"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"
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.
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.
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.
Yes, but they'll probably tend to be competing for the same, much smaller, portion of it.
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.
Also Apple regularly fronts loans to its suppliers to purchase the equipment needed to produce the devices that Apple then purchases from them, right?
So, I think he has a seriously larger scope of riskiness to him. I mean, frickin' rockets ..
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.
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...
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.
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.
I treat it like a riskier CD, no more no less.
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".
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.
A match made in... the backroom?
It's not about brand at this point, it's about economies of scale and production?
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.
You aren't just whistling Dixie...
I doubt losing Nevada as a market did anything to help SolarCity's bottom line.
-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.
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.
SolarCity's business model is incredibly risky.  They've already gotten shut down when trying to "sell you that electricity."
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."
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.
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.
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.
"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.
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.
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.
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.
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...
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.
I'm not making a case, I'm actually wondering.
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 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.
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.
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.
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).
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.
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.
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.
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.
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.
So very different risk profiles, hence very different risk/reward trade-offs.
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.
> 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.
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.
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.
Also California is Tesla's home turf, not really a good example for the country or the whole addressable market.
>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?
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.
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!
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.
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.
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...
Tesla may be the best thing ever. All I am saying is that they do not have some enormous reservoir of brand equity.
Depends on your utility, some are: http://www.pge.com/en/myhome/saveenergymoney/solar/choice/in...
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.
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.
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!)
Henry Ford wasn't a founder of Exxon. Musk is a founder of SolarCity.
Henry Ford wasn't a founder of Exxon.
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.
I'm sure some value would also come from selling to residential buyers with Teslas?
"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."
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 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.
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.
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.
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.
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'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?
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.
That's their main product right now.</satire>
It could also mean shareholders believe Tesla's management has gone off the deep end.
SCTY should trade up into the range of the offer.
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?
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.
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.
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.
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.
> 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.
If they can combine the PowerWall with the vehicle charging station, that just makes it better.
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).
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.
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?
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.
To your point, shareholders might balk at TSLA's offer.
Edit: Yes he is...sorry, he only recused from the board meeting/votes, not the shareholder votes that are yet to come.
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.
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.
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.
Elon is a very large (~20%) SolarCity shareholder and this is pretty much a bailout for him.
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?