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MUSK's Solar City (SCTY) - stock that has soared, then fell

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MUSK's Solar City (SCTY) - a Green Energy stock that has soared

SCTY / Solar City .... All-Data : 5-yrs : 2-yrs : 6mos / 10-days : Last: $24.65 +0.43 at 7/14/2016

 

SCTY-all_zpsdjrklurr.gif

What's the story here?

(In Dec. 2012 - after early trading): Solar City shares soar - up 51%

SAN FRANCISCO (MarketWatch) -- Shares of SolarCity Corp /quotes/zigman/13139813/quotes/nls/scty SCTY -0.33% continued to soar on Thursday, up 51% to $12.08 in recent trading. The installer of solar panels debuted on the Nasdaq on Thursday, raising $92 million by offering 11.5 million shares of common stock at $8. The road to market was bumpy for the San Mateo, Calif. firm, however. SolarCity had cut the price of the deal from an estimated range of $13 to $15 a share and had delayed the initial public offering.

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SolarCity Added to Russell 2000 Index

 

press release : April 1, 2013, 9:00 a.m. EDT

 

Market Cap : $ 2.03 b

Shares Out : 75,314,978 x $27.00

 

 

SCTY -0.33% today announced that it has been added to the Russell 2000®, Russell 3000®, and Russell Global® Indexes, following Russell Investments' first quarter IPO additions to its comprehensive set of global equity indexes.

 

About SolarCity :SolarCity / SCTY -0.33% provides clean energy.

The company has disrupted the century-old energy industry by providing renewable electricity directly to homeowners, businesses and government organizations for less than they spend on utility bills. SolarCity gives customers control of their energy costs to protect them from rising rates. The company offers solar power, energy efficiency and electric vehicle services, and makes clean energy easy by taking care of everything from design and permitting to monitoring and maintenance. SolarCity currently serves 14 states and signs a new customer every five minutes. Visit the company online at www.solarcity.com

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SolarCity Added to Russell 2000 Index

press release : April 1, 2013, 9:00 a.m. EDT

 

Market Cap : $ 2.03 b

Shares Out : 75,314,978 x $27.00

 

Latest : 35.88 +7.00 / O:31.15 H:39.00 L:29.83 / Vol:6,161,572 / +24.24%

 

“An Elon Musk Trade”: Why SolarCity Rose 50% in a Week

 

Wall Street Journal - ‎1 hour ago‎

What does a company that installs and manages rooftop solar panels have in common with a company that makes expensive cars?

When you put it that way, not much.

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Summary

Businesses cannot stand on their own feet without some form of Government aid. Whether that be in QE form or direct subisidies, the marketplace is no longer a "Free Market". Tesla and its dependents are an example of what is wrong with our capital market system.

Elon Musk is using the Government as a backstop for his businesses. He is depending on easy money to support companies that would otherwise fail from debt. In short, the business structure of Tesla, SolarCity and SpaceX is a microcosm of the problem with our current capital markets.

- By Soren K. with contributions by Doug and Dinsdale Piranha and the CFO of a prominent hedge fund that has no position in the stock.

The Business of Crony Capitalism

IMG_6845.JPG

Overview

Elon Musk has controlling stakes in 3 companies: Tesla, SolarCity, and SpaceX. Tesla and SolarCity are publicly traded. SpaceX is not publicly traded. This document's focus will be soley on the financial interdependencies of the companies. There are also incestuous business practices, and nepotism within the leadership of each company Musk controls.

We hope to illustrate simply and clearly the immense risk the US government has taken with your money by giving it to a man who is essentially telling them what they want to hear while picking their pockets doing it.

