on-premise thing is pretty new). It is not exactly the case I think.

> he reality is that on-premises solar is still a gamble

It is. But that doesn't mean it is bad. It just means SolarCity will try it - and maybe become very rich doing it, or maybe will go bust - and if it works, in 20 years or so utilities will catch up. By that time it will be so regulated and red-taped that it would be hard for a small company to make it work anymore, so the utilities would fit right in.

No, they're under pressure to protect their coal supply line.

They know that they have to move to renewables soon and eventually coal power generation will be banned, so they're trying to burn as much of their stocks as they can before the stuff in the ground becomes worthless.

Err no. Electricity demand isn't really rising: http://www.statista.com/statistics

>Tesla is a household name among everyone I know up and down the West Coast, and among every single car or motorcycle enthusiast I know.

So, right in the Tesla fanbase wheelhouse?

How's this: I live in a small province in Canada, and outside of a few tech enthusiasts, no one I know has any clue about Tesla.

I guess we differ hugely on the definition of "household name". Something is a household name, to me, when someone in every household has heard of the company.

Worth noting: Katy Perry has more Twitter followers than anybody else in the world. If that's not mainstream, I don't know what is.

Whoa, nearly 90 million followers. That's nuts. Pretty impressive.

So that's why Clinton's winning...

Color me shocked. I would've though it was the DNC colluding with her campaign.

What? I've lived in the Bay Area, the midwest, Texas, and Los Angeles, and have seen Tesla's daily almost every day, yet have legitimately never spoken to anyone who has ever even worked with SolarCity

Just because you see Teslas and recognize them doesn't mean others do.

Also California is Tesla's home turf, not really a good example for the country or the whole addressable market.

The point wasn't that I recognize Tesla's, but that Tesla's are a part of daily life in numerous places (see that 50% of the locations I mentioned are not, in fact, in California), whereas I have never interacted with SolarCity nor anyone else who has interacted with them. The point is that it's a very, very reasonable assumption that Tesla is more likely to be known by the average person than SolarCity.

>The point wasn't that I recognize Tesla's,

>The point is that it's a very, very reasonable assumption that Tesla is more likely to be known by the average person than SolarCity.

These two things contradict each other. Why would Tesla be known by people that cannot recognize Teslas?

> These two things contradict each other. Why would Tesla be known by people that cannot recognize Teslas?

It's not necessarily contradictory. I know Ferrari, Lamborghini, Maserati, etc are luxury sports car brands. But if one drives past me on the road, I probably won't recognise them.

I'm very familiar with Tesla from simply reading online. Mostly HN, but they are often mentioned on mainstream news sites too. I could recognize a Tesla car in the wild if I was able to read the word "Tesla" on it somewhere, but from say 20 feet away looking at the side I'd have no clue what make it was.

Try living in a state with (former) subsidies. GA's lousy with them.

Wrong context?

Known by more people does not, in any way, mean I am claiming that people who don't recognize Tesla's know about the company. They are not contradictory at all

Well California is also not a bad state for home solar projects ...

Do you live in an urban area? I don't believe there is a city over 500,000 in North America where you could go more than 5 minutes without someone recognizing a Tesla.

I drive over forty miles a day in the Washington DC metropolitan area and I have never noticed a Tesla on the road, not once.

Almost half a million people pre-ordered the model 3 so the brand definitely has some awareness and clout. Sure, those aren't assured buyers, but they are people willing to put down 1k for a car reservation. The amount of people who are still interested in Tesla beyond purchasing a car in the near future is some degree larger than that.

That sort of following and interest can help Solar get more well known, and not to mention further integration with Tesla can quicken drivers along to SolarCity products.

Not to mention, everyone I know has heard of Tesla. You must have interesting friends!

Lots more people pay attention to cars than tech. Those people all know the nice Teslas they see all around cities.

In my life, I have seen two Teslas directly. One is owned by a person I know. I've seen one other "in the wild."

I don't think the Model S is very distinctive so I may have missed more in my peripheral vision. The Roadster was much more of a head-turner.

I have seen more McLarens, Lamborghinis, and Ferraris than I have Teslas.

I live in an area of about 100K population.

> if solar is so great, why isn't my utility doing it,

SolarCity doesn't do utility-scale solar, it does house-scale solar, and those are entirely different models. Also, business model of SolarCity is closely tied to the price structure of utilities, at least in California. These prices are structured - the lowest tier is relatively cheap, but it won't be enough, especially if you use AC or heating. Second tier is more expensive, next one yet more, and the fourth one is about twice as expensive as the first. SolarCity's pioneering idea - PPA - makes you put their solar panel on your property, and pay them for electricity instead of utility. In exchange of which you pay for all the electricity according to tier 1. Which is substantially cheaper. This model has little to do with generation on utility scale. BTW, never seen them in Home Depot around here. They must be using some other tactics in these areas, or maybe just haven't made friends with local HD.

