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Everyone Despises SolarCity Deal, Except Tesla Shareholders

54 points by hvo 10y ago

Canutesun 10y ago
Given Elon Musk's track record of spelling out exactly what he wants to do, receiving a bunch of naysaying, and then doing exactly what he said, I think betting against him is a bad bet.
- bjelkeman-again 10y ago
  The shorters, and there is a lot of them, don't think so, but I agree with you. We need a sustainable future and this is a really good effort to get parts of our society there. Waiting for the auto companies to get their act together, then we'll burn.
  - webXL 10y ago
    I'm a Musk fan, but not a fan of his desire to accelerate sustainability on the backs of the taxpayer. Malthus also predicted doom and gloom and we saw plenty of market forces handle that. Government regulation has increased tremendously, so perhaps the days of leaving it up to the market are over, but from a public policy standpoint, it's incredibly risky leaving a "sustainable future" up to one company.
    - deleted 10y ago
      [deleted]
    - schiffern 10y ago
      > Malthus also predicted doom and gloom and we saw plenty of market forces handle that. So far all I've seen is market forces switching from renewable food production (soil and in-situ biological generated fertility) to nonrenewable (fossil fertilizers trucked in from "somewhere else"), rampant soil loss, unsustainable acquifer pumping and salination, water eutrophication, wealth consolidation in food production, and soil erosion on a scale never seen before. Ironic that you should bring up subsidies, because globally industrial agriculture is almost entirely a subsidized (yet economically futile) endeavor. I know it's heresy to question Borlag et. al and the "green" revolution, but far from "handling i," market forces have merely enlarged and externalized the scale of the destruction.
      - webXL 10y ago
        Most of those problems stem from the lack of property rights. If a company cannot sustain its business with what it owns, then it should go out of business. However, non-market forces prop up these unsustainable businesses or turn a blind eye to the destruction of the commons. They "steal" from the rest of us via subsidies or abuse of public resources. Those are not market failures, contrary to popular opinion.
        schiffern 10y ago
        Things like the atmosphere, food web, water cycle etc. are fundamentally different than ownership of physical objects or even land. They are not confined to a particular place, and being fundamentally diffuse transactions and interactions with them are not obviously subject to singular control. Even if you break them down into components the bookkeeping and transaction cost is far too high. Saying that they're not market failures says more about the narrow definition of "market" than about the workings and evolution of capitalist systems (including both visible systems like farms and factories and invisible systems like laws and power structures).
  - semi-extrinsic 10y ago
    > We need a sustainable future and this is a really good effort to get parts of our society there. Even if we accept this as truth (I'm not saying it is or isn't), the fact remains that Tesla is very overvalued compared to any other carmaker, especially when we know they are losing money on each car and will keep doing so for at least three more years. Tesla has almost as high market cap as Ford, despite selling less than 1℅ as many cars per year. Tesla had a P/E of -60 last year, projected to have -100 this year. The financial fundamentals compared to current valuation doesn't look good. Will Tesla go up or down? There is more potential downside than upside, that's for sure. Also, it's not like none of the other car companies have EVs coming out. In fact, most of them do.
    - vibrato 10y ago
      "There is more potential downside than upside, that's for sure." This may be true over very short time horizons. But if Tesla survives 50-100 years, is it not realistic to think it could be valued at 5x - 10x current? That would be a 400% upside, versus 100% downside. I say this as a habitual short seller.(haven't traded TSLA)
      - guelo 10y ago
        If 400% over 50 years = 8%/year is the most optimistic scenario then it's not very exciting.
        ksherlock 10y ago
        and with compounding interest, it's only 5%/year.
      - semi-extrinsic 10y ago
        Tesla is currently valued higher than Subaru, Fiat Chrysler and Mazda; all successful car companies selling much more cars. With the exception of Volvo and Toyota, whose value includes much more than just the car companies (like heavy industry manufacturing, commercial vehicles, Toyote even owns 0.27% of Tesla), only a ~2x increase in valuation is realistic. If they become one of the biggest car companies in the world.
- drcross 10y ago
  With the amount of momentum behind him it would take a lot of upsets to derail the company. There's always going to be some wealthy philanthropist willing to bail them out so they can be included in the Musk biographies of the future.
erdevs 10y ago
