Tesla Motors: Will Senate Solar Investigation Put SolarCity Acquisition at Risk?

Yes, says Axiom Capital’s Gordon Johnson who writes that a Senate investigation into solar company tax incentives could derail Solar City’s (SCTY) merger with Tesla Motors (TSLA). He cites this Wall Street Journal article on the investigation by Brody Mullins, Ianthe Jeanne Dugan, and Richard Rubin, which details why it might be a problem: In […]

Lawmakers Are Investigating Tax Incentives Received by Solar-Energy Firms!

Congressional lawmakers have launched a formal investigation into whether solar-energy companies improperly received billions of dollars in tax incentives from the Obama administration.

China Crash Raises Fresh Questions About Tesla’s Disclosures

Tesla is already the subject of a Securities and Exchange Commission investigation into whether it breached securities laws by failing to disclose the Florida crash prior to selling $2 billion worth of shares. The January crash would seemingly raise similar concerns.

With Tesla, still a minnow in the global auto market, soon facing new competition from deep-pocketed rivals including General Motors’ Chevy Bolt, its brand reputation has never been more important. The longer questions linger about the safety of its vehicles, and the company’s willingness to discuss potential issues, the more that reputation is put at risk.

2 Reasons SolarCity May Be Headed for a Power Failure

“SolarCity is in dire need of cash. It’s already gotten two bridge loans from Tesla and it needs this deal to go through,” said Gordon Johnson, an Axiom senior analyst, told Real Money this week. Axiom, in its June 28 report on SolarCity, estimated the company wasquickly burning through its cash and would likely fall to near zero, or $1.4 million, by the fourth quarter. As a result, some Wall Street watchers have been whispering the “bankruptcy” word as it relates to SolarCity.

Tesla’s Competition: An Example for Why it Should Not Receive Subsidies

New Karma Revero is not just a Tesla wannabe

The Chevy Bolt EV Range Is Blowing Away Expectations—and Even Tesla’s Model 3

Tesla Is Worse Than Solyndra

Yet despite all the public celebration, both Solyndra and Tesla stand as warnings of the dangers in deputizing bureaucrats to play bankers and venture capitalists. In both loans, the government walked away laughably undercompensated for the risk it accepted in the startup companies. In fact, the Tesla deal was arguably far more costly for America than the Solyndra fiasco.

Solyndra exposed the first way the taxpayer could lose out. The traditional advantage of making a loan (as opposed to buying stock in a company) is that lenders often get paid something even when the borrowing company fails, because they hold collateral. Solyndra’s bankruptcy revealed the ephemeral value of the government’s collateral. Taxpayers have yet to recover a penny from the company.

SolarCity Has a Big Problem On Its Hands

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.

Stop Elon From Failing Again

THE ONE STOP DATABASE ON STOPPING ELON MUSK