Tesla wants to buy Solar City, become an integrated sustainable energy business

Musk wants to offer an integrated solution at Tesla stores: Solar to storage to vehicles.

Read the whole story

 

[gizmotoy]

Statistical[/url]":285967bn]

CraigJ[/url]":285967bn]

SLee[/url]":285967bn]

CraigJ[/url]":285967bn]
In Central Arizona SRP was able to change their rating to actually make solar more, not less, expensive for a lot of consumers. I ran the numbers and at best solar would be break even for me. It sure wouldn't save any money.

That's not surprising, the utility will almost always be able to generate electricity cheaper than you can with rooftop solar. High feed-in tariffs and net metering is the only way to make rooftop solar economical, but at the expense of all non rooftop-solar customers.

Except that it's not, or it doesn't have to be. All they have to do is only pay low wholesale for the consumer generated power. Or hell, don't pay for it at all. If I could connect up and push power back into the grid and not get paid for it, and pay them $25/month for the privilege, I'd still be ahead of the game. But if I want to grid tie, I have to pay $50 for the privilege AND I have to go on time of use. Which would make my bill more than I'm paying now even with the solar...

I guess I don't know your power situation, but this seems surprising to me. To me, Solar+TOU seems like the perfect match. Your panels are generating when rates are high (day), and you get a substantial discount on the power you use when your panels aren't generating (night). The only way I can figure you'd come out behind with Solar+TOU is if you have a small install that can only offset a fraction of your daytime usage. What am I missing?

It depends on the exact details of the TOU. If the peak rate of the TOU is something like $0.25 per kWh and the peak is 4pm to 8pm it is very very tough to come out ahead in solar. The devil is in the details. Exactly what the individual TOU rates are, exactly what times they occur, and what exactly what your solar output looks like.

As the cost of solar declines it may be possible to align with the TOU. Instead of having all south facing panels you could have some west facing panels. They will produce less energy overall but they will produce it later in the day (when solar output usually declines and TOU rates rise).

That being said TOU + Solar doesn't have to be bad. Here in VA (Dominion power) it lines up pretty well because the peak TOU isn't that much higher than the flat rate is for non-TOU (something like $0.14 vs $0.11). It really depends on the power company. If they want to make solar noncompetitive to reduce the number of installs it is pretty trivial to set the tou rates and times to ensure you don't gain much by using solar.

Thanks, that helps.

 

[pehash]

Statistical[/url]":68nbea10]

Musk has a larger share in Tesla than he does Solar City (both in % and valuation). If the deal is a bad one for Tesla then net net he stands to take a loss. Yes as you point out it almost certainly would be a stock deal it isn't like Tesla just has $3B in cash just lying around.

Family business.. you forgot about his cousins. SpaceX bought half the "solar bonds" issued by SolarCity.

Honestly I just see this as Elon and current CEO of SolarCity seeing this as a good synergy. I would imagine there is some overlap between consumers interested in a Tesla and consumers interested in getting solar power. The combined company can aggressively target both. Now it may turn out to just be a bad idea but I don't see any way that it could benefit Elon without benefiting Tesla or hurt Tesla without also hurting Elon.

Acquisitions are meant to strengthen a company's position in a competitive landscape. Is Tesla afraid that SolarCity might be inclined to work closer with GM next quarter? I think not. Is Tesla afraid that SolarCity won't be able to integrate its products with whatever the Gigafactory may churn out? Family business...
So the only logical conclusion is that Elon Musk is cashing out. If you disagree, buy some more Tesla shares.. down 10% already!..

 

[tech010101x]

For those that think there aren't any synergies, that's clearly not the case. I am apprehensive about residential PPA's and the financing that goes into that. However, from a Tesla Energy perspective, owning a solar panel manufacturer and especially a solar installer will make a lot of sense going into 2017.

The Tesla Gigafactory is expected to start making cells later this year, possibly in November according to a recent report. Tesla won't need the new 20700 cells for the Model 3 until the 2nd half of 2017. If the triple capacity number that Musk gave during the shareholder's meeting is correct, then we're talking about roughly 10 GWh of cell production in the first half of 2017 for Tesla Energy products.