The SolarCity combo is absolutely brilliant. The chattering class and peanut gallery bet against Musk on Tesla and Space X as well, and there will always be naysayers to quote in the press for bold moves like this. The combo makes perfect sense for exactly the reasons Musk outlines in "Part Deux" of his strategy for Tesla and in the publicly disclosed rationale for this deal. If you're a long-term investor, which is rightfully the only sort of investor that Musk really cares about (at least for now, when he has the power and support to fend off activists and the like), this makes absolute sense and is a great bet. As for governance... let's not forget the NetSuite deal involving Oracle and Ellison on both sides that just happened. This sort of thing isn't exactly unheard of, and the key question is not whether conflict exists, but whether the deal makes real business sense on both sides despite the conflict. Also recall that this was fully and properly disclosed before the deal was finalized, and that Musk got sign off from independent shareholders on both sides, even among those that were initially skeptical of the combination. One can't really do anything more than Tesla and SolarCity did here. Also, one shouldn't be surprised that Musk had a conflict of interest here. Much as VCs sometimes rightfully say "no conflict, no interest"... part of the reason you invest in a market or begin a company is because you have a thesis about the space or the market overall. If you're taking multiple bets in that space, even if they start at different vectors, there's a chance they will collide or make sense to combine over time. For the same reason, one shouldn't be overwhelmingly surprised if in 10 years it ends up making sense to combine Space X with Tesla and Solar City as well. I don't see an explicit rationale for that today at all, but it's easy to see the possibility of a rationale existing in the future, depending on how things evolve. No one should be acting gobsmacked or thinking the SolarCity+Tesla combo is somehow a nonsensical, self-dealing arrangement. The one thing I wish Musk would have done in addition here, or that I hope he'll do shortly following this combo, is introduce even greater provisions for his ongoing control. My biggest fear with Tesla is that it grows large enough to attract activist investors that are highly levered so as to have disproportionate impact and seek to exploit the stock. Musk may, at some point (at least temporarily) lose the halo effect, and that'll leave him and Tesla vulnerable to provocative moves form investors that do not align with long-term shareholder value, but rather seek to optimize shorter-term outcomes. So, if anything, I'm directly against the calls from people that are questioning governance here. I would prefer Tesla shareholders agree to cede more control to Musk and that the company limit executive liability. Most companies absolutely should not have these sorts of provisions, because most CEOs are not worthy of that sort of trust. But in Musk's case, the boldness of vision, correctness of long-term thinking, and overall trustworthiness in shareholder value creation and protection have been proven for long enough that I'd be more than willing to see this happen and actually actively hope for it.
chollida1 10y ago
I'm not so sure shareholders like the deal, I think its more of a case where they like Telsa despite the deal. Or more to the point, they consider the deal more of a distraction than something that will sink Telsa. When you think Tesla, you probably think electric car, or autonomous driving car, or Elon Musk. I mean if you hate the deal what are you going todo. The deal is almost certainly going to go through so holding shares just to vote against the deal won't do any good. You could short Tesla but over the past 5 years the street seems to love Tesla so much that bad news doesn't seem to affect the company that much. This is a stock that has had a high short interest number for a long time. And quarter after quarter they miss numbers but the stock goes up as the shorts are forced to cover their positions when the stock fails to drop. People aren't investing in Telsa due to any fundamental, int he financial sense, numbers, they are doing it on belief that Elon will come through. Which is good news for Tesla as they really need the short term investors on their side in the next year as they'll almost certainly have to raise cash to fund the production of the Model 3.
- tcoppi 10y ago
  I'm a Tesla investor, and I started increasing my position when the SolarCity deal was first talked about. The potential there with SolarCity's new panels and Tesla's advantage in battery pack manufacture is pretty big, and they seem to be the only company poised to take advantage of solar + battery technology applications in the short to medium term. That alone will justify a fairly large valuation in my mind, discounting any applications to the car manufacturing side of the house.
  - chollida1 10y ago
    I'm also an investor and love Tesla and I agree completely with this.... > The potential there with SolarCity's new panels and Tesla's advantage in battery pack manufacture is pretty big, This however is just plain old wrong.... > and they seem to be the only company poised to take advantage of solar + battery technology applications in the short to medium term. have a look at this list... http://cleantechnica.com/2015/01/15/27-battery-storage-companies-watch/ http://cleantechnica.com/2015/01/15/27-battery-storage-compa... or http://www.enfsolar.com/directory/component/battery http://www.enfsolar.com/directory/component/battery There are many companies doing solar/batteries. Some are large and very well capitalized like GE and Siemens. The only way you could consider them "the only company poised to take advantage of solar + battery" is if you didn't bother to look for any other companies:) I like Tesla's future but in terms of solar+battery they have alot of competition and its not at all clear that they are even the leader.
