Thursday, July 27, 2017

Why SolarCity Has Become a Shell of Its Former Self Since Tesla Buyout (TSLA)

This is a $3,000,000,000 scandal and no one seems to care.
From The Motley Fool:

SolarCity was bought by Tesla only eight months ago, and most of the key players at the solar giant are now gone.
When Tesla (NASDAQ:TSLA) bought SolarCity last fall, some observers, including myself, called it a bailout of the residential solar installer. SolarCity's business was in trouble and Tesla bought it to save Elon Musk's reputation and millions of dollars for himself, his cousins, and SpaceX.

Less than eight months after the SolarCity deal closed, Tesla has lost most of its most important employees and laid off thousands of lower-level workers. SolarCity is a shell of itself -- and on Tuesday, it got a little weaker.

The last remnant of SolarCity is gone
SolarCity co-founder and Chief Technology Officer Peter Rive announced Tuesday that he's leaving Tesla. This comes shortly after former SolarCity CEO Lyndon Rive left the company, saying he wanted to be an entrepreneur again. Peter Rive put a positive spin on the move in a letter to employees, but it's extremely strange that months after SolarCity's buyout Musk has nudged or pushed both of his cousins out the door.

The solar company Tesla paid $2.6 billion for is now a shell of itself. The executive team is gone, Tesla is letting sales and installation staff go, and the solar manufacturing plant SolarCity thought would change its future has been handed over to Panasonic (coincidentally Tesla's Gigafactory partner). The justification for the acquisition has evaporated because there's not much left.

What happens to the solar roof? 
What's more puzzling is that Peter Rive was supposed to be the leader of the solar roof team. He was there from the beginning of the solar roof's development, but won't be there to see the product through to launch. And his exit has to call into question whether the product will ever make it to production.

There are still precious few details about the solar roof and it's unclear if Tesla can manufacture the product at all, much less profitably. And when you lose your engineering leader, it throws the product into even greater uncertainty....MORE
Some of the contemporaneous posts:
SolarCity/Tesla: Analysts React (SCTY; TSLA)
Not only is Tesla taking on almost $3 billion in SolarCity debt, it is also buying into the problem of even more negative cash flows, both Operating and FreeCashFlow.

Which of course, along with the corp. governance nastiness, explains why Tesla has lost almost 11% of its market cap, amounting to $3.14 billion on the 133 million shares out and more than the entire market cap for SCTY (98,296,422 shares at $22.30, up 5.2%).

The market is saying SCTY is worth less than zero to Tesla.

We'll have a lot more to say about this in the coming days....
Tesla-Solar City: Cousins Shouldn't Get Married (to each other) TSLA; SCTY--UPDATED
So, Who Will Write A Fairness Opinion On The Tesla/SolarCity Deal? (TSLA; SCTY)
More On SolarCity/Tesla and Fairness Opinions (SCTY; TSLA)
"Elon Musk Faces Cash Squeeze at Tesla, SolarCity" (TSLA; SCTY) 
"Short-Seller Chanos Calls Tesla-SolarCity Merger 'Crazy': CNBC Conference" (TSLA; SCTY)  
Today In Depreciation: Does Tesla Really Understand What It’s Buying in SolarCity? (TSLA; SCTY)
Tesla, SolarCity Tumble Ahead Of New Merger Financials (TSLA; SCTY)
Attentive reader may have noticed we didn't cover Mr. Musk's press conference on the roof tile solar panels last Friday. We've been at the market long enough to recognize a master magician's "hey, look at this" misdirection. The tiles aren't going to matter to anyone for at least a year, probably two, and by then I would expect the market to have changed to the  point that they will be recognized as a niche at best.

The oohing and ahing from the assembled journos was kinda funny though; in a naïve, never had to bet real money sort of way.... 
"Wait, Tesla Motors Might Need to Raise $12 Billion?!?!" (TSLA; SCTY)
We've been thinking $6 billion to cover the build-out of the factories in Fremont, CA and Nevada and the New York SolarCity plant along with funding the higher cash burn after the SCTY merger.

And we were at the high end....