TSLA buying SCTY

Surprised to hear this.

Elon Musk is chairman, largest shareholder of both companies

Tesla Motors Inc., Mr. Musk’s Palo Alto, Calif., electric-car company, on Tuesday offered to acquire SolarCity Corp. in an all-stock deal valuing it at up to $2.8 billion. Mr. Musk is the chairman and largest shareholder of both companies.

Tesla shares tumbled 12% in after-hours trading following Mr. Musk’s announcement, while SolarCity shares surged 15%.

Tesla, in a letter to SolarCity Chief Executive Lyndon Rive—also Mr. Musk’s cousin—said its offer represented a value of between $26.50 and $28.50 a share, or a premium of roughly 21% to 30% over SolarCity’s Tuesday closing price of $21.19. The mothers of Messrs. Musk and Rive are twin sisters.



In the letter, sent to SolarCity co-founder and CEO Lyndon Rive, Tesla’s board of directors offered to buy all of SolarCity’s remaining common stock in exchange for Tesla’s common shares. That’s $26.50 to $28.50 a share, according to the board.


Urrh - that’s 3 takeout bids at premature exit offer levels in 2 weeks, all getting a bit annoying now.

Yeh - it was 26.50-28.50 per share until the paper value of Tesla dropped.


Urrh - that’s 3 takeout bids at premature exit offer levels in 2 weeks, all getting a bit annoying now.

I think it’s quite smart of Musk to trade suspect highly valued shares for underpriced shares.

Reminds me of AOL’s purchase of Warner Bros years ago.
When your shares are silly priced, spend them!!



I think it’s quite smart of Musk to trade suspect highly valued shares for underpriced shares.

Good for Musk. Maybe not so good for Tesla shareholders.

You should really know your management before you hand your money over to them.

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There’s a good discussion of this going on over at the Value Hounds board. Stillwater9999 makes a very good point:

TSLA down about 9% losing $3B in shareholders money today.

I mean just wow. It’s all a big joke. TSLA lost more in value than they just paid for all of SCTY. Running on dreams but no actual profits is a good way to see your money go poof

It just strikes me as completely indicative of the problem with both of these companies. When you buy TSLA or SCTY (or NFLX), you’re paying up for a possible future that simply may never happen. SCTY used to be valued at more like 6B. It’s already shredded billions for shareholders, even before this debacle.

I may do a lot of things wrong as an investor and have a lot to learn, but I’ve seen enough to be pretty confident about this. If you are overweight in these types of companies, I implore you: get out while you can!


I don’t see the synergy here. And then there is Elon…

I’ve been negative on SolarCity from day one and I can see no reason for anyone sinking money into that hole. The deal does not pass the smell test.

Denny Schlesinger


What is the “idea” of Solar City, vs. the “idea” of more solvent solar companies like First Solar?

I’ve gotten good at enjoying the interesting story of a company (The Saga of Elon Musk, and all that) without involving my money.

Well, I didn’t entirely leave my money uninvolved. A couple of months back, I bought long-term puts and calls on Tesla, because I figured it would jump up or down a lot, I just didn’t know which way it would go first. I got antsy waiting, and sold the calls at a slight loss. When Tesla dropped on the recent Solar City news, I sold the puts for a slight profit. I think I ended up with a net profit overall, but well under $100.

I have similar bets still active on Netflix. Right now, my puts are worth about what I paid for them, and the calls are worth quite a bit less.

I learned that options are trickier than I thought. They don’t correlate nearly as closely to the stock price as I expected. I bought puts on Sears, for instance, and too often their price will go down even when Sears stock is going down. And this is with options that have more than 18 months left. It might have to do with their being pretty far out of the money.

I also need to learn more about choosing a strike price.

My most successful options play so far has been betting against Valeant. I’m holding a bunch of $5 puts that expire in January of 2018. I’m hoping that will give them enough time to go bankrupt, or at least go through some more financial disappointments and federal investigations.

Selling puts and covered calls, on the other hand, is not speculation as much as it is hedging. Same with buying puts on stocks that you own.

Mostly what I do with options is sell puts on stocks I want to buy, and sell calls on stocks that I hold that I’m ready to sell.