 

Background

Tesla borrowed Venture Capital (VC) money from Elon Musk at VC rates. It borrowed VC money from taxpayers at non-VC rates

Tesla needed $500MM to get started in 2008. The US Government lent $465MM to Tesla at 3% interest under its push for Green Energy. Elon Musk lent the company $38MM at10% interest plus stock options. Here are the profits on those loans:

  • Elon Musk’s $38MM generates profit of $1.4BB, or 3,600% ROR- a VC payout
  • Taxpayers’ $465MM- generates profits of $12MM or 2.6%ROR- not a VC Payout

Taxpayers took VC risk without VC returns. The table is set for Elon to arbitrage the Government’s largesse much more. All in, the US Government committed about $4.9BB to finance Tesla’s operations

 

Musk Gets More Government Money

Using Government loans, Elon Musk creates 2 more companies; SolarCity and SpaceX. He now controls three government sponsored clean energy companies financed by taxpayer money.

The Companies

Tesla- makes electrical cars, develops technology for same. Loses money hoping for future profits

  • Loans money to SolarCity via its own stock
  • Borrowed $465MM from Gov’t at 3% and $38MM from Elon Musk at 10% plus stock options
  • Does not make money

SolarCity- makes and leases solar panels to homeowners. Loses money hoping for a back-end profit

  • Borrows money from Tesla
  • Borrows Money from SpaceX
  • Does not make money

SpaceX- will provide future service related to satellite launches. It makes money via prepaying customers

  • Loans money to SolarCity at approx. 10%
  • Borrows Money from Government at approx. 4%
  • Makes money

Elon Musk now has 2 companies that do not make money. He has 1 that makes money from prepayments for services yet to be given. All are financed by the US taxpayer at ridiculously below market rates. The table is now set for financing using inflated currency (sound familiar?) in the form of Tesla stock to get real cash in Mr. Musk's pockets.

 

The SolarCity Problem

Despite gov’t subsidies SolarCity still needs money to operate. SpaceX, while not profitable, has cash on hand form prepayments and Gov’t subsidies. Tesla, also not profitable, has no cash, but has highly (over)valued stock it can use as currency or loans for cash. Elon Musk owns major stakes in all 3 companies.

  1. SolarCity borrows $165MM from SpaceX at market rates of about 4.4%
  2. SpaceX uses govt loans (2.0%?) to lend $165MM SolarCity
  3. SolarCity borrows another $90MM from SpaceX to avoid defaulting on first SpaceX loan

Yet SolarCity is still in trouble. It needs cash. Government subsidies are on hold. Its stock price is sinking and it is in danger of defaulting on existing loans. Enter Tesla and Elon Musk

 

Tesla and Musk Bail Out SolarCity

Elon Musk and Tesla loan stock to SolarCity. SolarCity margins that stock for cash so they can make their loan payments to SpaceX.

  • Elon Musk used money loaned to him at 2.6% to generate 3,600% from Tesla stock sales
  • SolarCity was failing. If It failed, it likely would take SpaceX with it.
  • Elon Musk and Tesla used his govt sponsored inflated currency (Tesla stock) to prop up a failing SolarCity.

Not Enough

But that was not enough money. Tesla then makes a bid outright to buy all of SolarCity at above market valuations using Tesla stock. This essentially ensures a payout to himself and his partners at SolarCity while eliminating the SpaceX debt. Now it all depends on the price of Tesla stock. And Tesla has been punished by the market since the announcement.

Finally there is the loaned stock by Elon Musk to SolarCity. If Tesla drops enough for amargin call, it is all over in our opinion. what we have not covered includes the valuation offerred to buy SolarCity. Public shareholders of Tesla should be incensed atthe price being paid for SolarCity. Meanwhile, much of SolarCity's stock is still in the hands of Musk and family members.

If Tesla stock drops enough, it could take out potentially all 3 companies. Essentialy Musk is at the center of an American Keiretsu.

 

Conclusion

The interdependent relationships between the 3 government subsidized companies Elon Musk owns or has a controlling stake in are an abuse ofgovernment largesse towards Green Energy. Taxpayer money is being used at market risk without market returns to prop up 3 unprofitable companies. While we do not debate the technology Tesla has developed, we question the leverage with which these companies are able to operate under. If something were to go wrong, we feel an eventual Solyndra Greenmail situation would occur. Tesla would be TBTF to the Government and have to pay. We feel Elon Musk knows this and is will play that card if need be.

