Self-induced stress. There is no reason for Tesla to have purchased Solar City. It was an extremely financially stupid and ego-maniacal deal, and the fact that financial institutions want protection against it just proves it. If there is ever a moment that people turn back and ask why Tesla failed, it will be this. I don't think Tesla as a company will disappear, but I can definitely see Musk losing control because of financials spinning out of control, and this would be the jump-the-shark moment.

Egomaniacal, narcissistic, who cares? There is decent consensus that these qualities benefit (https://hbr.org/2012/07/narcissism-the-difference-betw, http://www.psychologicalscience.org/index.php/news/minds-bus...) entrepreneurs and leaders.

The reason is that as a single unit the combined companies are a much more compelling offering as a next-generation energy company managing, both supply and demand of a sustainable, renewable resource. I'm not aware of anyone doing this strategically, building bridges from both the supply and demand side, and at this scale.

The article is an interesting example of how entrepreneurship, and any startup battles similar issues with growth, debt and financing, regardless of the financial position, or level of influence of the founder. All the more reason not to be disheartened when facing challenges of a similar nature, though likely at a different scale.

Master plans 1 and 2 from Musk have been large in scope, practical, achievable steps towards what I think is the moonshot, which is a renewable energy ecosystem for the future.

The power generated can be used for anything. The vast majority will go to things other than cars.

Electric cars can consume electricity from any source and, at least for a while, the vast majority will be coming from sources other than solar.

Vertical integration can make a lot of sense in weird markets where goods aren't fungible or there isn't a high quality market for trading. Electrical power is basically the opposite of this though. There is a very very large and very liquid market for pricing electrical power. I see no reason that SolarCity can't just be a supplier to this market while Tesla Owners would be consumers.

It's pretty clear to me that the merging of the companies is mostly due to cashflow management on the part of Musk and has little to do with any real synergies between their businesses. Stockholders in one or both companies are likely to suffer due to the merger.

Tesla is a battery company that just so happens to also make a couple of cars. When you look at it that way, it makes a lot more sense.

You are making me rethink my position a little bit. Thanks!

If you look a the energy industry now, there's an iron triangle, if you will, between fossil fuel extraction, electric utilities, and the automobile industry. Tesla is aiming to replace all three sides with solar, batteries, and electric cars. A person could use Tesla products and, in theory, not interact with the current energy sector of the market at all. Which, if it works, would be some kind of disruption!

What advantage do they have in battery tech that say, Panasonic (who provides their batteries), doesn't?

For further comparison, the total capacity of existing pumped hydroelectric storage plants is 740 000 GWh. (This puts plans of battery-based electricity storage in a rather harsh perspective.)

I believe this number only includes dams with reverse pumping. The global production capacity for all hydroelectric power is much larger, but it's not a widely used number, since you typically don't empty a reservoir due to the lower water having less potential energy.

So this capacity number is a bit theoretical, since you wouldn't use it that way in practice. But then again, so is the capacity number for batteries, since you really want to avoid doing a full discharge.

Annual global hydroelectric production is a more useful number, and is a little more than 4 000 TWh.

Tesla is.

That is common misconception. Tesla repackages batteries bought from Panasonic.

I suspect SolarCity's microgrid program and system service contract (which allows for customers to participate in yet-to-be-developed markets) is intended to disrupt the whole shit. IIRC, SolarCity already purchased a utility company. I expect they're looking to buy more utility poles & make their own market, cash squeeze realities notwithstanding.

"Vertical integration can make a lot of sense in weird markets where goods aren't fungible or there isn't a high quality market for trading. Electrical power is basically the opposite of this though. There is a very very large and very liquid market for pricing electrical power. I see no reason that SolarCity can't just be a supplier to this market while Tesla Owners would be consumers." Yes, but the point is that there is a reason to combine those two, if the long-term agenda is to create a next-generation energy company, as opposed to simply competing in their respective markets, which was a response to pfarnsworth's comments.

I do agree with the likelihood of certain shareholders being negatively affected. You are also probably right about the motivation being cashflow, but that is due to circumstances/timing rather than a lack of synergy.

They are creeping in that direction though. Delta purchased their own refinery in 2012:

http://www.reuters.com/article/us-delta-jetfuel-exclusive-id...

Given that, "there is a deep, liquid market for jet fuel," is having Emirates airline and Emirates National Oil Company under the same umbrella poor strategy?

You're also omitting the fact/point that the energy industry is evolving very quickly and that calls in to question the established markets. Energy over-supply in general creates opportunities for disruption and new business models.

Yes. The only reason it exists this way is because they're both owned by the corrupt government/monarchy of Dubai.

Keep in mind that under the same umbrella you also have everything from banks to a cement company to hotels to a mineral water company. This isn't a coherent business strategy, it's just what happens when a single family rules over an entire economy and basically owns everything.

You could equally argue that is exists that way because they need to deploy extremely large amounts of capital. So, an infrastructure company in a region that is going through phenomenal, albeit temporary growth, makes a lot of sense. Once that growth levels off they could transition to higher-tech endeavors.

also, a sweet deal like: "charge your electric car for a discounted rate m when your home already has SolarCity brand electricity" is a much easier sale than "Oh, you've got a Tesla... don't you want to charge it with your standard meter rate from Vivent?"

It's possible that they benefit leaders on average but can also cause black-swan cases of terrible decision-making, which I think is the argument against the SolarCity purchase here. Tragic flaws and all that.

> I'm not aware of anyone doing this strategically, building bridges from both the supply and demand side, and at this scale.

I mentioned this in a previous comment about the SolarCity merger: most people agree it makes sense strategically. We're wondering whether it's a good move tactically, for a company in a stable-but-iffy cash flow situation to buy another company that was hemorrhaging cash and wasn't expected to continue as a going concern for much longer.