>Even now I know little about the company and my main thought is "some new company making electric cars that sound expensive, have unknown longevity, unknown reliability, and unknown depreciation, and will be hard to service."

It's not a new company. Tesla was founded 13 years ago. The same complaint can be made about new models of existing car comapnies. You didn't even attempt to research these things so of course they are unknown to you. That's a tautology. I don't know every car brand on the planet but I don't blame them for my own ignorance.

Most electric cars are rapidly depreciating in value. Usually they only sell for 20% of their original value after three years. Tesla cars usually keep 70% of their value. In 2013 you could even turn a profit by reselling a brand new tesla youbecause of their high demand but low supply. https://forums.teslamotors.com/forum/forums/remember-when-yo...

It doesn't matter whether I researched it or not. I was responding to someone who suggested Tesla is a household name. Being a household name doesn't come from people researching the brand. Coca Cola is a household name, and it's not because people researched them. Similarly Honda is known for having reliable cars. That's not due to people doing tons of research.

Tesla may be the best thing ever. All I am saying is that they do not have some enormous reservoir of brand equity.

Pretty much every average person I can think of (average in the sense of their media consumption or general awareness of what's new / hip / interesting), is aware of Tesla cars at this point. They've been constantly in the mass media news for years now. Everyone knows they make electric cars. They're absolutely a household name now.

The 400,000 people pre-ordering Model 3s have plenty of confidence in the Tesla brand. That would not happen with a new or unknown brand.

> "if solar is so great, why isn't my utility doing it..."

Depends on your utility, some are: http://www.pge.com/en/myhome/saveenergymoney/solar/choice/in...

The kids (at least teenagers) dig Tesla. A friend of mine owns one and the teenagers are church are always wrangling for rides.

Did solar panel company Miasole ever recover from the branding of "My Ass Hole"?


I prefer SolarCity. It mentions the source of the energy and it highlights the idea of a city, and therefore a city powered by the sun. I don't think branding can get any better than that, with Tesla being the umbrella company name - it's perfect.

An unsustainable business will fail no matter the name. I am not sure why Solar loses so much. Physical stuff (atoms) businesses are different character than software (bits) as Negrpronte would say. Elon is much smarter than me and knows these issues.

People don't spend a billion dollars to rename a company.

Course not. There's the obvious integration of batteries and use for batteries here to. Not to mention what others said that one of this companies is a bit more volatile and the other more established. I'm just pointing out one simple benefit.

In retrospect I find this 3-days-old publication quite... amusing)) "... I [SC CEO and Musk cousin L. Rive] asked, 'Elon, hey can I have a family discount' and his answer is, 'Yeah absolutely. Go to TeslaMotor.com, buy the car online, and the price you see there is the family discount,'" Rive told Tech Insider. "Everyone gets a family discount."

So there you have it: Musk does not believe in preferential treatment for family members.

"I give Elon credit beyond the fact of being the best entrepreneur in the world — he treats everyone the same. Everyone. There’s no nepotism at all," Rive said. http://mobile.businessinsider.com/elon-musk-response-when-so...

Supposedly he paid full price for his own cars too. Although I'm sure he can afford it without too many sacrifices.

Unless you own 100% of a company, it isn't really ethical to give yourself a discount or freebies. And wouldn't be legal unless handled correctly with the tax man.

Employee discounts are extremely common.

Elon is not an employee.

Elon is an employee of both Tesla and SpaceX. The discounts conversation was referring to Tesla vehicles.

Really. I get an employee discount at my company. I must own 100% of the company.

You probably didn't arbitrarily give that to yourself. If the company decides to give employees discounts for some reason, like staff retention, that's quite different from just picking up whatever you like from the warehouse and walking home with it.

Nobody is saying he would arbitrarily give something to himself. My statement could be reworded as "even the CEO doesn't get an employee discount."

It has not been shown that he treats everyone the same. In fact on at least one well publicized occasion he has singled a person out.


Huh? There's nothing to say he wouldn't have done the same if it was his own cousin doing that...

Elon is using a public traded company to save his other failing businesses. In a sense he already did this before using his private loans guaranteed by Tesla shares. But at least in that case it was his own money. Now he wants to use other shareholder's money to bailout his floundering solar energy investment.

Yea, all I could think was "Elon Musk founded company offers to purchase Elon Musk founded company that has run out of money"

Also: "Elon Musk founded company [that's running out of money] offers to purchase Elon Musk founded company that has run out of money"

I feel like not three months ago there were plenty of articles about Tesla having less than 2 years operating budget left even after accounting for increased revenue from presales.