Not Discussed: Business practices, Neoptism, valuations used for buyouts and other in depth proofs of what we are merely glossing over for now.

 

tesla.png?itok=sKw-aPlj

In a Graph

Here is a simple flowchart of the cash-flow situation between the 3 companies and the Goverment. None of these companies make money. Only SpaceX has positive cash flow from prepaid "orders". The"currency that supports it all is the Tesla's stock Price

-Soren K. : SorenK@marketslant.com

> http://www.marketslant.com/articles/elon-musk-how-play-broken-marketplace

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Tesla Motors Inc. Chief Executive Elon Musk doesn’t want to stop with electric cars:

 

He sees a future with heavy electric trucks and buses, as well as autonomous electric car-sharing networks, all powered by solar energy.

 

That is the vision Musk laid out in a blog post Wednesday evening, part of a push by the car maker’s leader for the acquisition of SolarCity SCTY, +1.67% , a residential solar-power company in which Musk is heavily invested. In the post, which Musk had been teasing for more than a week on Twitter, he said that solar-power generation captured by Tesla’s Powerwall batteries is key to his vision for the future of Tesla TSLA, +0.57% and the world.

“Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together,” Musk wrote.

Additionally, Musk revealed that Tesla has begun work on vehicles in other “major forms of terrestrial transport,” namely heavy trucks and mass-transit vehicles.

“Both are in the early stages of development at Tesla and should be ready for unveiling next year,” Musk wrote. “We believe the Tesla Semi will deliver a substantial reduction in the cost of cargo transport, while increasing safety and making it really fun to operate.”

Tesla’s goal to build mass-transit vehicles is part of Musk’s push toward fully autonomous vehicles which he says drivers could send off to transport others while they are not using them. Tesla currently offers semiautonomous driving features on its electric vehicles, the Model S and Model X.

He also said Tesla would operate an autonomous ride-hailing service on its own, which would challenge ride-hailing companies like Uber Technologies Inc. and Lyft Inc. It’s the first time Musk has said Tesla plans to create its own such network, which has been theorized in the past.

“In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are,” Musk wrote,

Musk summed up his “Master Plan” for Tesla with four bullet points, here listed verbatim:

• Create stunning solar roofs with seamlessly integrated battery storage.
• Expand the electric vehicle product line to address all major segments.
• Develop a self-driving capability that is 10X safer than manual via massive fleet learning.
• Enable your car to make money for you when you aren’t using it.

Wednesday’s missive comes almost exactly a decade after Musk released his first such tome, in August 2006. In a blog post on Tesla’s site just two weeks after the company debuted its first car, the sporty Tesla Roadster, Musk laid out a vision that included solar power and electric cars.

“The overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution,” Musk wrote then.

He also laid out a road map that included progressively cheaper electric cars funded by sales of more expensive, earlier versions. Musk was wrong in saying that the next Tesla model, eventually dubbed the Model S, would cost “roughly half the $89k price point of the Tesla Roadster,” as the car’s base price is closer to $70,000. However, Tesla does still plan to launch a more affordable electric car, the Model 3, next year.

Musk summed up his original “Master Plan” thusly, listed here verbatim:

• Build sports car.
• Use that money to build an affordable car.
• Use that money to build an even more affordable car.
• While doing above, also provide zero emission electric power generation options.

It is worth noting that Tesla has yet to accomplish anything besides the first bullet point in that list, unless one considers $70,000 and up “affordable.

===

> more: http://www.marketwatch.com/story/elon-musks-master-plan-for-tesla-solar-power-fully-autonomous-car-sharing-and-heavy-vehicles-2016-07-20?siteid=bigcharts&dist=bigcharts

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