GigabyteCoin 10y ago
>Even if energy generation, storage and an auto powertrain are a seamless product, so-called vertical integration, in which one manufacturer makes all the components, was the old Henry Ford model and later, General Motors’. That approach has gone down in automotive history as a colossal failure. What is Tesla meant to do if nobody else is able to deliver what they demand? Ford Motor Company essentially created a new industry, which is why they had to make all their parts... Tesla is doing a similar thing here imho.
- latj 10y ago
  There are plenty of PV suppliers out there. I believe FSLR is the largest. The deal does make sense to me though. In the beginning it worried me that Tesla only had one product. One major flaw in the product could have ended them and they we creating a completely new kind of product that is expected to last decades. Now they have storage which makes sense because they can grow it along with their auto battery technology. But they also have these stupid stores where you cant really do much and you can only buy two things- a car or a battery for your house. It makes perfect sense to be able to buy the panels from them because otherwise you can buy the batteries from whoever you buy panels from. People who like Tesla are Apple users. They want complete packages, everything brushed aluminum with an apple or tesla logo on it.
- Theodores 10y ago
  In fairness Tesla tried outsourcing everything with the Roadster. However it didn't quite work out too well and, even though the problems were addressed, the lesson learned was that vertical integration was the way forward. Parts are outsourced still, the Falcon Wing Doors are outsourced to a supplier and plenty of components (e.g tyres) obviously just get bought in. Essentially the lesson learned from starting with 'outsource everything' and moving to vertical integration has helped lead to this. Shareholders could bear in mind that outsourcing has been tried.
cletus 10y ago
The best way I can describe this deal is that one of Musk's companies (Tesla) bails out another of Musk's companies (SolarCity) that owes a lot of money to yet another of Musk's companies (SpaceX). I'm really not surprised people are concerned about this.
- vanattab 10y ago
  How much does SolarCity owe SpaceX?
  - Hypx 10y ago
    About $165 million: http://fortune.com/2015/08/07/this-is-why-elon-musks-spacex-has-been-buying-up-solarcitys-bonds/ http://fortune.com/2015/08/07/this-is-why-elon-musks-spacex-... Which will soon be $165 million Tesla owns to SpaceX.
forrestthewoods 10y ago
How much money has SolarCity gotten from the government? Looks like at least 2.5 billion [1]. Tesla and SpaceX haven't been super dependent on government funds. But SolarCity definitely has. Musk's real super power might be in getting free money. I suppose the phrase here is don't hate the player hate the game. But it still rubs me the wrong way. As unpopular as that opinion may be. http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...
- andys627 10y ago
  Tesla got $1.25bn from State of NV: http://www.rgj.com/story/news/2014/09/04/nevada-strikes-billion-tax-break-deal-tesla/15096777/ http://www.rgj.com/story/news/2014/09/04/nevada-strikes-bill...
- chatmasta 10y ago
  Isn't the point of these government grants to give away "free money?" Would you rather they give the grants to some unproven electric car startup?
  - forrestthewoods 10y ago
    I'd rather the government didn't pick winners.
    - chatmasta 10y ago
      So you're against government subsidies in general? This "free money" is part of pro-environmental policy. The point is to subsidize development in areas where it may be economically irrational without a subsidy, especially when the non-economic benefits are worthwhile to society. The nice thing about subsidies is they create a cascade effect. Once one company is having success in alternative energy, older companies are forced to catch up. The oil companies and automotive companies have all been dragging their feet. Tesla has already forced auto companies to ramp up EV development. Also, the government doesn't have to "pick winners." They can give the most money to Tesla, since they're clearly a better bet than an unproven startup, and still give money to new startups. Once a startup proves itself at the level Tesla has, it can get more money. There are plenty of subsidies to go around. It seems like a few billion dollars is a bargain price to pay for accelerated development of alternative energy.
abalone 10y ago
It makes sense. Tesla's raison d'être is sustainability. If at scale their product is still powered by dirty energy, it will undercut the product. It's not just a fast car, it's a clean car. If utilities don't keep pace with them in terms of solar deployments, it's literally a risk to the company. Empowering customers to directly source clean power at the grassroots level frees them from dependence on utilities.
- Analemma_ 10y ago
  > It makes sense. It makes sense strategically. I think most of the people complaining about the deal are more concerned with whether it makes sense tactically, since SolarCity is bleeding cash and wasn't expected to survive much longer, and will now be hitched to Tesla, which doesn't have a great cash flow situation either.
  - tcoppi 10y ago
    SolarCity's immediate cash flow looks a lot better when you take away sale and customer acquisition costs, in fact it brings them very close to profitability. It is widely expected that the merger will close that side and bring it closer to Tesla's sales model, which is cheaper per customer acquisition.