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When you buy TSLA or SCTY (or NFLX), you’re paying up for a possible future that simply may never happen.

That’s actually true for all companies. No company has a guaranteed future. The 3 companies you mention are quite different in their growth prospect.

NFLX has had a great run, but it’s already close enough to saturation that there’s no way it can grow like it used to (or it’ll simply cost too much for the growth), unless you think China will somehow open up. For comparison, AMZN has the same saturation problem with online sales, but Web Services is a whole new market for them that should help them continue to see good growth.

TSLA looks poised to grow dramatically as it brings the prices of its cars down. Could another company kill them? Could happen, but many of the lessons of The Innovator’s Dilemma tell us it won’t. Big OEMs can’t risk going all in for EVs, even if they believe in them. They have to be followers at best. More importantly, the kind of scale to which Tesla aspires is still below what the big players need. Companies like BMW could take that risk, but so far don’t act as if they’re convinced. And Tesla has differentiators like their world-wide Supercharging network that will be difficult for other companies to replicate.

SCTY is a laggard. With no differentiator in product or service, it’s hard to see how they could become super successful. They competed against lots of local companies in different markets, and it’s hard to see how being national was more than a minor advantage. I think what’s going on is that Musk is buying his own under-performing company at a low price so that it won’t fail. It does add some interesting sales synergies to Tesla, but Tesla didn’t have to buy Solar City in order to sell Solar Panels in its stores. As a TSLA stockholder (but not SCTY), I’m a bit bummed about the move, but it could turn out to be a very good long term play. A fair number of new EV owners also get solar installed (to run their cars on sunshine), so there is something about having cars, solar panels, and home backup batteries all sold in the same place.

If you are overweight in these types of companies, I implore you: get out while you can!

So, are you going to add these companies to the short side of your CAPS profile?

Will Solar City be a good long term investment?

This has to be answered in terms of comparison to Tesla.

In that respect, the answer is NO.

There are comparisons, such as when Hewlett Packard bought out Compaq, instead of focusing more on higher margin software or services.

Solar City will always be a materially lower margin product, a far less cash efficient business, that will always bring down Tesla’s margins and cash efficiencies.

No one has located any synergies between the merger.

Any marketing synergies could be accomplished by joint ventures, partnerships, and such.

This is hubris and nepotism.

Sure, the “non-conflicted” directors will make the decision. Except, there really are no non-conflicted directors, because every director has a long-term self-interest in staying in the club, and getting along with Musk.

Is what it is.

If Solar City really were so undervalued, it would hold out for a much higher bid than a 20-30% premium over the then share price. But, alas, there were no other bidders.



alas, there were no other bidders.
In itself a sign for worry about the deal.
Does Musk know something nobody else does? That seems unlikely.
OTOH Musk could just be thinking farther ahead than anybody else.

Snip "Does Musk know something nobody else does? That seems unlikely. "

I am wondering whether he knew about the SCTY bid at the time of the Common Stock offering and whether it was communicated to Morgan Stanley and Goldman Sachs Group Inc.?

How often does one start off with multiple bids for a company … especially one that has done nothing to signal that it is for sale? Sometimes, after one bid comes out, another company will say “that seems interesting” and make another bid, but in this case the first “bid” is not even a bid yet.


You forgot to include a critical element in your analysis. The actual numbers. Without them, these are just stories. We can actually quantify the “priceyness” of these companies by comparing their sales and earnings to their market caps.

This is where the rubber meets the road. This is why these three are so different from Amazon. Amazon actually has some numbers propping it up. A ton of sales and increasing profit. Is it worth 350B? I think it could easily be worth much, much more. As you said, it’s getting harder and harder for Netflix to grow at the rates it has been growing – how does it get to sales and margin levels that justify a 40B or 50B price tag? What makes Tesla worth 30B? They’ve never made any profit and it’s hard to see how they ever will. Explore these questions, and you’ll see what I was really talking about. Not just stories but numbers.


Amazon actually has some numbers propping it up. A ton of sales and increasing profit.