R&D is expensive.

It does seem like a direct conflict of interest. This will be interesting to watch if there are any challenges from the SEC.

The CEO is his cousin, but he has recused himself of voting on the deal. I doubt the SEC & FTC will care; Wall Street on the other hand, I think they all see what this is about.

Elon is the chairmen of both companies... It's definitely unusual.

I didn't say it wasn't unusual, just that the SEC and FTC likely won't bat an eye.

According to the announcement, Musk has recused himself from voting on this proposal on either side. It seems unlikely that the SEC would see funny business on Musk's part in a decision that was made by everyone except Musk.

So two companies with great potential. One (Solar City) has a problem convincing investors and is exposed to wide fluctuations and the other (Tesla) is pretty good at managing expectation and enthusiasm in the market. So I guess the idea here is to limit exposure in one of them by absorbing it in another. Might work but goes counter intuitive to the idea that I always thought was the most important in Musk companies: Focus. Focus on delivering one main value. Hope this works out.

He's expanding the stack of technologies and resources he can directly control. First there was the car, but the car is only useful with good batteries, enough service stations, and cheap power. Step 1, open service stations and provide cheap power. Step 2, integrate the batteries so you can control production and reduce cost. Step 3, integrate power generation so you can control cost of that cheap power you are providing.

This is the equivalent of Ford buying Exxon (which already includes the service stations), and then offering cheaper gas to all Ford customers. Who doesn't think that would influence at least some people (or companies! Fleets of cars!)

> This is the equivalent of Ford buying Exxon

Henry Ford wasn't a founder of Exxon. Musk is a founder of SolarCity.

I'm not sure how that's relevant. Musk being a founder of both companies doesn't magically make them different in what they are and do. The pieces of the pie in play are similar, if apportioned differently. They would combine to a similar whole.

  Henry Ford wasn't a founder of Exxon.
That would have been some trick, given that Exxon didn't exist until 25 years after Ford died. ;)

Power is already cheap -- that's sort of the whole problem. I do not think you can rationalize this move by such a vertical integration argument.

It's cheap, but currently there are 649 supercharger stations, and 3906 superchargers[1], and he gives that power away for free to Tesla owners. Buy cheap sell free doesn't really scale, unless it's subsidized in some other way (and reducing cost even more may make that more palatable).

There's also the powerwall play. I imagine a lot of people that signed up for powerwall will want solar at the same time, if they don't have it. Maybe this is actually a way to hedge against powerwall coming in at cost (or a way to get an installation network). If most the installs come with some solar installation as well, maybe they can see the device at a loss and meet cost expectations while still not losing money.

1: https://www.teslamotors.com/supercharger

If he's using these for the SuperCharger network and plans to "gas-up" cars with solar... I don't think they can get that level of efficiency from panels spread through a gas station lot? Because that's where this purchase would seem to make sense to me, is with a nationwide network of SuperChargers powered by solar.

I'm sure some value would also come from selling to residential buyers with Teslas?

Given that he's done a stellar job running two impossibly difficult companies for a decade now, I'd say he knows how to focus.

Three companies: SpaceX

No, the parent is right. Elon Musk runs two companies. He has some stake in SolarCity right now, but doesn't run it.

Others have already made this point[1] but to me, SolarCity has some aspects that make it look like more of a of a tax-arbitrage business than a solar panel retail business. It reminds me a bit of the ethanol blending tax credit, which led, in some cases, to companies mixing ethanol with petrochemicals solely for the tax benefit.

[1] http://www.newsmax.com/BradleyBlakeman/solar-kroll-subsidy/2...

You are probably right but (1) SolarCity would be foolish as a business not to take advantage of tax incentives (2) the primary purpose of these incentives in the first place should be exactly this - to encourage businesses like solarcity (3) over the long term of course the business model assumes panel prices reduce and become more efficient so the tax thing isnt required in the long term to prop them up

There's taking advantage of tax incentives, and then there's this:

"According to the Kroll report, SolarCity reports solar system costs when claiming tax credits that are 75 percent higher than solar system costs disclosed to investors in the company’s quarterly investor earnings call."

That's a legal tax loop hole though, they are allowed to file based on retail prices they sell their panels for even though they buy them at wholesale bulk prices

What a disaster. The purchase makes no real sense, unless you bend over backwards to try to force a rationalization. Anyone who thinks this is a good idea can't read a financial statement. Solar City as an investment is terrible, and even Goldman Sachs recently said they were one of the worst performing companies in the sector.

I'm expecting a ton of shareholder lawsuits at this point. The idea that Tesla was buying SCTY bonds is sketchy enough, the idea of buying the entire company is just insane.

