Tesla will save the Solarcity is sliding into the abyss

Polaris solar PV net news: electric car manufacturer Tesla this week issued to all solar energy provider Solarcity offer plans in the form of a total amount of about $ 2.86 billion all-stock acquisition of the latter.


Tesla will save the Solarcity is sliding into the abyss?

As the companies founder Elon ˙ musk (Elon Musk), this is a fundamental “without thinking” transactions, mergers and acquisitions will yield synergies, reduce costs, conducive to the operation and development of the two companies.

But in the eyes of the capital markets, this “natural” mergers, but it is a loss-making company in an attempt to rescue another heavily indebted loss making companies. In announcing the offer a day after, Tesla’s stock plunged more than 10%, reflects the investors in the deal have not been promising.

The two companies are currently in the operation of the financial losses, “a hotbed of” such a thing in the eyes of investors seemed less likely to occur, two companies with large debts, and together, perhaps not only to produce synergistic effects, but may lead to more severe financial crisis. Simple sum, the company has lost $ 1.66 billion in 2015, the free cash flow was a negative $ 4.79 billion.

Tesla is currently facing a new generation of electric cars Model3 capacity pressures and Solarcity is heavily dependent on United States energy subsidies, once new energy subsidies reduced or stopped, will have fundamental consequences for its business.

Whether it is Tesla and Solarcity, depicted their vision of the future is good: the human community will no longer need to use fossil fuels, running electric vehicles on the ground, all energy comes from renewable energy like solar, is just such a vision still needs to go through the real challenges.

Solarcity is heavily dependent on subsidy model risks

Solarcity was founded in 2006, initially originated from the musk of solar energy services to households of the idea, with the help of his, their cousins PeterRive and LyndonRive jointly established this company, musk is Chairman of the Board of Directors of the company.

United States average family, using solar energy as a main source of power is costly, to companies engaged in solar-powered services perspective, the resident market is not in the past they focused on business, because not reasonable from a business perspective, but Solarcity appears, fill this gap.

Through innovation of long-term rental mode, General residents also can enjoy to to low of price gets solar power of way, as long as and Solarcity signed rental contracts, the company will is responsible for to residents home in the, is responsible for roof solar Board and full system of installation, and debugging and follow-up of maintenance service,, user also can through intelligent phone Shang of APP, real-time monitoring solar power situation, master electricity volume and electricity cost.

This model soon was widely welcomed in sunny California, Solarcity has attracted a large number of users for a short time, was established a year later, Solarcity has become the leading solar energy service provider in California, by 2013, Solarcity has become America’s largest solar equipment installed residents of provider.

According to Solarcity2015 report, when all residents across the United States solar power system one-third is the company responsible for the installation, and in commercial and industrial solar energy equipment market, Solarcity held one-eighth shares. Since its inception, Solarcity for a total of 230,000 users installed a solar-powered device, 70% users are concentrated in California, Arizona, Massachusetts, Maryland and New York in 5 States.

From 2012 to 2014, Solarcity revenues achieved a double, because for the average electricity prices are relatively high and sunny area, Solarcity leases provided by too much power supply model is especially welcome.

But such a model one of the most obvious pitfall: too dependent on subsidies, Solarcity currently enjoy tax relief of up to 30%, which is United States Government encouraged one of the specific measures for solar energy industry, with such high subsidies, Solarcity to ordinary residents with price-competitive solar energy services in order to become possible.

For solar energy services industry, a harsh reality is: If out of subsidies in most regions and in most cases, using solar power cost is still far higher than other traditional means of power generation cost, and Solarcity’s main business-General residents a rooftop solar panel power generation, the cost is higher.

SeverinBorenstein, a professor at the University of California at Berkeley points out, if only in accordance with the cost of electricity, without regard to financial subsidies, “commercial solar power such a market does not exist.”

Despite for solar power of PV module of price in recent years has sharply declined, from 2008 of each Watt 4 dollars declined to 2014 of each Watt 65 cents, but for engaged in civilian solar service of company for, other aspects of cost to reduced, including for will solar Board access grid of conversion device of price, and will solar Board installation to roof of artificial installation fee,, these cost occupy has whole civilian solar system of 85%. MIT report noted that, even if the photovoltaic modules will be available free, the cost of solar power, eventually unable to compete and the cost of coal or natural gas power generation.