You really want to compare Amazon’s profits? A company that did not have profits for the first 6 years of its existence? A company that was in the red for its first 15 years? A company where even today, more than 20 years later, can’t put together 4 consecutive quarters of positive profits? Whose PE ratio last year was an astounding 572.5 - Really?

What makes Tesla worth 30B? They’ve never made any profit and it’s hard to see how they ever will.

Like Amazon, Tesla invests in its future. Tesla made money on the Roadster, but spent heavily to develop Model S and build-out a factory. Model S was and is extremely profitable, with gross margins almost always over 20% and often over 25%. That’s better than what Amazon was doing at the equivalent 6 years after going public period in its life. Tesla is doing better than what successful companies like Toyota do today in terms of gross profit margins.

So, it’s real easy to see Tesla making money. Like Amazon, they could do it any time they wanted simply by stopping investing in the future. Of course, both Bezos and Musk have less immediate goals. And don’t forget, no other car in history has gotten anywhere near the 375,000 pre-orders that Model 3 has gotten. Even if you were to assume that 73% of the pre-orders will evaporate, that’s still over 100,000 pre-orders, which is huge. And like Amazon, Tesla is expanding outside of its initial business, with storage and now solar. Tesla even has EV business moats like its supercharging network.

As for being worth $30B, it’s all about future growth. Today, Audi is about the same size, BMW is about 50% bigger. In 5 or 10 years, however, do you think Audi’s or BMW’s market share will more than double where they are today? Whereas if Tesla is successful, its market share will be an order of magnitude larger (400K cars versus 40K cars). And I’ll grant that, like Amazon, one has to be careful of when to buy in, as Tesla’s stock price sometimes incorporates too much future growth already baked in.


I’ll present a contrary view than most I have read on the board as I am in favor of the acquisition from both sides. Tesla gets a great price for SCTY and SCTY gains the long term benefit of being part of Tesla.

Utilized google docs to put it all in words with links to source material.

Had to wait to post as I was building my TSLA position - now have about 3% of my portfolio as the sum of both companies split 50/50.


Frank - long SCTY, long TSLA - see profile for all holdings


Frank, well done. I still don’t know what to make of it but if one is not to doubt the genius of Musk then the explanation you provide is compelling.

Musk made a $500k difference in my port vs alternatives. Doubting Musk costs lots of money and wealth. At least it has nearly every time to date.



It is a complicated issue. The linked to article is excellent regarding competing issues, including how much more cost
Effective large scale solar plants are vs rooftop implementations. Puts into doubt the long term viability of the residential model for solar.

Tesla may be able to give preferential pricing to SCTY but the economics are so in large solar favor that an economic advantage on battery storage systems won’t mean much.

Then again, Musk knows all this and the article briefly discusses SCTY offering new product offerings to reflect the economics.


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The problem with the articles,many to some extent with all electrical power is we apply a useless metric to the cost.

Electricity cost on average 12 cents a kilowatt hour delivered to a home. The 12 cents includes, reliable delivery, peak demand, and peak and non peak pricing. In the Texas grid with its huge wind farms, and limited intergration with the national grid, you can buy electricity off peak as low 3 cents a kilowatt hour. But, there are times you will pay 50 cents a kilowatt hour. (Wholesale, if a retail customer were able to make these purchases they would still face delivery charges)

Note: Jumping grids here, in the north east in the winter of 2014/2015 we saw peak prices close to a dollar a kilowatt hour.

The thing that has never happened before is this; we have never been able to arbitrage electricity because we cannot store it economically. However, I would watch Musk for a couple of reasons:

  1. He knows batteries.

  2. He started in banking.

If he were able to sink the cost of the battery back up into the back up power system, (nobody buys a gas generator to beat the power company, but buy them they do.) he would have a no cost distributed trading platform. Even if he never made a dime selling cars or solar power, if he nicked a penny per kilowatt trade and he had the machines trading other people’s power with other people’s systems he would have a MasterCard/Visa like money printing machine.

As Musk will have the only mega battery factory in the world, the only database and customer relationship with rolling battery storage units, (Teslas) and the only nation wide solar company, he should be in a position to pull this off.

Qazulight (No Position, held Solar City for a while and took a small loss before the beginning of the year. Looking for a good time to enter Tesla.)