Guest essay by Eric Worrall
As Elon Musk ramps up the hype over whether Tesla will hit its Model 3 production targets, another financial disaster may be unfolding at Tesla’s subsidiary Solar City.
Tesla’s Constant Turmoil Can’t Hide The Fact That SolarCity Is Dying
Jim Collins
JUN 22, 2018 @ 03:07 PMI am convinced that the financial media will never end its fascination with Tesla and this week has been even more rife with intrigue than most. While the actions of self-proclaimed whistleblower Martin Tripp—including his extraordinary email exchange with CEO Elon Musk—have garnered most of the headlines, there are more relevant news items for investors. Thursday’s Reuters article has the details of Tesla’s abrupt shutdown of a major part of its SolarCity sales network, and the ending of the company’s partnership with Home Depot had been announced last week in the press release detailing Tesla’s workforce reductions.
As Tesla’s struggles to perform the most basic assembly tasks at its Fremont car plant grab the headlines, the SolarCity news is signaling to the market a reality of which I have been convinced for some time: SolarCity is worthless. So, now the focus has to shift to that transaction, in which the former Tesla Motors paid 11 million shares of its stock to a company that was also chaired by its chairman and CEO and run on a day-to-day basis by his cousin (SolarCity’s former CEO Lyndon Rive.) The conflicts of interest were so obvious then, and even though most of Tesla’s Board members recused themselves from the SolarCity acquisition process, the simple fact is that Tesla picked up a lemon when they drove SolarCity off the lot.
…
How would the market perceive such a write-off given that Tesla is contractually obligated to spend $5 billion in capital in the ten years following the completion of the currently-in-construction (also being built by Panasonic) Gigafactory 2 in Buffalo? I am terrible at predicting Tesla’s share price movements over the short-term, but over the long-term, SolarCity will be a huge drain on the value of a car company that has been massively overvalued for years.
How different things would have been had Hillary Clinton won. Hillary Clinton pledged to install five hundred million solar panels during her presidency. Solar City would likely have been front of the queue to supply those solar panels, and Elon Musk would likely have pocketed billions of dollars of taxpayers cash helping Clinton fulfil her solar pledge.
Perhaps a Clinton victory is what Elon Musk had in mind when he bought out Solar City, and signed binding deals to build those extravagant Gigafactories.
If I was Elon Musk, I’d watch my back. Clinton’s mistakes have a history of sudden death!
104/5000
Musk should first and foremost watch the rear traffic if he wants to cross the road.
History repeats itself
And that is the incarnation of the welfare state. Without unlimited immigration, going on for ever more, it will collapse under its own weight.
Tesla, as I understand it, is only selling their solar shingle panels. These function as both a roof and an array of solar units. That’s actually a much better way to go than solar panels, whose lifespan can not match the shingles, leading to the needed to uninstall the panels, reshingle the roof, and then reinstall the panels. Since a panel installation’s labor costs about half of the price
of the whole system, that would get downright expensive. Howevere, the prices I saw for Tesla’s shingle solar collectors was quite high – up to $70,000 , depending. Which was justified by claiming that the shingles would somehow save enough electricity over 30 odd years , coupled with a rather stupendous $20,000 subsidy,to equal the installation costs. No mention of inverter costs. Tough sell, I’d say.
Even better for Musk. From the New York Times. Salvation is on:
“By Ivan Penn
May 9, 2018
347
SACRAMENTO — Long a leader and trendsetter in its clean-energy goals, California took a giant step on Wednesday, becoming the first state to require all new homes to have solar power.
The new requirement, to take effect in two years, brings solar power into the mainstream in a way it has never been until now. It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues.
That made the relative ease of its approval — in a unanimous vote by the five-member California Energy Commission before a standing-room crowd, with little debate — all the more remarkable.
State officials and clean-energy advocates say the extra cost to home buyers will be more than made up in lower energy bills. That prospect has won over even the construction industry, which has embraced solar capability as a selling point.”
California coming to the rescue.
A law that indiscriminately requires ALL new homes to have solar power has the following unintended consequences:
— ensures that building contractors will install the cheapest possible solar panels and associated electrical control and inverter components, thereby saddling future home buyers with poor quality, less reliable technology; that is, it’s no skin off the builder’s nose if the solar installation completely degrades and fails after 7 years if the builder only has to offer a 5-year warranty
— ensures that certain homes will be even more solar-PV inefficient due to shading from nearby trees and/or nearby buildings, and for PV installations on flat roof surfaces that are oriented north-south (less inefficient over a year) versus east-west (more efficient over a year)
— ensures that certain homeowners will have additional maintenance hours/costs (e.g., in semi-arid areas with blowing dust or in areas with large leaf falls in autumn, homeowners will need to periodically clean the solar PV panels) . . . and what about the mountain areas of California that have many months of snowfall during the year?