jobu 10y ago
Most articles paint this deal as solar + battery + car, but the car part really doesn't matter here. The key part is solar + battery. Over the last year states have started increasing fees to hook solar into the grid and at the same time are reducing net metering rates (payouts for power generation). This has hurt Solar City over the last year and likely would've killed it long-term. I see Tesla using the Power Wall to make an in-home grid that uses solar + battery as the primary power source, and the grid is the backup power (for charging the battery with off-peak rates) . That way people can avoid paying fees for net generation, and the net metering rates don't matter.
- tcoppi 10y ago
  Not just an in-home grid, but the potential with the power packs and utility-scale solar for the grid as a whole is quite large as well, if they can get traction. Tesla is going to be the only one for quite a while with the battery manufacturing scale to make it cheap enough.
- rottyguy 10y ago
  I'll also add there has to be some solar power generation tie in, eventually, to Space-X as well.
- the_watcher 10y ago
  This is a good point. Sometimes it's hard to remember that the true innovation of Tesla was the battery. Once they had that, they built a car around it (I understand this is a massive oversimplification). But SolarCity probably helps Tesla continue it's biggest advantage for the future: the most likely Tesla for X remains Tesla itself. That said, the conflicts of interest and pretty clear move to bail out a failing company still bothers me
- schiffern 10y ago
  That's the "low road," (Tesla vs the utilities) but the "high road" (Tesla plus the utilities) is much more interesting imo. The plan is to offer grid stabilization services -- voltage boosting, phase correction, and demand shifting/response -- by aggregating together home batteries, utility-scale batteries, and scheduling EV charging. These are all valuable services for the utility. The revenue from these would be passed on to the end customer, "closing the loop" in our current perverse residential electricity pricing. What do I mean by perverse pricing? Ideally each customer would be billed based on and tailor demand to the real-time generation+distribution cost at their location on the grid (accounting for their individual line loss and utilization of their distribution and transmission connections), but this is far too complicated and prone to market manipulation. Even TOU pricing has an information lag from actual demand because of changes in demand and the rising percentage of renewable and distributed generation. And net metering is subject to the "solar death spiral" problem, which is quite real (though overhyped by utilities for their own purposes). One of the big advantages to making their own inverters is that each one acts as a grid monitoring station, relaying voltage drop and phase lag information back to the mother ship. Their EVs can already do this as evidenced by their OTA rollout of charging software that slows charging when overheating wires (voltage sag) or arcing (voltage spikes) are detected. In the not-too-distant future Tesla will have more raw information on the grid than the operators themselves, though obviously it's even more powerful when combined with their existing data. This combination can be done directly through data sharing or emergently simply by interfacing with the existing pricing system. None of this is speculative btw -- SolarCity's CEO Lyndon Rive[1] and Tesla's CTO and SolarCity board member J.B. Straubel[2] have talked directly about these plans before. [1] http://www.ustream.tv/recorded/87401050 http://www.ustream.tv/recorded/87401050 (mentions planned "smart inverter" that can monitor grid, returning revenue to customers, and that the goal with storage isn't off-grid systems but grid cooperation) [2] https://www.youtube.com/watch?v=zWSox7mLbyE https://www.youtube.com/watch?v=zWSox7mLbyE (mentions aggregating storage and EV charging over the internet)
jshevek 10y ago
> Even if energy generation, storage and an auto powertrain are a seamless product, so-called vertical integration [...] That approach has gone down in automotive history as a colossal failure. This kind of statement always bothers me. Just because several entities experienced failure using a method in the past doesn't mean that the method itself is guaranteed to fail always and forever.
- VogonWorkEthic 10y ago
  It's also pretty irrelevant. The vertical integration isn't for producing cars, it's for producing sustainable energy products. And we all remember why vertical integration is famous... the unprecedented success of the steel industry e.g. Carnegie and the other steel barons. The article seems premised on a false equivalency fallacy.
kragen 10y ago
A thing I don't understand about this article: "vertical integration…was the old Henry Ford model and later, General Motors'. That approach has gone down in automotive history as a colossal failure" Because clearly when we think about the role of pre-Baby-Boom Ford and GM in the history of the automotive industry the first term that comes to mind is "colossal failure"? Also it seems contradictory to say "Tesla shareholders" don't "despise [the] deal" and then point out that the stock price dropped 10% when the deal was announced. What determines the stock price, if not the previous and current shareholders? Gremlins?

