WHY TESLA’S SOLARCITY BID WILL FAIL

Gigafactory, Model 3 Implications

Tesla’s blog notes its Gigafactory-produced Powerwall home battery system dovetails with SolarCity-produced solar panels. But Goldfarb objects to “the hypothetical connection in that solar can charge a home battery during the day, and this then can be used by the electric vehicle at night — or both batteries could be used to sell back to the grid.” But solar generally doesn’t produce enough to power a home, he says. “And you can’t store power in your car battery during the day because the car is usually not there.”

Goldfarb also says the $4 billion Gigafactory in Nevada has been “a huge bet” and has experienced delays. “It is hard to see how its battery model will be profitable,” he says.

Musk says, according to Vox, that a SolarCity deal will not affect Tesla’s plan to sell its $35,000 Model 3 starting in 2017. But Goldfarb says the margins in this part of the market will be very tight. “General Motors has been promising a late-2016 launch of a 200-mile range Chevrolet Bolt EV, electric car,” he says. “Moreover, the electric car market is crowded in the midprice range. Nissan, Ford, BMW, VW, Fiat, Mercedes, Kia, Mitsubishi and Smart all produce cars in the segment.”

Not Mass-Market Suited

Given the above-noted factors, Goldfarb says Tesla’s mass-market and SolarCity-takeover ambitions appear out of line with Musk’s track record as a master and visionary. For example he’s been out in front of the self-driving revolution (though the self-driving car “is really just a toy right now, and this market is very crowded, too,” Goldfarb says). Tesla can and should focus on what it does best: high-end electric cars, Goldfarb says. “Tesla owners love their cars,” he says. “They should. These are wonderful automobiles.”

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How Long Will It Take SpaceX to Return to Space?

Every minute that SpaceX must spend figuring out why its rockets are blowing up, instead of launching them, is time the company is not collecting revenue, not earning profits, and not making progress toward Elon Musk’s goal of amassing enough money to finance a manned mission to Mars. So long as SpaceX is kept busy figuring out the SpaceXplosion phenomenon, there can be no relaunch of a “used rocket,” and no test launch of the company’s new Falcon Heavy rocket, either.

Meanwhile, SpaceX’s website continues to describe the company as “profitable and cash-flow positive” — even after two explosions and a combined seven months of inactivity over the past 15 months. The longer SpaceX remains grounded, though, the more questionable those claims will become.

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Pointing at SpaceX explosion, ULA says Pentagon contracts shouldn’t just go to lowest bidder

The recent explosion of a SpaceX rocket should raise concerns about going with the lowest bidder on sensitive national security launch contracts, the chief of the United Launch Alliance wrote in a letter to top Pentagon officials this month.

Tory Bruno, ULA’s chief executive, urged the Air Force to postpone the deadline for bids, saying it should take time to explore the impact of SpaceX’s rocket failure while also taking into account both companies’ experience and past performance.

The Pentagon should have particular reservations, Bruno wrote, given that SpaceX has now had two of its Falcon 9 rockets blow up, which he said “serve as a reminder of the complexity and hazards intrinsic to space launch services.”

“This strategy defies both law and logic and puts hundreds of millions of taxpayer dollars and Warfighter mission needs unnecessarily at risk,” he wrote.

The letter is the latest salvo in one of Washington’s most contentious contractor feuds, one that has pitted a pair of the world’s most powerful defense contractors against a brash billionaire looking to shake up a calcified market by offering launches far more cheaply. And it’s the most glaring example yet of a competitor going after SpaceX for its pair of explosions.

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Shareholders Go After Elon Musk’s SolarCity Bailout Plan

Tesla shareholders are suing the company because of its proposed merger with SolarCity, thus creating a challenge for Elon Musk to save the troubled solar energy company.

Tesla Motors Inc. (TSLA:NASDAQ) announced on Sept. 19 four shareholders filed lawsuits alleging that the Tesla board members “breached their fiduciary duties in connection with the proposed merger.” The shareholders also accuse both companies of unjustly enriching certain individuals through the deal.

“The lawsuits could prevent or delay completion of the merger and result in substantial costs to Tesla and SolarCity,” stated Tesla in a regulatory filing.

The lawsuits were filed by two pension funds (City of Riviera Beach Police Pension Fund and Arkansas Teacher Retirement System) and two individual shareholders (Ellen Prasinos and P. Evan Stephens), according to the filing.

“Other potential plaintiffs may also file additional lawsuits challenging the proposed merger. The outcome of any such litigation is uncertain,” Tesla stated.

In June, Tesla announced its plan to acquire SolarCity Corp. (SCTY:NASDAQ) in an all-stock deal, which valued SolarCity at $2.6 billion as of Aug 1. The merger is controversial, as Elon Musk is the chairman and largest shareholder of both companies and Lyndon Rive, the CEO of SolarCity, is a cousin of Elon Musk.

According to some analysts, the merger doesn’t make financial sense.

“Investors are likely to view this transaction as a bailout for SolarCity and a distraction to Tesla’s production hurdles,” stated Oppenheimer’s analyst Colin Rusch in his report after the merger announcement.

Based in San Mateo, California, SolarCity designs and installs solar panels at residences across the United States. The company sells long-term contracts and it is the market leader.