— ensures that neighbors will occasionally have unwelcome sun glinting into their widows from reflections off the solar roof panels on adjacent/nearby buildings
— ensures that the homeowner’s insurance rates will increase significantly above that of an equivalent house without rooftop PV solar (due to extra liability for firefighters, roof repairment, house painters, additional danger of electrical fire, etc.)
— possible increase in probability of lighting strike(s) due to running a conductive metal ground path to rooftop height . . . that is, solar panels may prove to be effective lightning rods
— ensures that certain homeowners who do a life cycle cost estimate for their specific solar PV installation and site location and find they’ll only continue to lose more money over time will act accordingly and have said solar installation stripped off their home as soon as possible (that assuming the same police state doesn’t pass another law that would make that a felony offense).
Let’s not forget, it also ensures that new housing will be less affordable.
“Tesla, as I understand it, is only selling their solar shingle panels.”
They’re being made, in small numbers, at Gigafactory 2 in Buffalo, which was financed by NY State. I’ve read that Tesla must pay NY $500 million per year for the ten years, starting soon. That’ll be quite a weight on its finances unless sales pick up radically.
To clarify, it’s committed to invest $5 billion over the next ten years there.
If it smells like crony capitalism, looks like crony capitalism, it must be crony capitalism..
Crony capitalism is just another word for socialism.
The Giga factories are Lithium battery factories Musk needs to make the EV sales figures he has always talked about. The batteries are needed mainly for the EVs. Some may go to Power Wall production, but that is small niche market that serves the wealthy, evenmore so than a Model 3 buyer. If you are wealthy, you are not going to buy a proletarian Model 3, you are going for a high-end Model X or Model S.
The Power Wall is hugely expensive, and in the expected service life of batteries, there is no way an ROI becomes positive wherever cheaper grid power is available 24/7.
So it is only a wealthy person wanting to express some Green Virtue that will fork over the huge cash to buy and install this house junk that will be obsolete in 10 years.
I keep telling people: Three Card Monte.
Musk has been playing a large shell game, adding shells as necessary. When will the merry-go-round end?
If the “regulator” is going to allow that, why even have one in the first place?
One constant with government regulators, they are ALWAYS captured by the industry being regulated eventually.
As long as Musk can smooth talk the suckers into believing that the ball is still under one of them.
Tesla investors are buying “the sizzle” in a huge way; they’re sizzle-suckers.
Me thinks he doth protest too much. I think Eric really wants a Tesla.
Simon,
I don’t know about Eric.
But I would love to be able to afford a Tesla.
And an elephant.
And a half-mile-long marble-and-amethyst drive up to me front door.
I could then buy something useful . . . .
Auto
Hey, a well-trained elephant can be useful. They’re still used in many parts of India for heavy lifting and as general draft animals. 🙂
High tech rent seeking huckster , right here in River City.
I’ve been following Bloomberg’s Tesla production tracker the last few months. It is almost always 2500-3000 cars made one week than 1500 the next week. Can someone explain why this is happening?
Because they run all their lines full blast the first week, then have to shut them all down for maintenance for the first few days of the next? Because they skipped the part of the automaking manual about staggering useage schedules so that only one or two lines are down at any one time, to keep production rates constant? Because they are Silicon Valley know-it-alls who’ve never made cars before? 🙂
Bloomberg mostly bases its tracker on VIN numbers reported by Tesla. (And also on numbers spotted and photographed in the wild.) Tesla reserves these from the government erratically, in large bunches, anticipating several weeks of production. It hasn’t reserved a batch in several weeks.
VIN numbers are not “reserved” from the government. Each manufacturer assigns them without needing any government approval.
AFTER the vehicle is built, the VIN is registered with the NHTSA
Correct; I should have said “reports.” The registration is done later, as CPP notes.
I predict on their next update they will show 1500 cars/wk while it currently says 2900.
The deal smelled bad at the time but then solar companies including Solyndra managed to hang on long enough to bomb others later. Normal investors and Wall Street know better but political deals and Musk are different.
“another financial disaster may be unfolding at Tesla’s subsidiary Solar City.” Without government “Crony Capitalism” to save bond holders it was bound to fail. From what I understand Tesla receives 12% of their profit (gross or net?) from Co2 cap and trade, which is nothing more than a hidden tax, and this “Dude” squanders tax payers money.
OCW …. did you mean to say earnings? Tesla is never profitable on an annual basis and has only ever had one or two profitable quarters when a lot of the government cheques showed up.
Buying Solar City isn’t the only bad bet Musk has made.
It won’t mean anything. Tesla’s stock price is operating under Trump Logic. Things that would normally be game-changers and company-killers are nothing due to the following and charisma of the leader, and nothing can truly shake this up.