54 points by hvo 10y ago

Given Elon Musk's track record of spelling out exactly what he wants to do, receiving a bunch of naysaying, and then doing exactly what he said, I think betting against him is a bad bet.

bjelkeman-again 10y ago
The shorters, and there is a lot of them, don't think so, but I agree with you. We need a sustainable future and this is a really good effort to get parts of our society there. Waiting for the auto companies to get their act together, then we'll burn.
- webXL 10y ago
  I'm a Musk fan, but not a fan of his desire to accelerate sustainability on the backs of the taxpayer. Malthus also predicted doom and gloom and we saw plenty of market forces handle that. Government regulation has increased tremendously, so perhaps the days of leaving it up to the market are over, but from a public policy standpoint, it's incredibly risky leaving a "sustainable future" up to one company.
  - deleted 10y ago
    [deleted]
  - schiffern 10y ago
    > Malthus also predicted doom and gloom and we saw plenty of market forces handle that. So far all I've seen is market forces switching from renewable food production (soil and in-situ biological generated fertility) to nonrenewable (fossil fertilizers trucked in from "somewhere else"), rampant soil loss, unsustainable acquifer pumping and salination, water eutrophication, wealth consolidation in food production, and soil erosion on a scale never seen before. Ironic that you should bring up subsidies, because globally industrial agriculture is almost entirely a subsidized (yet economically futile) endeavor. I know it's heresy to question Borlag et. al and the "green" revolution, but far from "handling i," market forces have merely enlarged and externalized the scale of the destruction.
    - webXL 10y ago
      Most of those problems stem from the lack of property rights. If a company cannot sustain its business with what it owns, then it should go out of business. However, non-market forces prop up these unsustainable businesses or turn a blind eye to the destruction of the commons. They "steal" from the rest of us via subsidies or abuse of public resources. Those are not market failures, contrary to popular opinion.
      - schiffern 10y ago
        Things like the atmosphere, food web, water cycle etc. are fundamentally different than ownership of physical objects or even land. They are not confined to a particular place, and being fundamentally diffuse transactions and interactions with them are not obviously subject to singular control. Even if you break them down into components the bookkeeping and transaction cost is far too high. Saying that they're not market failures says more about the narrow definition of "market" than about the workings and evolution of capitalist systems (including both visible systems like farms and factories and invisible systems like laws and power structures).
- semi-extrinsic 10y ago
  > We need a sustainable future and this is a really good effort to get parts of our society there. Even if we accept this as truth (I'm not saying it is or isn't), the fact remains that Tesla is very overvalued compared to any other carmaker, especially when we know they are losing money on each car and will keep doing so for at least three more years. Tesla has almost as high market cap as Ford, despite selling less than 1℅ as many cars per year. Tesla had a P/E of -60 last year, projected to have -100 this year. The financial fundamentals compared to current valuation doesn't look good. Will Tesla go up or down? There is more potential downside than upside, that's for sure. Also, it's not like none of the other car companies have EVs coming out. In fact, most of them do.
  - vibrato 10y ago
    "There is more potential downside than upside, that's for sure." This may be true over very short time horizons. But if Tesla survives 50-100 years, is it not realistic to think it could be valued at 5x - 10x current? That would be a 400% upside, versus 100% downside. I say this as a habitual short seller.(haven't traded TSLA)
    - guelo 10y ago
      If 400% over 50 years = 8%/year is the most optimistic scenario then it's not very exciting.
      - ksherlock 10y ago
        and with compounding interest, it's only 5%/year.
    - semi-extrinsic 10y ago
      Tesla is currently valued higher than Subaru, Fiat Chrysler and Mazda; all successful car companies selling much more cars. With the exception of Volvo and Toyota, whose value includes much more than just the car companies (like heavy industry manufacturing, commercial vehicles, Toyote even owns 0.27% of Tesla), only a ~2x increase in valuation is realistic. If they become one of the biggest car companies in the world.
drcross 10y ago
With the amount of momentum behind him it would take a lot of upsets to derail the company. There's always going to be some wealthy philanthropist willing to bail them out so they can be included in the Musk biographies of the future.

