The slippery slope of a debt-filled company
SolarCityâ€™s value quickly evaporates and even goes negative if we just discount the companyâ€™s cash flows at an appropriate discount rate. And I would argue that the assumptions that go into the current NPV calculation are too aggressive, and the 8% discount rate is also too low.
It looks like SolarCity is desperate for cash, and the only way investors are going to give it to them is by raising the cost. Thatâ€™s a slippery slope for any solar company.
This is a growing problem for SolarCity, and will become a problem for Tesla Motors if it acquires the solar installer. Debt is fuel for SolarCityâ€™s business, and the cost of fuel is going up big time.