Why is this a disaster?

Why doesn't the purchase make sense?

Why do you think I can't read a financial statement?

Why is SCTY a terrible investment?

Why is buying the entire company insane?

You've said absolutely nothing constructive or useful, just a bunch of (wrong, imo) opinion.

1) TSLA is spending money it doesn't have to purchase a money losing company that does very little to help spur electric cars. Even if they did, the purchase and association with TSLA would have to somehow have a halo effect that doesn't currently exist. This will not happen because there's no way to increase sales of either. They could have just had a licensing deal or something, instead of purchasing the company at a premium.

To purchase a company that is so far away from your core-business model, ie. electric cars, is insane and fiscally irresponsible. Terrible ideas like this are what distract companies and cause them to fail. Look at Time-Warner purchasing AOL. SCTY is a financing play, that just happens to use solar power as its vehicle. It's maniacal rationalization to believe that this actually helps either business or will justify the purchase price.

2) See #1.

3) Anyone who thinks this is a good purchase can't read a financial statement, because otherwise they would see what sort of cash-flow-negative situation both TSLA and SCTY are in. Companies like this do not go and buy money losing companies that also burn cash.

4) See #1.

5) See #1.

6) I disagree with you.

I'm pretty sure there is at the very least a tiny bit of synergy between consuming electricity and producing electricity.

Who buys a tesla with tax incentives?

These are both dream projects to change the world. Sure they don't look that good on paper but more power to them, I hope they succeed. They are both moonshots though, if there is any synergy or overlap it might make some sense.

> The purchase makes no real sense, unless you bend over backwards to try to force a rationalization.

Makes plenty of sense. SolarCity has a failing business model, but they have a nice facility in the works. Tesla Energy makes batteries that right now are only appealing to commercial players. If they combine the two in a good way, they may be able to make a product that's appealing to the consumer. As with any purchase, it all depends on how it'll be executed.

This is weird by American standards, but there are plenty of conglomerates who have their hands in many industries. Samsung, Hyundai, Mitsubishi, etc.

Neither are proven profitable businesses. $2.6B is a hell of a bet to make on the hope of something working out, with a company that is bleeding money. Two cash-flow-negative companies combined together doesn't magically result in more money, if anything it hastens the death of both companies.

> Neither are proven profitable businesses.

I'm not sure you understand what that means?

The only profitable business is a business that has reached market saturation. A business that can't grow its market share by re-investing the margin on its products. Both businesses are in fledgling industries and are nowhere near saturation. In fact, both companies are expanding their respective markets, not merely gobbling up the shares of other companies. It would make no sense for either to be profitable.

> $2.8B is a hell of a bet to make on the hope of something working out

That's a relative statement. Relative to what? Microsoft just bought a shitty website for $26.2 billion.

> Two cash-flow-negative companies combined together doesn't magically result in more money

Their cash-flow is irrelevant, Tesla has had little difficulty raising capital.

> if anything it hastens the death of both companies

So the death of both is already etched in stone and this just hastens things? Nonsense.

I'm pretty sure based on your answers you have no idea how things work in the real world. Reading "The Lean Startup" or "The Art of the Start" doesn't really qualify you to make such nonsensical statements about how a multi-billion-dollar publicly traded company should behave. A startup burning through $10M of VC funding is completely different from a publicly traded company burning through $2B in funding. You can't even justify it at this point. Tesla Energy is a dream, you can't waste $2.6B on an unproven dream and then buy a completely unprofitable cash-bleeding company when you yourself are bleeding cash. He needs to have much better sense than that as a CEO, his duties to his shareholders demand it.

> Reading "The Lean Startup" or "The Art of the Start" doesn't really qualify you to make such nonsensical statements about how a multi-billion-dollar publicly traded company should behave.

I've read neither, I do have a degree in economics though... does that count?

Do you have a short position on SCTY? If so, then I understand your "comments" and why you're pissed. Sorry? LOL

> He needs to have much better sense than that as a CEO, his duties to his shareholders demand it.

Last time I checked, he recused himself and the shareholders have to approve the deal ... what are you going on about?

> I've read neither, I do have a degree in economics though... does that count?

Nope. Economics != Finance, sorry. And it shows from your misunderstanding of "running" a business. A profitable business only happens when you have market saturation? LOL that's some economics education...

> Do you have a short position on SCTY? If so, then I understand your "comments" and why you're pissed. Sorry? LOL


> Last time I checked, he recused himself and the shareholders have to approve the deal ... what are you going on about?

He's the one that came up with the deal, and bid on SCTY with a 30% premium. Given the dire situation the company is in, and given how it's the worst performing solar company, they will have no choice but to accept.