erdevs 10y ago

The SolarCity combo is absolutely brilliant. The chattering class and peanut gallery bet against Musk on Tesla and Space X as well, and there will always be naysayers to quote in the press for bold moves like this. The combo makes perfect sense for exactly the reasons Musk outlines in "Part Deux" of his strategy for Tesla and in the publicly disclosed rationale for this deal. If you're a long-term investor, which is rightfully the only sort of investor that Musk really cares about (at least for now, when he has the power and support to fend off activists and the like), this makes absolute sense and is a great bet. As for governance... let's not forget the NetSuite deal involving Oracle and Ellison on both sides that just happened. This sort of thing isn't exactly unheard of, and the key question is not whether conflict exists, but whether the deal makes real business sense on both sides despite the conflict. Also recall that this was fully and properly disclosed before the deal was finalized, and that Musk got sign off from independent shareholders on both sides, even among those that were initially skeptical of the combination. One can't really do anything more than Tesla and SolarCity did here. Also, one shouldn't be surprised that Musk had a conflict of interest here. Much as VCs sometimes rightfully say "no conflict, no interest"... part of the reason you invest in a market or begin a company is because you have a thesis about the space or the market overall. If you're taking multiple bets in that space, even if they start at different vectors, there's a chance they will collide or make sense to combine over time. For the same reason, one shouldn't be overwhelmingly surprised if in 10 years it ends up making sense to combine Space X with Tesla and Solar City as well. I don't see an explicit rationale for that today at all, but it's easy to see the possibility of a rationale existing in the future, depending on how things evolve. No one should be acting gobsmacked or thinking the SolarCity+Tesla combo is somehow a nonsensical, self-dealing arrangement. The one thing I wish Musk would have done in addition here, or that I hope he'll do shortly following this combo, is introduce even greater provisions for his ongoing control. My biggest fear with Tesla is that it grows large enough to attract activist investors that are highly levered so as to have disproportionate impact and seek to exploit the stock. Musk may, at some point (at least temporarily) lose the halo effect, and that'll leave him and Tesla vulnerable to provocative moves form investors that do not align with long-term shareholder value, but rather seek to optimize shorter-term outcomes. So, if anything, I'm directly against the calls from people that are questioning governance here. I would prefer Tesla shareholders agree to cede more control to Musk and that the company limit executive liability. Most companies absolutely should not have these sorts of provisions, because most CEOs are not worthy of that sort of trust. But in Musk's case, the boldness of vision, correctness of long-term thinking, and overall trustworthiness in shareholder value creation and protection have been proven for long enough that I'd be more than willing to see this happen and actually actively hope for it.

chollida1 10y ago

I'm not so sure shareholders like the deal, I think its more of a case where they like Telsa despite the deal. Or more to the point, they consider the deal more of a distraction than something that will sink Telsa. When you think Tesla, you probably think electric car, or autonomous driving car, or Elon Musk. I mean if you hate the deal what are you going todo. The deal is almost certainly going to go through so holding shares just to vote against the deal won't do any good. You could short Tesla but over the past 5 years the street seems to love Tesla so much that bad news doesn't seem to affect the company that much. This is a stock that has had a high short interest number for a long time. And quarter after quarter they miss numbers but the stock goes up as the shorts are forced to cover their positions when the stock fails to drop. People aren't investing in Telsa due to any fundamental, int he financial sense, numbers, they are doing it on belief that Elon will come through. Which is good news for Tesla as they really need the short term investors on their side in the next year as they'll almost certainly have to raise cash to fund the production of the Model 3.

tcoppi 10y ago
I'm a Tesla investor, and I started increasing my position when the SolarCity deal was first talked about. The potential there with SolarCity's new panels and Tesla's advantage in battery pack manufacture is pretty big, and they seem to be the only company poised to take advantage of solar + battery technology applications in the short to medium term. That alone will justify a fairly large valuation in my mind, discounting any applications to the car manufacturing side of the house.
- chollida1 10y ago
  I'm also an investor and love Tesla and I agree completely with this.... > The potential there with SolarCity's new panels and Tesla's advantage in battery pack manufacture is pretty big, This however is just plain old wrong.... > and they seem to be the only company poised to take advantage of solar + battery technology applications in the short to medium term. have a look at this list... http://cleantechnica.com/2015/01/15/27-battery-storage-companies-watch/ http://cleantechnica.com/2015/01/15/27-battery-storage-compa... or http://www.enfsolar.com/directory/component/battery http://www.enfsolar.com/directory/component/battery There are many companies doing solar/batteries. Some are large and very well capitalized like GE and Siemens. The only way you could consider them "the only company poised to take advantage of solar + battery" is if you didn't bother to look for any other companies:) I like Tesla's future but in terms of solar+battery they have alot of competition and its not at all clear that they are even the leader.

