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The whole shebang

The whole shebang

I have just finished listening to the conference call for the proposed acquisition of Solar City by Tesla. Listening carefully to what Elon said, and reading between the lines with my jaundiced viewpoint, I believe the following is true. This is a rehash of my thoughts posted a couple of weeks ago but I feel even more confident about them now.
1)
Tesla will try, and largely succeed, in selling solar and storage with each Model 3 because of the overwhelming cost benefit to the consumer. This is because the gigafactory for solar panels will provide low cost and visually attractive solar, the gigafactory for PowerWalls will provide low cost storage, and the combination of currently separate physical components and wiring will provide the lowest cost system available.
The solar DC-AC inverter, PowerWall and HPWC will be combined into one unit with only one AC connection to the house wiring.
The Model 3 will allow vehicle to Powerwall, but not vehicle to grid. The marginal cost of 6kWh of storage cost will be less than the current $US3000 and will include installation. This means that the end user can become mostly self-sufficient in power, and totally off-grid if they choose, far cheaper than they can currently.
2)
From the statements that Elon made today, I believe Tesla is now moving into expanding as rapidly as possible in solar, storage and cars. They will only be restricted by their physical ability to expand, plus a year or two to prove out their giga scale production of solar, storage and cars, before replicating it.
Elon understands that Tesla will be the leader in all 3 areas. Elon understands that the near to medium term markets for all 3 are enormous. Elon understands the dire need for the immediate and large scale move away from fossil fuels. Elon understands that other companies are not stepping up to the plate. Tesla will be the largest company in the world within 10 years and we will have a better future for humanity because of it.

PS: It appeared that most analysts on the conference call just do not get it. They are focused on the short term financial aspect rather than the medium and long term benefits.

dansplans | 23/06/2016

Elon also has an ego about the size of Tesla's market cap.

Tesla will lead in electric cars for now, but there are billions of hungry Asian investment dollars dedicated to taking over the bulk of the electric car industry in 5 years. Tesla could be outpriced and lose dominant market share almost before they ever get to truly reap the riches from the revolution they have sown.

Tesla is not and never will be the leader in storage, at least not the way you envision. They are 2nd or 3rd rate on the technological side of storage. Maybe he has a rabbit to pull out of his hat on that front, I wouldn't know. The bottom line on storage is that Tesla will be hard pressed to manufacture enough storage for internal needs as electric cars become mainstream. They may never be able to catch up to the curve elsewhere on storage. In all honesty the Powerwall is not a particularly good or promising product. The Tesla name makes it popular, for the moment. Again if Tesla creates or buys world beating technology, I will stand corrected. Current Panasonic solutions are the biggest only because Panasonic are the biggest not the best or even close to it.

On solar, who would want to be the leader. It is now officially a commodity product with poor margins. Other than company insiders who sell out during an IPO, has anyone ever made any money from solar? To paraphrase GOT "being the leader of solar is a lot like having the biggest dick among your fellow eunuchs" Not going to do you much good.

Now having said all that, there is some merit to Tesla offering a one stop technology solution. They could well find this gives them additional market traction, for a time. They certainly do have the ball in their court. It remains to be seen if they can actually run with it. (Don't you just hate mixed metaphors?)

UnshodBob | 23/06/2016

Great topic title.

UnshodBob | 23/06/2016

Topic title: the whole shebang

It lets you know exactly what you'll be reading about.

David N | 23/06/2016

The entire concept of solar panels, power wall storage and electric cars is totally awesome.
The whole concept is a no brainer.
Sounds like Wall Street is saying "fabulous"
but you can't make enough in profits doing that.

DTsea | 23/06/2016

It is a distraction for Tesla and may sink them.

Mike83 | 23/06/2016

The Model S just doesn't sell like so many thought.

Mike83 | 23/06/2016

That was sarcasm ;-)

Tesla-David | 23/06/2016

Thanks @bb0tin, great summary, and I am totally on board, and think this will be a revolutionary approach that will totally disrupt the energy/energy storage/transportation sector. Go Tesla and Elon Musk.