The new 20700 cells will require a new revision of the PowerPack and PowerWall. Everything residential is a sideshow compared to what is going on at the utility and commercial levels. Here's a report on what is likely the largest Tesla Energy project thus far, developed in conjunction with Solarcity:

https://www.greenbiz.com/article/solarc ... play-kauai

If the figures in that report are to be believed, Kauai signed on to buy power from a SolarCity 52 MWh storage battery with 13 MW of solar project. The storage batteries are Tesla Energy PowerPacks. It will be enough storage to run the island on battery power for 5pm to 10pm each night. According to the report, Kauai is going to pay $0.14/kWh for this.

$0.14/kWh is merely 2 cents over the average residential grid electricity price. If that's true, this is a real game changer. At $0.14/kWh, that's already grid price competitive in many parts of the world.

Now, this is *before* the advances with the Tesla Gigafactory lowering cell costs even further and with the Solarcity Gigafactory making Silevo solar panels. Then the costs could drop below the average U.S. residential grid pricing. The demand would be insatiable.

So... at 10GWh next year of batteries, Tesla Energy would need a lot of infrastructure to handle the production, sales, installation, and support of that much storage. Hence Solarcity might make a lot of sense.

As the Gigafactory scales towards 100 GWh, with 50% of that being Tesla Energy, we're talking 50 GWh of energy storage in the early 2020's.

 

[Lonyo]

The FT had a nice writeup with a bit more depth on the financial ties.

Contrary to what someone posted, Musk in fact owns MORE of SolarCity (22.5%) than of Tesla (21.1%) although the value is less.

Fidelity Asset Management are the second largest shareholder of both at 11.1% of Tesla and 14.9% of SolarCity.

More significantly (arguably):

Mr Musk’s financial ties to SolarCity are also complicated. SpaceX, his private space company, has invested $165m in SolarCity’s bonds. Along with Lyndon Rive, he has also personally invested $13m in the company’s convertible debt. And Mr Musk has pledged 4m of his 22m SolarCity shares as collateral against personal borrowings from Morgan Stanley.

A steep fall in SolarCity’s share price this year has increased the possibility he might have to put up more collateral. At the same time, the solar company’s financial position has increased the risk from its borrowings. In a note to clients before Tesla’s buyout proposal was announced, Goldman Sachs said the company might be at risk of breaching a covenant on a $399m revolving credit facility this quarter. The bank added, however, that it did not expect such an outcome, and that SolarCity should not face the same risk in future quarters.

http://www.ft.com/cms/s/0/e8272396-3839 ... 6126f.html (paywall)

Basically he has his fingers in pies that have fingers in each other.

 

[johnsonwax]

While there are clear benefits here, the cynical view is that Tesla has set a production targets for the model 3 that nobody other than Musk thinks are realistic. They need a significant amount of capital (upwards of $10B) before they can realize revenue on those vehicles simply due to the long time-to-market for automobiles. SolarCity's subscription model provides cashflow that Tesla needs.

I'm mixed on this one. From a technology perspective it makes sense. From the vantage point that cars themselves may become subscription services it makes sense. But everyone is looking at the Model 3 targets and wondering how the hell he plans to pull it off, so it's hard to not view this through that lens.

 

[johnsonwax]

ProphetM[/url]":3swcczzq]

SLee[/url]":3swcczzq]

CraigJ[/url]":3swcczzq]
In Central Arizona SRP was able to change their rating to actually make solar more, not less, expensive for a lot of consumers. I ran the numbers and at best solar would be break even for me. It sure wouldn't save any money.

That's not surprising, the utility will almost always be able to generate electricity cheaper than you can with rooftop solar. High feed-in tariffs and net metering is the only way to make rooftop solar economical, but at the expense of all non rooftop-solar customers.

The Nevada Public Utilities Commission studied the costs & benefits and determined that net-metered solar customers were actually saving the other customers money, because of the savings to the power company in areas like transmission costs and required capacity.

Depends entirely on the regulatory model. In CA, the general model is to incentivize lower per-capita consumption and in return utilities get to take back half of the lost revenue by raising rates (consumers keep the other half). CA per-capita utilization has been flat for 40 years, compared to a doubling in other states. In most states the utility extracts profits by expanding consumption and building into that. They see their market differentiation in their ability to build efficient plants where CA has set it up so that the profits come from reducing transmission. That plays directly into consumer solar which is why nearly ½ of the nations solar buildout is in CA despite other states having more favorable conditions (remember that SF is the same latitude as Wichita and Richmond).