GigabyteCoin 10y ago

>Even if energy generation, storage and an auto powertrain are a seamless product, so-called vertical integration, in which one manufacturer makes all the components, was the old Henry Ford model and later, General Motors’. That approach has gone down in automotive history as a colossal failure. What is Tesla meant to do if nobody else is able to deliver what they demand? Ford Motor Company essentially created a new industry, which is why they had to make all their parts... Tesla is doing a similar thing here imho.

latj 10y ago
There are plenty of PV suppliers out there. I believe FSLR is the largest. The deal does make sense to me though. In the beginning it worried me that Tesla only had one product. One major flaw in the product could have ended them and they we creating a completely new kind of product that is expected to last decades. Now they have storage which makes sense because they can grow it along with their auto battery technology. But they also have these stupid stores where you cant really do much and you can only buy two things- a car or a battery for your house. It makes perfect sense to be able to buy the panels from them because otherwise you can buy the batteries from whoever you buy panels from. People who like Tesla are Apple users. They want complete packages, everything brushed aluminum with an apple or tesla logo on it.
Theodores 10y ago
In fairness Tesla tried outsourcing everything with the Roadster. However it didn't quite work out too well and, even though the problems were addressed, the lesson learned was that vertical integration was the way forward. Parts are outsourced still, the Falcon Wing Doors are outsourced to a supplier and plenty of components (e.g tyres) obviously just get bought in. Essentially the lesson learned from starting with 'outsource everything' and moving to vertical integration has helped lead to this. Shareholders could bear in mind that outsourcing has been tried.

cletus 10y ago

The best way I can describe this deal is that one of Musk's companies (Tesla) bails out another of Musk's companies (SolarCity) that owes a lot of money to yet another of Musk's companies (SpaceX). I'm really not surprised people are concerned about this.

vanattab 10y ago
How much does SolarCity owe SpaceX?
- Hypx 10y ago
  About $165 million: http://fortune.com/2015/08/07/this-is-why-elon-musks-spacex-has-been-buying-up-solarcitys-bonds/ http://fortune.com/2015/08/07/this-is-why-elon-musks-spacex-... Which will soon be $165 million Tesla owns to SpaceX.

forrestthewoods 10y ago

How much money has SolarCity gotten from the government? Looks like at least 2.5 billion [1]. Tesla and SpaceX haven't been super dependent on government funds. But SolarCity definitely has. Musk's real super power might be in getting free money. I suppose the phrase here is don't hate the player hate the game. But it still rubs me the wrong way. As unpopular as that opinion may be. http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html http://www.latimes.com/business/la-fi-hy-musk-subsidies-2015...

andys627 10y ago
Tesla got $1.25bn from State of NV: http://www.rgj.com/story/news/2014/09/04/nevada-strikes-billion-tax-break-deal-tesla/15096777/ http://www.rgj.com/story/news/2014/09/04/nevada-strikes-bill...
chatmasta 10y ago
Isn't the point of these government grants to give away "free money?" Would you rather they give the grants to some unproven electric car startup?
- forrestthewoods 10y ago
  I'd rather the government didn't pick winners.
  - chatmasta 10y ago
    So you're against government subsidies in general? This "free money" is part of pro-environmental policy. The point is to subsidize development in areas where it may be economically irrational without a subsidy, especially when the non-economic benefits are worthwhile to society. The nice thing about subsidies is they create a cascade effect. Once one company is having success in alternative energy, older companies are forced to catch up. The oil companies and automotive companies have all been dragging their feet. Tesla has already forced auto companies to ramp up EV development. Also, the government doesn't have to "pick winners." They can give the most money to Tesla, since they're clearly a better bet than an unproven startup, and still give money to new startups. Once a startup proves itself at the level Tesla has, it can get more money. There are plenty of subsidies to go around. It seems like a few billion dollars is a bargain price to pay for accelerated development of alternative energy.

abalone 10y ago

It makes sense. Tesla's raison d'être is sustainability. If at scale their product is still powered by dirty energy, it will undercut the product. It's not just a fast car, it's a clean car. If utilities don't keep pace with them in terms of solar deployments, it's literally a risk to the company. Empowering customers to directly source clean power at the grassroots level frees them from dependence on utilities.