In such cases, financial subsidies for residents in solar mode only help to economically reasonable. In 2015, the annual earnings, Solarcity has clearly shown the risk to investors, said once the subsidies reduced, suspended or terminated, would “cause costs to rise, forcing the company to increase the price of solar energy systems, which could reduce market share. ”

In fact, future United States Government subsidies for new energy is indeed declining, similar companies like Solarcity currently 30% in corporate tax breaks, but the amount will be in 2020, down to 22%, starting in 2022, the tax amount will be lowered further to 10%, for Solarcity, obviously, reduction of subsidies is extremely bad.

In addition, Solarcity risks also include the overall raising of interest rates. At present, Solarcity through long-term lease contracts with the customer way of securitization, to obtain large amounts of cash flow to keep operating, the value of bonds is based on future rent discount to the current paid users to calculate, if rising interest rates, the discount rate will rise, causing bond values declined. Solarcity said in the risk, the current United States interest rates at historic low levels, mainly because of the Fed’s unconventional monetary policy, the future fed monetary intervention dwindling, even into raising interest rates track will make Solarcity’s further rise in financing costs.

In past of 3 years in the, Solarcity of debt quickly expansion has 13 times times to 3.25 billion dollars, and these debt of reimbursement need relies on made long-term rental contracts of customer of cash flow to support, in these huge debt in the, has 1.23 billion dollars of debt will in 2017 end of due, this is outside questioned this pen merger trading of main concern points, think this is one “Save action”, wants to relies on special Republika pulled to to Solarcity “transfusion”.

In the past year, Solarcity, near 60%, in value, less dependent on subsidies and increasing pattern, is no longer in the long term investors are bullish.

Productivity pressures on Tesla

As the acquisition of Tesla, the question does not of itself less than Solarcity. This year is holding a Grand Model3 of Tesla’s latest low end electric vehicle launches, and hundreds of thousands of book orders, one of the most actual problems in front of Tesla: capacity to solve.

From ModelS to ModelX, Model3, Tesla’s brand has been set up, along with the rich product line, Tesla’s next is to experience large scale production, to address the growing market demand and its own profit needs.

In fact, capacity has become Tesla’s priority. Mr MASKEY said at a recent investor conference call, your desk has been moved to the Tesla factory in fulaimengte, California, and even placed a sleeping bag in the room.

Tesla has previously said, 2016 will produce between 1600 and 1800 vehicles per week on average, according to this calculation, production for the full year of around 80000 to 93,000 units between the figures lower than previously expected, but for medium and long term, Thomas still insists that by 2018 would achieve the goal of producing 500,000, equivalent to 10 times now.

According to past experience, Tess cart delivery delays are frequent, thus Model3 in Tesla had promised delivery in 2018, you also need to call into question.

Research and development of new vehicles, opening up new production lines, set up shop, which require huge capital investment, according to Tesla 2015 reported cash flow for investing activities $ 1.67 billion in 2014, representing a substantial growth of 990 million dollars near 70%, most of this part of the cash from the bond financing. Tesla had expected 2016 a total investment up to $ 2.25 billion in 2015, representing a further marked increase, mainly for development and production of new Model3,

Musk has said previously, when Tesla car production reached a certain level of scale, that is, after 2020, can expect to turn a profit. At present, this goal was now to advance to the year 2018.

If the smooth completion of the merger eventually to Solarcity, which bring Tesla drag may far exceed Mr MASKEY said synergies from the, resulting in management of the two companies are in a more difficult position.

On two home company of actual control horses Republika grams,, first he need while should two home large burn money also not profit of company of financial problem, currently two home company not only debt, large of debt has directly and he personal directly related joint, he is Solarcity of “solar bonds” of maximum holds who, he of another a company, and engaged in rocket launches of SpaceX, also in last year March purchase has value 90 million dollars of the bonds, He also owned $ 2.51 billion to stock-hypothecated loan of us $ 475 million in the form of used to buy shares in Tesla and Solarcity, to inject capital into the two companies.

His explanation of the rationality of the merger, described this scene: when customers shop Tesla Tesla electric car or when a Powerwall, curious about solar power generated, and not to directly sell products related to solar energy inefficiency will make things, so after the acquisition of Solarcity can simultaneously increase product sales of the two companies.

Such idealized scenes can truly take place, is not yet known, musk, Tesla electric car interested customers and interested in solar power system customers are overlapping, but apparently the idea that there are impossible to verify.

There is no doubt that musk thought to achieve his long-term energy plan “perfect combination”, at least for now in the capital market, was a helpless self, completely replace fossil fuels with renewable energy vision, at least in the face of reality still looks fragile.

Original title: Tesla will save a solar energy company is sliding into the abyss

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