The problem in states that have been investing in fossil fuel production is that they are facing a situation where the loss of revenue to consumer solar would undermine their ability to repay long-term bonds for the construction of that production. That leads to a vicious cycle where companies, because they have capital commitments, need to extract economic output for their own needs. In CA things are somewhat better aligned because the utilities have a much different role to play toward the overall economy.

The difference is entirely the function of government and ideology and how decisions are made. It's why functional governments matter.

 

[pehash]

johnsonwax[/url]":atetzemy]While there are clear benefits here, the cynical view is that Tesla has set a production targets for the model 3 that nobody other than Musk thinks are realistic. They need a significant amount of capital (upwards of $10B) before they can realize revenue on those vehicles simply due to the long time-to-market for automobiles. SolarCity's subscription model provides cashflow that Tesla needs.

I'm mixed on this one. From a technology perspective it makes sense. From the vantage point that cars themselves may become subscription services it makes sense. But everyone is looking at the Model 3 targets and wondering how the hell he plans to pull it off, so it's hard to not view this through that lens.

Are you serious? SolarCity's "cashflow"?.. They're not making enough to pay their debt.

 

[san08880tos]

Wow this is amazing news...It's great to see an entrepreneur with this kind of vision to change the world as we know it.

It's even better to be partnered with him in the opportunity of a lifetime. If this deal goes through then I guess I'll be able to add battery packs and Tesla cars to the products me and my team can offer!

I thought being able to offer Solar City's panels was enough but this will blow things through the roof!

I'm always looking for new partners - https://powur.com/with/daniel.dossantos/join

 

[mla]

Chanos on the deal:

https://finance.yahoo.com/video/chanos- ... 00856.html

He's short both TSLA and SCTY.

 

[SLee]

johnsonwax[/url]":139220pp]While there are clear benefits here, the cynical view is that Tesla has set a production targets for the model 3 that nobody other than Musk thinks are realistic. They need a significant amount of capital (upwards of $10B) before they can realize revenue on those vehicles simply due to the long time-to-market for automobiles. SolarCity's subscription model provides cashflow that Tesla needs.

SolarCity sold some of its future cash flow to John Hancock:

http://www.prnewswire.com/news-releases ... 61532.html

SolarCity is also in need of cash and short-term liquidity.

 

[jimisawesome]

Why? The only reason this makes sense at all is to have something to blame when they miss profitability yet again and then use incorporating SCTY into TSLA as why the Model 3 deadline slips. This is going to bring on shareholder lawsuits because obviously this was in the works when the company just issued additional stock a few weeks back but did not mention this. I am sure more then a few of the shareholders thought they where giving money to help build the Model 3 which would help lead to profitability instead of this cash blowtorch.

 

[Statistical]

Why? The only reason this makes sense at all is to have something to blame when they miss profitability yet again and then use incorporating SCTY into TSLA as why the Model 3 deadline slips. This is going to bring on shareholder lawsuits because obviously this was in the works when the company just issued additional stock a few weeks back but did not mention this. I am sure more then a few of the shareholders thought they where giving money to help build the Model 3 which would help lead to profitability instead of this cash blowtorch.

How can there be a shareholder lawsuit when the shareholder have to approve the deal. It is like saying I am going to sue the govt if Trump wins because I don't want Trump to win. If you are a shareholder and don't like the deal you vote against it and hope the majority agrees with you.

 

[buzz86us]

this could be a good idea to bring out more charge stations in residential areas and maybe make the Solar City customer have no energy bills through subsidized energy usage..

 

[mla]

Statistical[/url]":2sha6tjt]
How can there be a shareholder lawsuit when the shareholder have to approve the deal. It is like saying I am going to sue the govt if Trump wins because I don't want Trump to win. If you are a shareholder and don't like the deal you vote against it and hope the majority agrees with you.

It's not the deal itself, it's the lack of disclosure. If the company had material information about a potential merger before they did a new capital raise, don't you think it's a bit unfair to those investors?