The Tesla shareholders still have to approve it.

But hey, they can always issue more TSLA shares right?

That's their main product right now.</satire>

SCTY up 23% after hours (http://finance.yahoo.com/q?s=SCTY), TSLA down 7%? (http://finance.yahoo.com/q?s=TSLA)

The change in stock price doesn't give the complete picture. You want to look at the change in market cap. There is roughly a 10x difference in the change of market cap with SolarCity increasing by roughly $350 million while Tesla decreasing by $3.5 billion. Tesla has actually lost more shareholder value than it would even take to purchase SolarCity. That would seem to indicate Tesla shareholders feel that SolarCity as a company has negative value. I'm not quite sure what to make of that.

From what I've seen highly volatile stocks (such as TSLA) have a sort of flyweight effect, if they go up the market expect them go up fast so the go a little bit higher than is rational, same way if they go down.

That is interesting indeed.

It could also mean shareholders believe Tesla's management has gone off the deep end.

TSLA would be paying ~10% of its market value to buy a company that loses money. And they would do so at a premium to SCTY's current market value. TSLA already had an aggressive CapEx plan. So TSLA going down makes sense.

SCTY should trade up into the range of the offer.

loses money... for now.

...and the stocks are trading the way they are for now...

Same thing happened when Microsoft bought LinkedIn. LinkedIn stock went up 46%, Microsoft stock went down about 3%. (http://finance.yahoo.com/q?s=MSFT and http://finance.yahoo.com/q?s=LNKD)

That's pretty typical for companies getting an offer. The company to get purchased goes up, as the buyer usually pays a bit more per share than market price, and purchaser goes down because of... the cost of it I guess. Unclear on the second one, but it's typical too.

Anything other than TSLA going down would make no sense. This is what happens to prices in M&A. 1. TSLA is paying over market. 2. Were the deal to occur all kinds of additional risks are incurred, such as failed integration. 3. The deal may not even happen.

Yep, TSLA taking a heavy dip. -11% right now. It might as well be a good time to get in.

Just bought. I Hope Elon Musk is the next John Elway because i'm going long.

Good luck!

That's basically the definition of a merger arbitrage strategy - short the acquirer and long the acquisition.

you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid

Naive question: Why is minimizing dependency on the grid more sustainable? Doesn't connecting with the grid allow you to distribute excess power more evenly?

Well, when the zombie apocalypse happens relying on the grid is unsustainable.

But in reality, there are also transmission losses (which I think are actually quite small when you have high voltage) when you produce energy away from where you use it.

There are also losses from battery charging. I haven't researched thoroughly but some Tesla fan discussion thread puts it at 20-30%[1], which would be vastly higher than transmission losses. Especially since the electricity typically wouldn't have to travel very far at all before it's used.

[1] https://forums.teslamotors.com/forum/forums/battery-charging...

That's the Roadster from 2011. The Model S is more than 90% efficient (https://www.teslamotors.com/support/model-s-specifications).

I think most of the losses are due to the cost of building and maintaining transmission lines. These have to be paid for by users of the power grid. In Germany these transmission costs constitute about 20% of the total end-user price per kWH (i.e. about 5 cent/kWh).

I read those as separate benefits.

It's more sustainable because of transmission losses, reusing the real-estate of your roof, and I believe doubling as partial shading and insulation.

Minimizing dependence on the grid is a benefit because power outages exist, and sometimes they can really suck.

My solar system will shut off if the grid shuts off. The reason is to guarantee no voltage on the lines when the technician is looking to repair.

Having said that I have no battery, but if I did then probably it could just isolate the grid and stop feeding back when the grid shuts down and run the house off the battery.

Even if those are separate phrases they still claim it's "the most efficient way possible" to consume energy. But there are energy losses when going through a battery instead of redistributing the energy in realtime -- much greater than transmission losses. So unless I am missing something, that appears to be a false claim.

I think you need to factor in the costs incurred by building and maintaining high voltage power transmission lines. These have to be payed for by users of the power grid. If you go off grid, then you not only reduce transmission losses, you also eliminate costs for use of the power distribution infrastructure.

I guess I'm lucky because all power outages I've experienced (1 to be precise) were during the day and were resolved within a few hours.

It depends on the quality of your grid. For example, here in Germany, the grid quality is higher than the average US grid. I don't recall any power outage that lasted more than a few minutes.

AFAIR here in Germany you pay about .05 €/kwH power transmission fees that go to the owner of the transmission infrastructure (i.e. "the grid"). I wonder how much people in the US pay. You get what you pay for :)

Unrelated to the transmission fees: in general German prices are probably at least 2x, maybe even 3x from those in the US. But partly that's due to the US being ridiculously resource rich, outside of its geopolitical access to energy (traded worldwide mostly in US currency), making energy quite cheap wholesale. And partly it's due to various tariffs that push Germans towards efficiency, making energy quite expensive for the end user, but leading to Germany producing a substantially higher $ amount (gdp) per unit of energy spent than the US.