Analemma_ 10y ago
> It makes sense. It makes sense strategically. I think most of the people complaining about the deal are more concerned with whether it makes sense tactically, since SolarCity is bleeding cash and wasn't expected to survive much longer, and will now be hitched to Tesla, which doesn't have a great cash flow situation either.
- tcoppi 10y ago
  SolarCity's immediate cash flow looks a lot better when you take away sale and customer acquisition costs, in fact it brings them very close to profitability. It is widely expected that the merger will close that side and bring it closer to Tesla's sales model, which is cheaper per customer acquisition.

jobu 10y ago

Most articles paint this deal as solar + battery + car, but the car part really doesn't matter here. The key part is solar + battery. Over the last year states have started increasing fees to hook solar into the grid and at the same time are reducing net metering rates (payouts for power generation). This has hurt Solar City over the last year and likely would've killed it long-term. I see Tesla using the Power Wall to make an in-home grid that uses solar + battery as the primary power source, and the grid is the backup power (for charging the battery with off-peak rates) . That way people can avoid paying fees for net generation, and the net metering rates don't matter.

tcoppi 10y ago
Not just an in-home grid, but the potential with the power packs and utility-scale solar for the grid as a whole is quite large as well, if they can get traction. Tesla is going to be the only one for quite a while with the battery manufacturing scale to make it cheap enough.
rottyguy 10y ago
I'll also add there has to be some solar power generation tie in, eventually, to Space-X as well.
the_watcher 10y ago
This is a good point. Sometimes it's hard to remember that the true innovation of Tesla was the battery. Once they had that, they built a car around it (I understand this is a massive oversimplification). But SolarCity probably helps Tesla continue it's biggest advantage for the future: the most likely Tesla for X remains Tesla itself. That said, the conflicts of interest and pretty clear move to bail out a failing company still bothers me
schiffern 10y ago
That's the "low road," (Tesla vs the utilities) but the "high road" (Tesla plus the utilities) is much more interesting imo. The plan is to offer grid stabilization services -- voltage boosting, phase correction, and demand shifting/response -- by aggregating together home batteries, utility-scale batteries, and scheduling EV charging. These are all valuable services for the utility. The revenue from these would be passed on to the end customer, "closing the loop" in our current perverse residential electricity pricing. What do I mean by perverse pricing? Ideally each customer would be billed based on and tailor demand to the real-time generation+distribution cost at their location on the grid (accounting for their individual line loss and utilization of their distribution and transmission connections), but this is far too complicated and prone to market manipulation. Even TOU pricing has an information lag from actual demand because of changes in demand and the rising percentage of renewable and distributed generation. And net metering is subject to the "solar death spiral" problem, which is quite real (though overhyped by utilities for their own purposes). One of the big advantages to making their own inverters is that each one acts as a grid monitoring station, relaying voltage drop and phase lag information back to the mother ship. Their EVs can already do this as evidenced by their OTA rollout of charging software that slows charging when overheating wires (voltage sag) or arcing (voltage spikes) are detected. In the not-too-distant future Tesla will have more raw information on the grid than the operators themselves, though obviously it's even more powerful when combined with their existing data. This combination can be done directly through data sharing or emergently simply by interfacing with the existing pricing system. None of this is speculative btw -- SolarCity's CEO Lyndon Rive[1] and Tesla's CTO and SolarCity board member J.B. Straubel[2] have talked directly about these plans before. [1] http://www.ustream.tv/recorded/87401050 http://www.ustream.tv/recorded/87401050 (mentions planned "smart inverter" that can monitor grid, returning revenue to customers, and that the goal with storage isn't off-grid systems but grid cooperation) [2] https://www.youtube.com/watch?v=zWSox7mLbyE https://www.youtube.com/watch?v=zWSox7mLbyE (mentions aggregating storage and EV charging over the internet)

jshevek 10y ago

> Even if energy generation, storage and an auto powertrain are a seamless product, so-called vertical integration [...] That approach has gone down in automotive history as a colossal failure. This kind of statement always bothers me. Just because several entities experienced failure using a method in the past doesn't mean that the method itself is guaranteed to fail always and forever.

VogonWorkEthic 10y ago
It's also pretty irrelevant. The vertical integration isn't for producing cars, it's for producing sustainable energy products. And we all remember why vertical integration is famous... the unprecedented success of the steel industry e.g. Carnegie and the other steel barons. The article seems premised on a false equivalency fallacy.

kragen 10y ago

A thing I don't understand about this article: "vertical integration…was the old Henry Ford model and later, General Motors'. That approach has gone down in automotive history as a colossal failure" Because clearly when we think about the role of pre-Baby-Boom Ford and GM in the history of the automotive industry the first term that comes to mind is "colossal failure"? Also it seems contradictory to say "Tesla shareholders" don't "despise [the] deal" and then point out that the stock price dropped 10% when the deal was announced. What determines the stock price, if not the previous and current shareholders? Gremlins?