For those unable to listen in, I will be live blogging the call.
Here's the guts:
Process points: why this may look different, but unique situation. Used to seeing an announcement with a definitive agreement. We are only seeing an offer. Elon is 5% shareholder, and must keep the market informed about his holders. Schedule 13-G must be updated even before an agreement is reached under SEC regulations. More transparent, actually seeing behind the curtain. Board approved the offer. Now have delivered offer to SolarCity, who will set up their process. Diligence 2=3 weeks to get a signed merger agreements and disclosures, financials and proxy statements. Shareholder vote in the next few months. Tesla doesn't decide public market price. Neither high nor low acquisition premium. Every element is very reasonable. Nothing out of whack. Extremely normal to have an acquisition premium of that size. Much lower than LinkedIn. Here we're talking about a 30% premium. You don't get to exchange on a zero premium. Up to the share owners. I think this makes things better in the future, not worse. Anyone voting against this is voting against their best interest. I have zero doubt about this. Arguably, we should have done it sooner. It gives us enough time to create a very compelling integrated product and bring that to significant scale next year. We don't have a good basis for doing some special deal with solarcity because it's potentially a conflict of interest, but goes away if we are one company. That's not a good rationale for working. No good moral or legal basis for treating solarcity differently, unless we are one company.
Sustainable energy production combined with stationary storage combined with EV is the solution to sustainable energy future. As we develop new versions of the powerwall and new inverter electronics, take the solar panels and system into account or you duplicate hardware. Integration is an issue. In terms of the sales process, powerwall sales drive solar sales. Not being able to sell solar directly at Tesla is inefficient.
Model 3 purchaser can buy equivalent value of solar and powerwall, effectively doubling the sale, and installing them at the same time. Synergy is a bad word, but it is more efficient, at sale, installation, maintenance and managing customer relationship.PRETTY OBVIOUS THING TO DO.
If we don't do this deal, we make Tesla's goals more difficult. Tide of history supports a sustainable energy future. Primarily solar. Virtually entirely electric vehicles. This deal helps accelerate sustainable transportation.
Does this increase our debt position? It really doesn't. We'll take a closer look at SolarCity. What really matters is recourse debt only. Cash flow is generating enough for the recourse debt. SolarCity is headed for a cash flow positive situation for the next 3-6 months. Reducing their growth rate to achieve cash flow positive. We expect it to be a net cash generator, when taking into account the greatly reduced cost of sales when made through our stores. Estimates are based on "what stands to reason" looking ahead to model 3 sales, if we are selling powerwalls of comparable value in the same sales footprint, our cost of sales should drop in half. Maybe not entirely in half. 30-40%.
Cost per watt for sales will drop in Tesla Motors showrooms/stores. It makes total sense and is a no brainer, but can't talk about material nonpublic plans. Except we are optimistic about those plans. To date solarcity has not been significantly differentiated on the product side, but basically will be in the fairly near future. Listen carefully to SolarCity earning calls, it should be clear that there is going to be Silevo for high efficiency low cost solar panels and improving the aesthetics. There is quite a radical difference between a panel that makes your house look BETTER than those that do not. After the conclusion, I will summarize all material disclosures in the post, so please let me know if I've missed anything.
Future product announcements is not yet public information, but I do believe it "fits together" with Tesla's plans with powerwall and powerpack side. 1% of US homes have solar. Massive addressable market that is unserved. At least 40-60 million households are possible for solar. Future market is gigantic. On cash front, don't expect SolarCity to have a material impact on Tesla's cash needs. Positive cash flow by the end of the year.
Silevo advantage is much more efficient than chinese panels. You can get 1/3 more power on the same roof. Aesthetically speaking Silevo panels look a lot better. Done right, we can make your roof look better with panels than without. The biggest asset we would be acquiring is the installers and all the people trained in permitting, paperwork, complexities across the country and how to deal with 37 different roof types. Standardized installations, and some strengths in the SolarCity sales side we can take advantage of. Silevo technology is going to make a big difference. This will be the lowest price per watt in the world. I've spent a lot of time in the trail plant and there is nothing to stop it from being competitive.
Yea. Storage costs will drop dramatically with each passing year. Exclusion of certain situations like NV and AZ, it will be ahead of the net metering. Like NY. 2-3 year time frame. Some utilities will exaggerate impact of solar on grid, but you do need to buffer the power. Valid, but exaggerated, argument. Will work fairly well. Ultimate solution for earth.
I think from a gut standpoint: what allows us to offer the most compelling product to consumers and business. A seamless integrated product is better. You don't want a heterogenous system integration problem. Interfaces break down, and people pointing fingers. One integrated system just works. We can guide the integrated product to just be better. In addition, cost savings to be had in the same store, if we can sell twice as much dollar volume. If installation crew is able to do everything in a single visit, then that's much better. Some percentage better, that's material. That's the threshold for making a decision. If you just cut the business logistics costs in half. With a seamless product, you have fewer breakdowns.