 

[evighed]

SLee[/url]":1ryf1pm1]

evighed[/url]":1ryf1pm1]
That doesn't follow. Solar panels generate power during daylight hours, which include peak power consumption times. Power grid customers with solar will typically consume most of their grid power at night, when power companies have lots of generation capacity and nobody to sell it to. Except for the total number of kWh sold, the arrangement favors power companies.

Peak electricity demand is in the late afternoon to mid-evening, when solar is weakening or non-existent.

http://www.caiso.com/outlook/SystemStatus.html
http://www.ercot.com/content/cdr/html/l ... ntDay.html
http://www.ieso.ca/Pages/Power-Data/default.aspx

California, Texas and Ontario, the two most populous states and the most populous Canadian province all show the same pattern.

Roof-top solar households consume most of their electricity at the same time everybody else does, when they get home and up to bedtime.

You have a point, but that data does not break down demand based on usage by customers with or without solar installations, so it does not provide enough information to come to any real conclusions.

Brookings has done a fairly comprehensive analysis, which shows that overall solar is beneficial to all power customers, not just those using solar. Not that that will make all utilities happy, since the ones that are not struggling to keep up with demand will not be able to sell as much power.

 

[CraigJ ✅]

gizmotoy[/url]":1mzs4kj9]

CraigJ[/url]":1mzs4kj9]

SLee[/url]":1mzs4kj9]

CraigJ[/url]":1mzs4kj9]
In Central Arizona SRP was able to change their rating to actually make solar more, not less, expensive for a lot of consumers. I ran the numbers and at best solar would be break even for me. It sure wouldn't save any money.

That's not surprising, the utility will almost always be able to generate electricity cheaper than you can with rooftop solar. High feed-in tariffs and net metering is the only way to make rooftop solar economical, but at the expense of all non rooftop-solar customers.

Except that it's not, or it doesn't have to be. All they have to do is only pay low wholesale for the consumer generated power. Or hell, don't pay for it at all. If I could connect up and push power back into the grid and not get paid for it, and pay them $25/month for the privilege, I'd still be ahead of the game. But if I want to grid tie, I have to pay $50 for the privilege AND I have to go on time of use. Which would make my bill more than I'm paying now even with the solar...

I guess I don't know your power situation, but this seems surprising to me. To me, Solar+TOU seems like the perfect match. Your panels are generating when rates are high (day), and you get a substantial discount on the power you use when your panels aren't generating (night). The only way I can figure you'd come out behind with Solar+TOU is if you have a small install that can only offset a fraction of your daytime usage. What am I missing?

That's not how it works with SRP, and in Arizona in particular.

The hottest time of the day is between 3 and 7 PM. If you have panels facing south to capture the most energy, when the temperature peaks you start losing panel efficiency. So you start pulling more power off the grid as the rate increases. Peak is something like 3PM to 8PM. There is also a morning peak time, but that's not usually an issue. The on peak rates are significantly higher than non-peak. But if you are a non-solar customer you don't have to be on time of use, so you can crank your AC at 5PM, wash the kids cloths, turn on the oven, start the pool pump, and all that, and not worry becasue you're paying a flat rate.

The only way to offset the peak is to face your panels west so they are getting max light in the afternoon. But then you get minimal power from Morning until about 2PM.

I've run the numbers 8 ways to Sunday and I can't male them work. I called Solar City and they basically said if you're with SRP and not grandfathered in, don't bother, we can't make it work. APS, at least in this regard, works well.

THe only way I could make it work would be a 30kW system with 20+ kWh of storage and go completely off grid. ANother solution I've been looking at is putting some of my circuits (water heaters, refrigerator, lighting, etc, on a separate box and running all that off grid. But then you run into a cost/benefit wall. Hard.

I got downvoted to hell above, but the reality is that the regulators are all industry insiders and we are seeing regulatory capture at its finest here in the Southwest.

I don't even care about net metering, really, Just let me grid tie my system and stay on the standard rate plan. I'll get a couple of batteries to hold the excess generation instead of sending it up the wire.

Edited to add,

If these rating changes were REALLY about conservation and helping offset the cost of delivering electricity, then the utilities should be open to something like:

Having a 12 or 14 kW rooftop system and 14 kWH of storage that allows me to cover most of my power needs from 10AM until about 7PM, then pulling power off the grid between 7PM and 10AM, when the demand is lower, and not having to pay me for my excess power (no net metering). Seems like a win-win, right? AFAIK thus far they won't even consider that type of arrangement. Ergo, this isn't about conservation and reducing demand during peak time, it's about selling more power. If it were about conservation and reducing demand during peak time, then they would have everyone on TOU to encourage changes in power usage habits. But they don't. They won't even consider it. Because people would end up using less power overall, and guess what? They sell less power.

