In short, the cash being counted isn’t really cash from operations. “What they’re really saying is that they hope to get the full amount from the guarantees,” says Ciesielski. If the used car market suffers from a dearth of buyers or a glut of green vehicles, Tesla will be forced to cover the shortfall when the banks sell vehicles for less than the guarantee price, or shed the inventory it’s obliged to repurchase from the banks at a loss. In either case, it will be returning a lot of the cash that it wants investors to believe is a sure thing. “Cash flow” that’s subject to a large contingent liability, to major uncertainty, shouldn’t be classified as cash-in-hand generated from running the business.
Tesla has attracted a legion of true believers who love the vision and don’t fret much over the numbers. Non-zealots should follow the conservative reporting that the official rules require, and ignore the pro-forma stuff. That’s the best way to track Elon Musk’s progress in molding an epic vision into the greatest green profit-maker the world has ever seen.
Read more "Why Tesla’s Cash Crunch May Be Worse Than You Think"
SolarCity’s Sugar Daddy
You might know that SolarCity actually owns most of the hundreds of thousands of rooftop solar systems it has built. As a result, it needs billions of dollars in funding each year. So the flow of debt coming into the company is vital to its very survival.
What people might not know is that SolarCity is getting a lot of funding from SpaceX and Elon Musk and family. They’re buying hundreds of millions of dollars in solar bonds that almost no one else is interested in. Below is a table that shows the large purchases of solar bonds by SpaceX, Elon Musk, SolarCity CEO Lyndon Rive, and CTO Pater Rive over the past year-and-a-half.
Read more "Believe It or Not, SpaceX’s Falcon 9 Explosion Could Be Terrible for SolarCity"
The fire that burst from the top stage of a SpaceX Falcon 9 rocket, quickly consuming it and the satellite it was to carry to orbit, did more than melt aluminum and crack carbon fiber on a $62 million rocket and throw another wrench into Elon Musk’s already busy day. It will have repercussions across the globe.
Read more "SpaceX’s lost rocket could upset a global merger and delay America’s human spaceflight plans"
Rapidly rising prices aren’t good for everyone though.
“The potential losers in this situation are folks who live locally and work locally, but aren’t making the higher wages and may not be able to afford the higher prices,” said Blomquist.
Read more "How Tesla caused home prices to soar in this Nevada town"
Musk’s purchase of the so-called “solar bonds” comes after money-losing SolarCity last week said it would cut operating costs to bring expenses in line with its reduced solar installation outlook.
SolarCity CEO Lyndon Rive and Chief Technology Officer Peter Rive are each buying another $17.5 million of the $124 million offer, according to the SolarCity filing.
Read more "Tesla’s Elon Musk Buying Over Half of SolarCity Bond Offer"
The slippery slope of a debt-filled company
SolarCity’s value quickly evaporates and even goes negative if we just discount the company’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. That’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 SolarCity’s business, and the cost of fuel is going up big time.
Read more "SolarCity Has a Big Problem On Its Hands"