Tesla-David | 23/06/2016

agh!, energy production/energy storage/transportation

Tesla-David | 23/06/2016

@David N, I believe that EM is focused on saving the planet more than just making money, by totally disrupting the energy (production/storage) and transportation sector away from fossil fuel use into sustainable solar energy.

warren_tran | 23/06/2016

You can't save the planet if you keep bleeding money. Business 101.

sp_tesla | 23/06/2016

"Mike83 | June 23, 2016
The Model S just doesn't sell like so many thought.

Mike83 | June 23, 2016
That was sarcasm "

The question is how to increase sales to catch up with shorten lead time & available production capabilities.

bb0tin | 23/06/2016

@dansplans
I disagree with almost everything you said. For instance, Tesla already does have the cheapest home storage as far as I can ascertain. Time will tell.

carlk | 23/06/2016

@bb0tin A nice summary. People who accuse Elon of losing focus probably do not know his mission from the beginning is to accelerate world's transition to sustainable energy. EV is just one part of the equation.

Dramsey | 23/06/2016

Here's the problem:

1. Tesla's never made a profit.
2. Solar City has never made a profit (as best I can determine; it seems that way going by GAAP). The stock has tanked over the last year.

So you have one money-losing company that must massively ramp up production to meet incredible demand for a product they don't have yet wanting to spend a vast amount of money (in stock) to acquire another company that's losing money.

You have to be a very forward-looking investor to buy into this. In other words, you must invest with your heart-- buying into the whole "warm fuzzies" thing of green energy/green cars/synergy thereof-- and not your head.

The market has been extraordinarily generous with Tesla. Consider that their market cap, at about $25.6 billion, is more than half the size of General Motor's market cap of $45.3 billion.

Think about that for a moment: General Motors sold almost ten million vehicles in 2014 and made almost $7 billion profit in that year. Tesla sold, what, 20,000 vehicles that year and made no profit...and yet the market thinks they're half as valuable as GM!

My point is that if the same market that, IMO, vastly overvalues Tesla is reacting poorly to the merger idea, maybe they're right.

(As a side issue, I am really, really worried about the whole Model 3 pre-orders thing. Coming from the computer industry, I have seen companies die from exactly this sort of thing many times, with Osborne Computer being the classic case...)

bb0tin | 23/06/2016

Anybody who bought into Tesla early has made a 7X return on their shares. They do not care if Tesla has never made a 'profit' or paid a dividend. Tesla does make a 'profit' on their cars, but they reinvest it in expansion.
If people understand where Tesla is now heading, then they will understand that current share price is now well undervalued. The convergence of technology, production capability, cost/price and the coming regulations to combat Climate Change does indeed make this a 'no-brainer' as Elon says.

warren_tran | 23/06/2016

That is good investment for early investor in Tesla. How many of the current share holders out of millions are those early investors. It is naive to think any investor put money down without regard to a company making profit or not.

It is ludacris to even make that statement. How long do you think Tesla can continue to burn cash without regard to profit (look back at 2013). It is even amazing that they haven't bankrupt.

By acquiring solar city, they just gain more risk and bailout another non profitable company that can't acquire any additional capital on their own. Why don't you go look at Solar city bonds details and come back and tell me how good that look when they are selling $.50 to the dollar value.

Tesla just acquire 1.7billion in recent capital raise to continue on their operation and carry out their plan. So now taking on another billions of debt for solar city would help tesla in their grand scheme of things?

bb0tin | 23/06/2016

Any current investor stands to make a large profit on their shares in the future. In the meantime, Tesla is not going to go bankrupt.

warren_tran | 23/06/2016

Do you have any shares in Tesla?

carlk | 23/06/2016

Someone mentioned Amazon in another thread. It has not made a profit in its first 20 years yet it continued to grow and becoming a dominate force that transformed retail and tech industries. And you know what? The investment community recognized that and rewarded the company with a very high valuation.

SCCRENDO | 23/06/2016

@bb0tin. Good summary. I have faith in Elon. However Solar City has to make significant changes. I got my Model S first. When I decided to go Solar I immediately called Solar City for a quote. Their salesmen were like used car salesman. All they were interested in was hard selling leases. Either a straight 20 year lease with slightly different payoff rates or what they were strongly pushing was to prepay the full 20 years. This they claimed was the cheapest. But you lose the 30% federal rebate and a further 20%. Their purchase cost was higher then the competition. I decided to go with the competition.