The company has frequently fallen short of its installation goals. Its operating expenses increased by 55 percent, causing the company to lose $533 million in the first half of 2016.

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Tesla Sued Because ‘Insane Mode’ Isn’t Insane Enough

According to 126 Tesla customers, the Model S sedan P85D performance version can eat dirt, because its “insane mode” isn’t as insane as the company claims. Bloomberg reports that the customers, who live in Norway, have now filed a lawsuit against Elon Musk’s automotive company. They’re looking for “unspecified reimbursements” because they believe the car’s […]

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Musk’s vision at stake in Tesla shareholders’ vote on SolarCity merger

SolarCity’s fate now lies squarely in the hands of Tesla Motors and its shareholders.

A 45-day window in which SolarCity could consider other offers beyond Tesla’s $2.3 billion merger bid closed on Wednesday night, and no other investor or company put a proposal on the table.

That wasn’t entirely surprising. After all, 15 potential buyers or investors looked at SolarCity earlier this summer, while the solar energy company was hammering out the terms of Tesla’s merger offer and trying to see if anyone else would top the electric vehicle maker’s bid.

None did.

Now the big question is whether Tesla’s shareholders buy into CEO Elon Musk’s vision for creating a renewable energy juggernaut that combines electric vehicles with solar energy and battery storage.

Shareholders from both companies still have to vote on the proposed merger. The date of the votes haven’t been set, but it could be as early as October.

Most analysts think the deal will go through. They say many Tesla investors support Musk’s renewable energy vision and are likely to go along with his strategy.

They also tend to downplay the concerns that arose from the regulatory filing about the cash crunch that both companies are facing. Tesla needs to pay $422 million to some of its bond holders by the end of the month, and both companies need to raise billions in new funding to finance their ambitious plans.

The news recently has been better on the financing front. Tesla, which had $3.25 billion in cash on its books at the end of June, reached an agreement this month to borrow up to $300 million from Deutsche Bank to fund its vehicle leasing program.

SolarCity earlier this week raised $305 million in a deal with five institutional investors and an investment fund advised by George Soros.

That fundraising will cover only a portion of the companies’ financing needs, but it shows that their ability to raise funds remains viable.

Still, the worries persist on Wall Street. Since the deal was finalized on Aug. 1, Tesla’s stock is down by 13 percent. SolarCity shares have tumbled by 34 percent.

As a result, a deal that was worth $2.6 billion when it was announced now is worth about $350 million less.

In the deal, SolarCity shareholders will receive Tesla stock worth $22.59 at today’s prices. But because of the liquidity concerns and uncertainty over shareholder approval, SolarCity’s shares are trading at $17.50 – a steep 23 percent discount to the value the Tesla offer places on the shares.

Normally, the discount would be just a few percentage points.

One of the more skeptical analysts following the deal, Gordon Johnson of investment firm Axiom, pegs the odds of the merger passing at 50-50. Johnson, who has a sell rating on SolarCity’s stock and thinks it could fall as low as $7, said Tesla “failed to consider whether another solar company was a better fit,” and noted that none of the three potential suitors who had more extensive contact with SolarCity were willing to make a counter offer, according to a regulatory filing by the companies late last month.

“With a number of solar vendors available currently, at arguably depressed prices … Tesla failed to consider if any other solar companies offered more favorable synergies,” Johnson said in a research note.

Musk, who owns more than 20 percent of the stock in both companies and is SolarCity’s chairman, has argued that no company is a better fit for Tesla than SolarCity. With a commanding market share in the rooftop residential market, Musk has said that SolarCity, run by his cousin, Lyndon Rive, offers the best opportunity to link Tesla’s battery storage capabilities with a leading solar energy installer.

Some analysts wonder if Musk is taking on too much at one time.

“We see a lot more that can go wrong than can go right,” said Jeffrey Osborne, an analyst at Cowen & Co. “The company, while fundamentally well positioned for the long term, has a material amount of execution risk over the next 12 to 18 months.”

Tesla is developing its Model 3 sedan, which will sell for as little as $35,000 and will be its most affordable model, by far. As it moves to ramp up production of the Model 3, Tesla also is opening its battery gigafactory in Nevada.

SolarCity, for its part, is pushing to open its solar panel factory in South Buffalo, which will be the biggest in the Western Hemisphere, with production scheduled to start by the end of June as the company rolls out a new solar roofing product.

“The SolarCity acquisition only adds an additional layer of complexity at a crucial time when the company should be focused on the gigafactory ramp and Model 3 launch,” Osborne said. “We see the potential for delays in the introduction of the Model 3, ramp of the Gigafactory and integration of SolarCity, leading to increased cash burn levels.”

Cash is such a concern because neither Tesla nor SolarCity is profitable, although Musk, in a memo to employees this month obtained by Bloomberg News, urged them to cut costs and deliver “every car we possibly can” to push the vehicle maker closer toward generating more cash than it uses. Hitting that milestone would put Tesla in “a far better position to convince potential investors to bet on us.”

Together, the two companies will have about $5 billion in debt between them. And because neither one has a positive cash flow, they will have to raise billions in new capital to meet their ambitious plans, from opening the battery gigafactory and the Buffalo solar panel factory, to ramping up production of the Model 3.

The big question now, though, is how much interest Tesla shareholders have in approving the deal.

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