But since most of the regulators are insiders with skin in the game, well, you figure it out.

 

[jimisawesome]

Statistical[/url]":xgydpvns]

Why? The only reason this makes sense at all is to have something to blame when they miss profitability yet again and then use incorporating SCTY into TSLA as why the Model 3 deadline slips. This is going to bring on shareholder lawsuits because obviously this was in the works when the company just issued additional stock a few weeks back but did not mention this. I am sure more then a few of the shareholders thought they where giving money to help build the Model 3 which would help lead to profitability instead of this cash blowtorch.

How can there be a shareholder lawsuit when the shareholder have to approve the deal. It is like saying I am going to sue the govt if Trump wins because I don't want Trump to win. If you are a shareholder and don't like the deal you vote against it and hope the majority agrees with you.

There can be a shareholder lawsuit for almost any reason but in this case this was material information that was kept from them when they went back for another offering a few weeks back. Tesla is attempting to take on almost 3 billion more in additional debt while having a company that is burning though cash faster then even Tesla is. The stockholders of TSLA are being diluted in this deal except for Musk.


Edit. This is even worse then I thought. Here is the board make up of the companies.

TSLA- Elon Musk, Antonio Gracias, Kimbal Musk (Elon bro), Brad Buss (Solar City CFO until retired this year), Jurveton (VC board member for Draper Fisher Jurvetson)
SCTY- Elon Musk, Antonio Gracias, Lyndon Rive (Musk cousin), Peter Rive (Musk cousin and Lyndon brother), Jeffrey Staubel (Tesla CTO), Fisher (VC board member for Draper Fisher Jurvetson)

That leaves 2 board members for each company that do not have huge conflicts right off the bat.

And just a reminder Dell just lost a shareholder lawsuit over the share price paid when it went private a few years back.

 

[ED(I)]

I'll make no attempt to analyze the logistic side, but just looking at the facts, I just can't see the evil scam spin.

Musk is saying he thinks it makes business sense to trade TSLA shares for SCTY shares. This only means he thinks TSLA is grossly overvalued relative to SCTY. He has the largest position and he is willing to do it. Why doubt him?

If the deal doesn't go through, you'll still have the overvalued TSLA shares and/or a position in a likely bankrupt power company.

 

[BenediktP]

From what I've read and heard about Elon Musk, the situation might be as follows.

After going through the planned steps to establish electric cars in the mass market, he might consider that a solved problem (even Porsche announced an e-car, BMW is selling them already, VW is moving towards electric cars, there's the Nissan Leaf, ..., Harley Davidson seems to have a compelling prototype of an electric motorcycle called "Livewire",...).
That means future work at Tesla Motors means building more cars for the mass market, some new models like a pickup that he talked about once and something like a autonomous bus/car-sharing vehicle. This is something that he might consider as boring which means he just might be moving on to the next (maybe even larger) goal. (Remember PayPal, SpaceX, Tesla always took on businesses that he considered inefficient or 'ripe for a disruption' (Buzzword alert. Energy suppliers seem to lie in that direction as it seems.
If he's doing the same thing as he did with electric cars, he might make the Powerwall / PV solution a more compelling product (he's been taking about making PV installations on rooftops more attractive (anyone thinking of Franz von Holzhausen here?) and easier to manage via a single interface) and maybe there's a huge opportunity abroad as well. There's still large parts of the world where electricity is scarce or not available because it doesn't make sense to build transmission lines to the hinterland. A combination of these technologies might make perfect sense there. It would be the same thing as with mobile phones being used all over Africa, because it didn't make sense to build landlines there. They would just skip the "wired" technology step. Not sure if that's a market that Tesla wants to be active in but it seems like a huge opportunity.

First and foremost his goal seems to be to "make future a better place" and sustainable energy production and consumption have always been of his interest. Tesla is rather an incarnation of that than a car company, imo.

PS: I'll edit this post if I have more thoughts regarding this.