Dramsey | 23/06/2016

Someone mentioned Amazon in another thread. It has not made a profit in its first 20 years...

Not true: Amazon made its first quarterly profit in 2001 (after 6 years in business) and its first full year of profit in 2003. That said its profits since then have been sporadic. However your overall point is correct, and there are other parallels between Amazon and Tesla.

However, nobody remembers the thousands of companies that followed similar trajectories and went out of business.

bb0tin | 23/06/2016

@SCCRENDO
I believe Tesla wants Solar City for several reasons, none of which is for their sales strategy.
They want to be able to provide a full solution themselves of sustainable transport, power generation and storage.
They want to tightly integrate the PowerWall with the PV system.
They want access to the Solar City installers to install PowerWalls as well as PV.
They see the Silevo technology as a market leader along with the 1GW factory.
I would not be surprised if the Solar City sales strategy changes.

warren_tran | 23/06/2016

Bbotin -

You didn't answer my question. Do you have any shares in Tesla?

Carlk,
Tesla IPO in 2010. By your case of Amazon, tesla should have profit by this year (6th year). I don't see how they can be profitable within this year or next year if they acquire solar city.

It would more likely to push them out couple more years to be profitable.

SCCRENDO | 23/06/2016

@bb0tin. I hope that's true. I am in dilemma. I don't have Tesla stock and had some cash coming in and wanted to pull the trigger when it went down to $140. My cash was delayed and by the time it came the stock was back up. This may be a great buying opportunity. I'm not sure though. Am a little nervous about Solar City
@Warrentt. Does @bb0tin have stock? None of your business. But at least you know I don't.

warren_tran | 23/06/2016

Screendo-
I have my right to ask him questions as he does to other on this forum. It is call freedom of speech.

carlk | 23/06/2016

@bb0tin
"I would not be surprised if the Solar City sales strategy changes."

Someone mentioned in another thread begining in July you will only be able to buy from SolarCity. You can get a loan for the purchase but PPA or lease will no longer be available. Eventually it will be marketed as Tesla Energy product with the new Tesla sales model. A new begining for that part of operation.

bb0tin | 24/06/2016

@SCCRENDO
I deeply believe in what I wrote when starting this post :-)

bb0tin | 24/06/2016

@carlk
I believe from Elon's remarks that there are material changes in store for Solar City but he is not able to talk about them until after the acquisition.

warren_tran | 24/06/2016

Bbotin,

Based on your lack of response to my question, is it safe to assume you do not hold any Tesla stock. You make a statement to guarantee all current Tesla investor will make money in the future. That future is when? 1 years, 2 years or 5 years.

Words is cheap, action is what matter if you support your opinion.

compchat | 24/06/2016

@bbotin
"The Model 3 will allow vehicle to Powerwall, but not vehicle to grid."
So you are saying that one could charge a Tesla with a supercharger and then transfer that energy to a powerwall ? Will the powerwall charge be allowed to flow to the home for uses other than charging a Tesla ? Did he say how/who will control what happens to the energy in the power wall? For insance might I use it to serve my home during high day time power rates ? Or, just the car ?

" The marginal cost of 6kWh of storage cost will be less than the current $US3000 and will include installation. This means that the end user can become mostly self-sufficient in power, and totally off-grid if they choose, far cheaper than they can currently."

Boy that sounds really cheap because it includes installation. Did he say what powerwalls will cost for individuals who already have solar installation and HPWC ?

Since there is a huge variety of solar installs with different panels/inverters I expect that a Solar City engineer would have to inspect and design specific plans for existing solar users.

dansplans | 24/06/2016

@bb0tin - I agree 100% Tesla does have the cheapest home storage, but unfortunately neither the most technologically advanced nor the most cost competitive. The biggest problem in trying to do any cost comparison is the inevitable apples to oranges issue. Tesla sells a battery pack only. (ignoring Solar City for now) Their competition sells entire systems. The $3000 Tesla pack will cost minimum double that, after hardware, software and installation are added in.

Tesla does currently attract the lions share of the market because of their name recognition. However, the lack of technological leadership, combined with lengthy waiting lists, will drive consumers into the arms of competitors.