Its used here as a marketing and branding term, not "efficient distribution mechanism" as you interpreted it. So they are playing on people's (correct) perception that "the grid" is the man with a death grip on your wallet, while you, as a techie, just appreciate the obvious benefits a power distribution system. You need to put your bullshit hat on when you read these things.

I would say the idea is, you're not dependent on the grid. You can use it, you can contribute to it, and the grid is still a necessary part of the energy ecosystem (along with fossil fuels), but renewables mean a sub-ecosystem is tolerant to interruptions at the grid level and may even be able to operate completely independently.

Literal grid operators are sometimes quite hostile to residential solar installations feeding energy back into the grid. So "the grid" is equivalent to buying 3rd party energy rather than generating it renewably yourself and the term refers to whatever mix of energy generation plants happen to be supplying it at the time.

Yes and no.

I'm an amateur here, but here's what I understand.

1) Yes, any storage capacity connected to the grid could, if run by a benevolent dictator, help the grid a lot. The basic idea of load shifting I'm sure you're familiar with, is to store energy when the load is low (and energy is cheap), and redistribute it when the load is high (and energy is expensive). By doing this, you smooth over supply and demand, reduce volatility, reduce market imperfections, reduce difficulties in planning generating capacity that is subject to wildly fluctuating demand etc. Further, this makes more renewables viable (which increase volatility/intermittency/imbalance issues, but are inevitably necessary on large scale for the future of humanity).

2) There's no such benevolent dictator. In reality there's tons of economic actors, and they have to deal with the economic reality of batteries, which are not at the moment economical (i.e. zero or positively profitable) to load shift.

i.e. a battery has limited lifetime. e.g. the Tesla Powerwall has 6.4kwh capacity, 5k cycles and costs $3k. That means you can charge and decharge a total of 32k kwh, for $3k, or in other words $9.35 cents per kwh just to store the energy. And that's before figuring in cost of installation, or the $2k inverter or the roundtrip efficiency of 92%. Now note that this is roughly the cost of electricity retail in most US states. So participating in load shifting will usually mean you're buying energy at 6 cents at a nightly rate, storing it for 9 cents, and then selling it for 10 cents at a daily rate, or something to that effect, it's a money losing proposition at the moment.

3) If you can't (or won't) aid the grid then, then it becomes a question of: do your presence on the grid help it, or vice versa. And the answer is probably that the grid would be less burdened if we didn't all pile up on it as much. Going off-grid then may be better.

4) Further, in some areas storage is renewable-empowering. e.g. in off-grid locations, or in areas where the grid price is so expensive (e.g. Hawaii), that generating your own energy and storing the excess for later when the sun's down, instead of consuming energy from the grid when the sun doesn't shine, is cheaper. (although again, even here if you'd have sold that excess energy instead of storing it, and then bought the cheap nightly rate later on, it'd probably have been even more economical.)

tl;dr, it's mostly bs. Batteries don't make economic sense in most states and connecting to the grid where possible tends to make sense in terms of economics and sustainability. And there's no surprise there, i.e. connecting to a bigger (grid) rather than an isolated (off grid) market tends to improve efficiency and allows a better distribution of scarce resources, which happens to be sustainable in this market, too.

I think you math is a bit off here:

  > the Tesla Powerwall has 6.4kwh capacity, 5k cycles and 
  > costs $3k. That means you can charge and decharge a total 
  > of 32k kwh, for $3k, or in other words $9.35 cents per kwh 
  > just to store the energy.
6.4kwh * 5k cycles == 32000 kwh for a price of $0.09375/kwh of storage. That still isn't economic in most places, of course.

> I think you math is a bit off here: > the Tesla Powerwall has 6.4kwh capacity, 5k cycles and > costs $3k. That means you can charge and decharge a total > of 32k kwh, for $3k, or in other words $9.35 cents per kwh > just to store the energy.

> 6.4kwh * 5k cycles == 32000 kwh for a price of $0.09375/kwh of storage. That still isn't economic in most places, of course.

As far as I can see we posted the exact same thing.

Oh, I see... the dollar sign that you put in front of it confused me. $9.35 is different from 9.35 cents.

Seems to me that if Tesla can bundle things from companies/divisions they own it may work out well for them. Driving a Tesla? Bring it home and plug it in to pull power from your PowerWall, which was charged during the day by your SolarCity panels. Charge a little less on the secondary items, but increase your volume by trying to drive sales to Tesla vehicle owners who might otherwise have never considered such a thing.

