Tesla: When “getting There” May Not Be Ideal

The bill of materials for lithium ion batteries appears to be rising rapidly - again, but this time round this raises a questions about the business model (no, it is not as simple as we will run out of lithium soon).

As readers may have noted, the supply chain investment process that I follow requires continuous monitoring of large shifts in prices or volumes of commodities, products and assets. The process flagged the prices of lithium, cobalt, nickel and aluminum a few weeks back; all these components of a typical lithium ion battery chemistry have been up considerably in the past few months.

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SpaceX and ULA see the future of space launching very differently

The heads of United Launch Alliance and SpaceX aren’t just rivals for launching U.S. military and commercial satellites into orbit. They don’t even see the business the same way.

Tory Bruno, CEO of Centennial-based ULA, and Gwynneth Shotwell, president of Hawthorne, California-based SpaceX, were the biggest presences on a panel Thursday closing the Space Symposium, the biggest annual gathering of U.S. military and private-sector space officials.

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Tesla’s entry-level Model S gets a $2,000 price hike

Tesla has told customers via its monthly newsletter that it will hike the base Model S 60 price by $2,000 on November 22nd. The new $68,000 price is still luxury car money, so we doubt the increase will dissuade many potential buyers. However, it gives them even less of a reason to choose the 60 kWh, 215-mile-range Model S, since the 75 kWh Model S 75 is just $6,500 more and has 259 miles of range.

Tesla re-launched the Model S 60 and 60D to boost sales by giving buyers a lower-priced option. The move no doubt had an impact, as Tesla made a profit for the first time in two years last quarter and increased sales by 59 percent over last quarter.

While the lower-priced model may be helping drive sales, another recent Tesla move has likely increased costs. Each vehicle, including the upcoming Model 3, will be manufactured with the eight cameras and 12 sensors needed for fully autonomous self-driving capability. (Prior to that, customers had to order the feature or the hardware wouldn’t be installed.) If buyers don’t pay up to $8,000 to activate autonomous features, the hardware will just sit there doing nothing.

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SolarCity Could Give Tesla Too Much Sun

Election season isn’t over quite yet.

The outcome of Tesla Motors’ proposed acquisition of SolarCity will be known next week. SolarCity’s third-quarter results, and the way the company flattered the numbers, shouldn’t reassure Tesla stockholders that the deal is a wise one.

The solar-roofing company reported a net loss of $225 million on sales of $200 million. SolarCity has reported a loss on an adjusted basis in every quarter since 2013, according to FactSet. SolarCity’s cost per installed watt increased from a year ago, while the value per watt accruing to the company has dropped. Meanwhile, SolarCity cut its guidance for total panel installations for the third time this year.

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The Fate of the Tesla Motors, Inc.-SolarCity Deal to Be Decided Thursday

Tesla’s shareholder meeting to consider the acquisition of SolarCity will take place in Fremont, California on Thursday, at 1:00 p.m. PST. For investors who won’t be at Tesla’s shareholder meeting, the company will also webcast the meeting live at tesla.com/shareholdermeeting.

SolarCity will be hosting its shareholder meeting to discuss the merger in Foster City, California, two hours before Tesla’s meeting.

Tesla has ambitious plans for its SolarCity acquisition, essentially planning to be the world’s first integrated sustainable-energy company, from energy generation to energy storage to transportation solutions. Today, Tesla is already the world leader for electric-car production when measured by kilowatt-hour battery capacity delivered.

Further, Tesla entered the energy-storage market with its Powerwall and Powerpack in 2015. And by the end of this year, Tesla will likely have already finished deploying the two-largest lithium-ion battery-storage installations in the world. Including projects being deployed now, Tesla has deployed 300 megawatt-hours of Tesla batteries in 18 countries.

With SolarCity, Tesla plans to also bring to market a solar roof, which the two companies jointly unveiled in October. The solar roof differs from traditional solar panels in that solar cells are actually the roof itself. With Tesla’s solar roof, solar tiles are integrated into the roof and are nearly indistinguishable from high-end roofing options.

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The ‘trickiest’ part of Elon Musk’s Mars spaceship — a giant black orb — just passed a critical test

Prior to the barge pressure test in early November, Musk said SpaceX performed “initial tests with the cryogenic propellant” that “actually look quite positive.”

“We have not seen any leaks or major issues,” he added.

If the company has already pumped methane into the spherical tank before, it stands to reason that it will try again to get even more data on its performance for incorporating into a flight version.

Business Insider asked a SpaceX representative for more details on the upcoming “full cryo test”, which is presumably when the carbon-fiber fuel tank will be pumped full of a liquid methane.

However, the company declined to tell us more about that test, when it would occur, or what cryogenic liquid it’d be using.

Whatever the case, the fact that it’s happening on ocean barge is telling: It says there’s a chance the device could not just merely leak but burst or explode. If no one is around and it does, the shrapnel (and possibly flames) can’t hurt anyone.

After all, SpaceX does have a history of testing its gear on ocean barges, sometimes with catastrophic effect:

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Tesla Motors: Does It Really Understand What It’s Buying in SolarCity?

While we previously pegged the odds of Tesla’s proposed merger of SolarCity at a 50/50 probability yes/no, we now peg those same odds at 70/30. However, with an 0.11x exchange of Tesla stock for each share of SolarCity, if the deal were to close today, SolarCity would be valued at $20.21/share, or 2.0% upside. However, were the deal not to close, we believe SolarCity’s stock would trade down to $6/share (we believe SolarCity is still creating negative value for each system sold on an unlevered basis. Thus, on valuation, applying 70% to $20.21 + 30% to $6, on arrives at a probability adjusted year-end 2016 price target of $16, or 20% downside.

So, despite advisory firm Institutional Shareholder Services’s (“ISS”) approval last week, why do we still see a 30% chance some shareholders “walk” on this deal when the date for approval (i.e., Thursday of this week) is so close, and the merger-arb spread has come in so much? In short, we assume investors aren’t willfully ignorant. What do we mean? Well, in SolarCity’s C3Q16 10-Q, which was released last week, we gleaned two key takeaways, including:

§ SolarCity sold roughly 25% of their panels to the Commercial and Industrial (“C&I”) segment during the quarter; and, despite the company reporting C&I prices for their systems sold at roughly $3.00/W, based on checks we did months ago, we know that C&I prices in the US are 35%-50% below what SolarCity has reported; thus, if one were to spread the SG&A across proportionally to the average selling price (“ASP”), SolarCity’s creation cost would be significantly higher than the reported $2.89/W level, which would also mean a huge miss on megawatts (“MW”) deployed in C3Q16, not the beat reported; and

§ SolarCity changed the useful lives of their systems from 30 years to 35 years in the quarter, artificially (we believe) reducing depreciation expense, allowing the company to inorganically beat on EBIT and thus EPS.

We believe these actions are HIGHLY questionable, and assume Tesla investors either: (a) lack a very basic understanding of the solar market, or (b) lack a very basic understanding of accounting. But it doesn’t end there. In addition to these forms of what we see as accounting chicanery, SolarCity claimed that it generated cash in the quarter. However, when adjusting for the debt the company issued in the quarter (i.e., excluding it), its cash balance fell from $146mn in C2Q16 to just $67mn in C3Q16. Thus, again, assuming the portfolio managers at Fidelity, Baillie Gifford, T. Rowe Price, Vanguard, Black Rock, Morgan Stanley, etc. are aware of this, and not under Mr. Musk’s “spell”, we still see a 30% probability this deal does not close. As such, we would be short the stock ahead of Thursday’s vote.

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