"Based on these figures, SolarQuotes estimated that each kilowatt-hour delivered from a Powerwall would end up costing an average of AUD$0.50 (US$0.39), making it more expensive than the residential storage offerings from Aquion, Redflow and Sunverge."

http://www.greentechmedia.com/articles/read/is-teslas-powerwall-luster-a...

bb0tin | 24/06/2016

@compchat
I posted about the car to Powerwall topic previously and those posts had answers to your questions. I believe that last week I provided you with the link and asked if you had read it. You did not answer.

Regarding the Powerwall. It is currently supplied to an installer by Tesla for $US3000 for 6.4kWh. I believe the cost of the battery cells from the gigafactory will be less than $US1000. The packaging and installation is included as part of the HPWC and DC-AC inverter product. I believe Tesla will provide their own DC-AC inverter. I am talking about new installs, not retrofits.

dansplans | 24/06/2016

@warrentt - the financials of the Solar City could turn out to be much worse than you imagine. Forget the $3Billion price tag. The deal more than $6Billion in debt/liabilities. Mind you that huge number is no doubt secured through the actual leased out systems in play. But realistically how much is a used solar array truly worth?

It probably won't all go south, but the possibility certainly exists.

chris.penrose | 24/06/2016

@dansplans

Elon stated in his talk / question time (well worth listening to BTW) that Tesla's redesign of PowerWall V2.0 highlighted that a better solution would be to design an integrated system of micro grid capable inverter, PowerWall, Solar panels and car charger.

They want Solar City under the Tesla banner primarily for the installer knowledge and the Silevo Panel technology. Sales would be achieved by a Tesla up-sell.

He made a point that there is no inherent reason the more efficient and attractive Silevo Panels will cost more to produce than the Chinese imports, provided a Tesla 'fundamental physics' approach is applied to the manufacturing process.

bb0tin | 24/06/2016

@dansplans
I agree that the total cost of a Powerwall is currently much more than $US3000. But that is because of installer costs and reseller margins. If those can be significantly reduced then the price drops. In Australia you can purchase an installed 4kW PV system with a Powerwall installed, including tax for $AUS14000 ($US10400). This is less than the linked article is quoting for just a Powerwall.

bb0tin | 24/06/2016

'This is less' should have been 'This is about the same'

Hi_Tech | 24/06/2016

Several additional points:

1. Solar City currently sells in only a portion of the US. Tesla merger would allow the market to grow across all of US and many places around the world.

2. Solar City worth is not based on the used panels, but based on the moneys still due (over the life of a loan). In short (if my research is correct), they've sold about $7b worth of product/services, they've received some of that money up front, but much of that is still to be paid as loan payments over the next 20-30 years. Even if you remove the debt from the amounts, Solar City has about $2.7b worth of future guaranteed revenue coming in, based on what has already been installed (roughly 2Gw of panel installs).

3. SC plans on installing roughly 1Gw of panels in 2016, and planned solid growth over the next few years (before any plans of merger with Tesla).

4. SC seems to have high costs around sales and equipment, which they will be able to reduce drastically with larger scales of installs, and bringing panel production in-house. Essentially, helping them get to larger profits sooner.

5. With the manufacturing renovation that EM was talking about for the Tesla cars, maybe the thought is to incorporate those innovations to the panel manufacturing industry and before far more efficient there as well.

Just my thoughts.

Tesla-David | 24/06/2016

Interesting article about Elon's strategy and vision for the integration of Tesla and Solar City.
"For one thing, it could translate to a lot more solar, storage and electric-vehicle adoption."
http://www.greentechmedia.com/articles/read/What-Would-Teslas-Solar-Stra...

elephant in a bottle | 24/06/2016

I wouldn't be surprised if Elon buys a small corner of Utah and builds GigaPlant 1

compchat | 25/06/2016

bb0tin | June 24, 2016

The link you posted does not work. I tried several times. Please check it and repost. Thanks.

bb0tin | 25/06/2016

@compchat
The thread has been deleted

Ross1 | 28/06/2016

@warrentt: As a small shareholder I would rather they invest my potential dividend in tooling and ramping.

sp_tesla | 28/06/2016

"Ross | June 28, 2016
As a small shareholder I would rather they invest my potential dividend in tooling and ramping."

Right on, must bring as much as possible up to par.

EcLectric | 28/06/2016

@UnshodBob,

At least we know we're NOT talking about enchiladas...