Investors Revolted by Tesla Motors’ Plan to Acquire SolarCity

… a struggling SolarCity could be a burden on Tesla, which is also using up cash fast. Tesla’s free cash flow last year was a negative $2.2 billion. In theory, then, a combination of Tesla and SolarCity would have burned nearly $5 billion last year. __ NYT

Tesla S Wreck  Electrocution Hazard for emergency personnel

Tesla S Wreck
Electrocution Hazard for emergency personnel

There are plenty of business and financial reasons to be skeptical of this deal: … Many observers believe that Musk’s plan is based more on a desire to shore up SolarCity’s faltering business than any benefits to shareholders or customers. The solar provider has been hit hard by turmoil in the market for residential solar power, and its shares lost 64 percent of their value in the 11 months before the deal was announced.

__ MIT Technology Review

SolarCity is losing its shirt, and threatens to drag Tesla down with it — if this deal goes through. Musk seems to be behaving in a most irrational manner here.

The MIT Technology Review article above points out that Tesla is making promises based upon technology that does not yet exist in the real universe. Normally, a company that made patently grandiose promises would be shunned by investors from the start, but we are talking about green unicorn investing here. Wishful thinking and suspension of normal critical judgment are common in this arena.

Musk double-down on stupid: Claims SolarCity acquisition will help Tesla grow to a $1 Trillion company!

Elon Musk’s track record demonstrates that he has certain areas of expertise — Software Design, Management of an Innovative Space Launch Company, and the ability to extract large sums of money from the US Federal Government and miscellaneous private investors. But Musk has demonstrated another, more troubling tendency: a penchant for grandiosity and making wild claims that have no substantive backing. In the investment setting, such weaknesses can be fatal.

Tesla shares plunged by more than 10% on Wednesday, a day after it proposed an all-stock deal valuing the solar-power company at up to $2.8 billion. Both firms are unprofitable, and SolarCity lost more than 60% of its value over the past 12 months. Its shares closed 3.3% higher.

… “The market obviously hates this,” said Shawn Kravetz, a fund manager at Esplanade Capital LLC in Boston who invests in solar companies and until recently owned SolarCity shares. “There are symbiotic relationships here, but cousins should not get married.”

Mr. Kravetz fears SolarCity shares could plunge even further if the deal fails. Barclays Capital said the deal would add another $2.6 billion in debt to Tesla’s balance sheet for a solar company with limited synergies and uncertain growth and cash prospects. __ WSJ

Some Things They Won’t Tell You

The “Warranty” is not the warranty

Many batteries (Redflow is a notable exception) have a degradation in their depth-of-discharge over time. This is usually buried in the warranty documents for the batteries. For example, the Tesla Powerwall warranty notes that after 5 years of operation, the battery is only warranted for 60% DoD – meaning that instead of having a warranted 6.4kWh per cycle from the battery, you are only warranted 3.8kWh per cycle. __ Battery Storage Comparisons

The “Great New Batteries” Are Empty Promises for Now

Tesla says it expects to drive down the per-kilowatt-hour cost of its battery pack by more than 30 percent by 2017. But it will take years for the Nevada factory to reach full production, and in the meantime Tesla will continue to import Panasonic batteries. For now, the Powerwall uses what are essentially commodity batteries that offer little performance or price advantages over competitors’ products.

__ MIT Technology Review

In other words, the promise to drive down costs by over 30 % by 2017 is no better than a duplicitous puff of smoke up the posterior of wishful thinking buyers.

Replacement Battery Packs for Teslas May Cost Between $15,000 and $40,000

… getting the new, roughly 70-kWh pack will set you back $29,000. Be warned: The new pack is heavier than the older one. __ Tesla Roadster Replacement Battery Pack

New 85 kwh battery packs cost $45,000. But you will get a trade-in discount for your old battery pack if it has been treated well and is not out of warranty. Replacement costs around $20,000 may be feasible, if the company is being honest about its current numbers — and not depending upon fickle government incentives to reduce prices.

I don’t believe that anyone knows the “true” battery replacement cost yet, as Tesla adjusts things all the time and only the 60’s can exceed their battery warranty before 2020. Don’t trust any price of an 85 kWh pack until 2020, because until then the numbers are only good for determining insurance replacement costs. __ Tesla Motors Club Forum

New batteries may not perform as advertised, and performance degrades over time.

… as measured by the car’s own system, the full usable capacity of a new 85-kWh Model S battery pack is 75 kWh. __ http://www.greencarreports.com/news/1100603_life-with-tesla-model-s-battery-degradation-update/page-2

EV Batteries Must Be Kept Charged

If you let your EV sit idle for “weeks on end” the batteries may well “brick” and refuse to accept a charge thereafter.

These are just battery facts of life. But it is disturbing that Tesla is willing to make product claims based upon unproven technologies of the future. And given the intrusion of government incentives into the entire process from planning to factory building to product manufacturing to sales and maintenance, there is no way that anyone can get reliable cost numbers from the company.

More:

Just Another Elon Musk Problem

Risky Business:

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. He has defended the practice as low-risk to other shareholders, given the sheer size of his personal net worth of more than $10 billion.

__ http://www.nytimes.com/2016/06/22/business/dealbook/tesla-solarcity-elon-musk.html?ref=energy-environment&_r=1

The stock value dilution problem

The company expects to open additional factories to reach Musk’s admittedly speculative goal of increasing the annual production pace to a million vehicles by 2010, and that will require a major infusion of cash, which means more common-share offerings—and more dilution.

Why is Musk willing to “go to the wall” for SolarCity? He obviously believes that the US government will bail him out if anything goes wrong with his solid plan of wishful thinking. At least he does not seem to be betting the financial future of SpaceX in the bargain.

Bonus: Battery University

Infographic on the evolution of battery technology

Courtesy of: Visual Capitalist
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2 Responses to Investors Revolted by Tesla Motors’ Plan to Acquire SolarCity

  1. Bob Wallace says:

    I thought Tesla was a fraud from the beginning. Cars run by batteries? Some people pay no attention to the power it takes to charge them and the fact batteries always wear out pretty darn fast.

    • alfin2101 says:

      It is hard to get excited over technology that dates back to the 1830s.

      Anyone who promotes both electric vehicles AND grid-scale wind & solar, is either quite stupid, quite corrupt, or quite thoroughly indoctrinated. Large fleets of electric cars need abundant, reliable, affordable electric power — ON DEMAND. Wind & solar cannot give you those things.

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