If they can combine the PowerWall with the vehicle charging station, that just makes it better.

I think the major problem is the total lack of synergy between Tesla and SCTY.

Tesla has a sales program which is basically 0 marketing, 0 sales, 100% inbound and SCTY is tele-sales + door to door (which is payroll intensive and harder to manager). Tesla has an operations cycle which is completely centralized except for the car delivery. All of SCTY is contractors installing stuff on customer roofs.

I do not see any operational synergies between the two companies except for the superchargers (and buying SCTY for superchargers feels wrong).

What the press release talks about is combined installation of solar panels and Tesla home infrastructure (charging station + Powerwall). I think that speaks to the sales perspective too - it could be very easy to upsell the (incoming) Tesla customer to a Tesla + SolarCity installation, for a lower CAC than the usual SolarCity sale.

I get that, but do they really need to buy solarcity to do that partnership? Why would SCTY not just become a sales channel for TSLA?

Optics for consumers, it feels more scummy to have one company advertise another than a company advertise itself. At least to me.

It also makes the accounting simpler and liability, this way no one is going to sue Tesla for giving too good a deal to Solar City, or the reverse.

Tesla is coming out with their "plebeian" model soon isn't it? Maybe some of that marketing will be directed to push those

Trying to work something out here, need input, as I've never had this happen before:

I advised a friend to buy Tesla and SolarCity stock some time ago, and they did so. The SolarCity stock was much higher at the time than it is now, perhaps $60-70.

I see that the offer from Tesla involves "0.122x to 0.131x" exchange for Tesla stock. So what does this mean for people whose positions in SolarCity were currently down? They have to hope the Tesla stock eventually goes up enough to recover the loss they suffered on SolarCity?

Yes, and up significantly. This is valuing the SCTY shares at $26.50 to $28.50. Your friend would need to wait for TSLA shares to more than double (which would be a higher market cap than Ford, GM, Honda or Nissan).

Personally I anticipate that won't be a long wait for the patient investor.

Hm I'm not so sure. Ford sells about 5 vehicles per minute around the clock worldwide, they're just a bit ahead of Tesla.

Total market for vehicles (Ford) compared to total market for energy storage & vehicles (Tesla).

The same thing happen recently Shell made a takeover offer for BG Group. In Feb 2015, BG Group shares were at their lowest point in 8 years (https://au.finance.yahoo.com/echarts?s=BG.L#symbol=BG.L;rang...). Then Shell makes an offer and the price bumps up. But not enough to make back the losses on the shares in the past 8 years.

Shareholders will vote on the offer, and have two choices.

1) Vote No would mean they back SolarCity to increase the share price back to at least where they paid for it. If the No vote is successful, the price instantly loses the gains its made in the past 24 hours, and potentially drops a little further.

2) Vote Yes if shareholders think that the gains they'll get from having Tesla shares (dividend, price gains, cash flow, capital to expand, etc.) will make the SolarCity business a better business/more competitive, etc. There may not be the same doubling/tripling/quadrupling of share price than if they stay a separate company, but it's a much lower risk.

Same thing happened for the BG Group/Shell deal. In the end, 99.69% of BG Group and 83% of Shell shareholders approved the takeover. I think we'll see something similar for the SolarCity/Tesla deal as well.

Actually there's a lawsuit against Zulily basically saying that shareholders who purchased at a higher price than the shares were acquired for are not satisfied with selling at that lower price. https://www.internetretailer.com/2015/09/23/shareholders-see...

As of yesterday, SCTY had a mean target price of $30.18/share across 17 Wall Street analysts.

To your point, shareholders might balk at TSLA's offer.

Sell-side analysts are not going to pay shareholders $30 for their shares though. Tesla stock is not cash, but is better than nothing. If anyone is losing in this deal I think it will be non-Musk Tesla shareholders.

As a TSLA stockholder, I hope they do; I'd rather TSLA wait to buy up SCTY assets when they're in bankruptcy rather than pay a premium to SCTY stockholders (sorry Elon!)

There's a risk that another company will offer to buy it before this happens. The board of Tesla probably feels this is the right time to get in on a promising business.

That will be a tough battle considering that Musk himself owns 22% of SolarCity shares.

Musk isn't voting on either the Tesla or SolarCity shareholder votes, meaning this 22% becomes "abstained".

Edit: Yes he is...sorry, he only recused from the board meeting/votes, not the shareholder votes that are yet to come.

I certainly do, TSLA is getting a fantastic deal.

Better yet, they could sell now and use the loss to reduce taxes [0].

[0] https://www.irs.gov/uac/irs-reminds-taxpayers-they-can-use-s...

Probably, yes. They're buying SolarCity with Tesla stock and paying a 20% or so premium over current SC stock. But yeah, if your friends bought say when SC was 50% up, then now they'll have to wait/hope Tesla stock goes up.

Given that both companies have insane cash burn and negative cash flows. This would make me very worried if I'm an investor. Not that I wasn't worried before. There's a reason short interest in both companies is fairly high. Their financials are pretty bad.

How is conflict of interest generally handled in this sort of situation?

Given that Elon Musk is personally major investor in SolarCity and Tesla is a publicly traded company with obligations to its shareholders, would Elon be removed or limited in his ability to control negotiations with SolarCity? Even though it seems like an acquisition of SolarCity would fit within Tesla's overarching strategy, price negotiation could probably be affected by Elon's interests within SolarCity.

No, not necessarily (re Elon being limited or removed). In fact, that's very unlikely.

For example, Berkshire Hathaway has occasionally run into conflicts of interest over its long history. They've usually handled them by being as transparent and open about the details as possible. In one famous acquisition, they intentionally over-paid for the company they were buying that they already held a large stake in. They told the SEC during a questioning about it, that they over-paid by a bit because they wanted their new shareholders to be happy, long-term partners. The SEC regulators apparently struggled to understand the premise, per Buffett's biography.

I would suggest in Elon's case, that his best bet is to be extremely open about all details of the acquisition, including how the price was arrived at. Tesla should pay a bit more than what would otherwise be normal. The more transparent the better. There's nothing to inherently restricts Elon's role here, regulation wise, but he does need to be a bit careful so as to avoid setting up an easy lawsuit.

There are a lot of other comments here about margin calls and short sellers, but ignoring all of that, if Tesla had some financial interest in SolarCity, and Elon wanted to buy SolarCity, it may be a conflict of interest if Elon Musk personally attempted to acquire SolarCity instead.

During the most recent Berkshire shareholders meeting Warren mentioned that he tries to never personally buy anything that Berkshire owns or would have interest in owning (and he does personally own financial assets outside of Berkshire.) It is a pretty clear gulf for him and fairly easy since Berkshire operates as a holding company.

The whole view of conflicts of interest can not be fully be evaluated without untangling the exact details and facts of both Elon's ownership interests and Tesla's.

I own a tiny amount of both companies but I don't know enough concrete details about SolarCity. Conceivably if Tesla is moving heavily in to the battery/energy storage business SolarCity could have assets that are much more valuable to that business. I don't know if there is valuable IP, or maybe even the current SolarCity customer base is worth a lot as battery pack customers. Presumably a Tesla battery pack/powerpack doesn't make a lot of sense if the customer doesn't have solar power? If there is an overlap between customers and SolarCity is in bad financial shape, then the acquisition could make sense.

There is a lot of guessing here, and its probably something that may be really obvious either way only years from now.

In combination with the battery business this just makes sense. It is perfectly vertically integrated.

How does it make sense? SolarCity is losing an extraordinary amount of money and is heading toward a bankruptcy. Tesla does not have the free cash flow to stop the bleeding.

Elon is a very large (~20%) SolarCity shareholder and this is pretty much a bailout for him.

Elon will end up with about one Tesla share for every ten SolarCity shares he previously owned. How does this in any way bail him out or save him? Save him from what, exactly?

Now Tesla is "burdened down" by SolarCity, if you prefer to think of it that way. If anything it's liable to hurt Tesla's stock while SolarCity gets its feet under it. As Tesla's stock drags down, Elon will lose more money than the 20% of $2.1 billion that his SCTY stake was worth today. That's a $420 million stake, and Tesla just dropped $3.2 billion in market cap when this news came up.

I'm totally guessing, but it seems to me this move protects SolarCity from the danger it was in. If SolarCity can make it a bit longer, a couple more years, which they will with no trouble (they were not on the verge of bankruptcy whatsoever), soon Tesla will have all the revenue they need to help SCTY grow. And that's Elon's gamble, as has it all been.

  How does this in any way bail him out or save him? 
  Save him from what, exactly?
Alternatively, he'd lose up to $478 million (MV of his % of CSO).

yeah its a lot easier for tsla to get financing for the whole thing.

Amusingly it was Elon's other other company that was buying SolarCity's bonds--SpaceX. I love Elon, but man he gets creative with financing. Makes me nervous that it could all blow up.

Can you explain why you're worried about Solar City bonds when they have the same risk as high yield corporate bonds? Are people going suddenly stop paying for electricity?

If the risk-adjusted return on those bonds is fair for their price then why wasn't there an independent third party buyer at that price? Isn't it more likely that SpaceX has overpaid for the bonds due to Musk being overconfident in Solar City?

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