So, the tactics Analemma_ 50 and I are discussing are what other sustainable, renewable supply options exist. Because that is what SolarCity represents. Does it make sense to buy troubled SolarCity before they go under, or does it make more sense to buy another solar (or insert renewable here), or does it make more sense to start over on that component. Those are the alternative tactics I am interested in, which I am not aware of.

>>Does it make sense to buy troubled SolarCity before they go under

From an investment standpoint, I think optimally you let Solar City go into bankruptcy, buy it for pennies on the dollar, and then you cherry pick the components you want and sell off any others that you think you can. Can someone do that as a chair of both though, not sure (i guess so?).

Maybe they didn't do that because they see someone else coming in - a new challenger? Or, he sees long term something that others don't. Or maybe he's just ego-maniacal.

I think you're speculating. There are lots of plausible reasons. For example, see S+C's Alex Danco's series on this: https://medium.com/@alexdanco/in-a-world-of-energy-mainframe...

Could it all go horribly wrong? Well sure, of course. But that doesn't mean that the Tesla board is composed of idiots.

edit: See also this thread, related: https://news.ycombinator.com/item?id=12402366

There are many solar companies. Perhaps there are synergies with Tesla. But why SolarCity, specifically? What was outstanding about them as a target?

Care to provide any evidence of this? Some analysis of the solar industry in general and what made Solar City especially bad? What's the insight you have into Musk's overall strategy and why do you feel like this merger is contrary to that strategy?

>There is no reason for Tesla to have purchased Solar City

They are releasing giant battery packs for homes. This seems like a pretty good reason to also have a solar solution to work with them, considering that just storing energy from the grid is sort of dumb. There are places with variable pricing but I can't imagine a Power Wall would ever offset those price differences.

Maybe. But also maybe, it's breaking the conventional wisdom that has gotten him where he is today.

> I can definitely see Musk losing control...

I am sure investors would be super careful of doing that. Specially now, when we remember what happened to Apple when Steve was expelled.

HackerNews tends to rip on the "bankers" for deceptive practices during the mortgage crisis. Yet SolarCity is offering unsecured and untransferable bonds, directly to the public, and on the front page is comparing the available interest rates to savings accounts and GICs:

https://solarbonds.solarcity.com/

With the financial situation as you describe, there is far more risk involved in buying these bonds than a savings account, so the appeal to the high rate of interest is not a fair comparison. I'm curious what people here think about this practice.

There's such a thing???

Sure enough, found with Google, and evidently they've been doing this for a couple of years: https://solarbonds.solarcity.com/customer-agreement/

The Solar Bonds I purchase may not be listed or traded on any secondary market or exchange, and even if they are, they may not be actively traded. As a result, I should assume that I may have to hold the Solar Bonds until maturity. Also, because I am purchasing the Solar Bonds directly rather than through a broker or other financial intermediary, it may be more difficult for me to sell my Solar Bonds, even if a trading market is or becomes available.

I suppose if you view them as you should any crowdfunded thing, don't expect anything back, but you're hoping to help something you believe in, that's OK, but....

Am I missing something?

*edit swypo

And, BTW, SpaceX just had a rocket and its payload go ka-boom on a launchpad pre-flight test.... Musk's attention and potentially capital just got a huge distraction.

See also https://news.ycombinator.com/item?id=12405092 , Tesla's lenders did not act favorably towards the merger.

Ah, and see this in particular: https://news.ycombinator.com/item?id=12406715

Math and physics are seldom friendly to "green" efforts.

I don't support the green label on solar panels that are only profitable because of government dole. However, I still believe the methodology for determining risk (internal to SolarCity) to be sufficiently safe (for me to invest). I'm familiar with what they're up to, though.

Could it be the case that a 6.5% rate reflects the risk, but also the difficulty of securing operating funds. e.g. a sweetened deal for those willing to support them.

I'm interested in finance, but not a financier... so, my opinion could benefit from correction.

The reason--at least, my reason--for ripping on "bankers" is because our entire system of money is founded on bonds and thus, debt servitude. No one asked me if I wanted every single dollar to be created in parallel with a debt instrument, and no one asked me if I wanted to have my income taken away to service that debt.

It all comes down to autonomy. People have a choice to purchase Solar City bonds, but our banking system is forcibly imposed upon people by an unelected, private entity.

Please forgive my ignorance on this. I think there is a high potential that SolarCity will do well after merging with Tesla so I see these bonds returning good returns.

If everything goes absolutely swimmingly, you will not make more than 6.5 percent on your investment. They're not going to give the bondholders a tip/bonus/whatever.

If you believe that Tesla + SolarCity is going to be a powerhouse, I'd consider buying the stock instead. Alternately, if you're looking for a 6.5 percent return, there are less risky ways to get it (it's about the expected annual return from a broad index fund).

I'm honestly not sure who these bonds make much sense for. The implied bet is something like "they're not going to do great, so the stock will not rise, but they also will not go bankrupt so I will get my principal back." On the other hand, if you are emotionally invested in the idea of self-driving solar powered electric cars and are willing to tie up some money to make that dream come true...I can see the appeal. (I own a tiny bit of TSLA for the same reason).

Then why offer interest rates many multiples higher than other low-risk investments? Of course they might pay off (in fact, it's probable that they will). But it certainly isn't riskfree, like a savings account.

These bonds are medium risk... you get all of the downsides of when they go bankrupt but none of the upsides of if they become wildly successful.

I hadn't heard that before, but am interested in learning more about it.

Or when it's too big to fail.

The point really should be that he's taking a risk and it's probably a calculated one. Everyone takes some risk or the other in their lives. Therefore, it follows that if the idea fails, or the execution fails, then the company must fail regardless of the emotion behind it. I don't see why taxpayers have to fund failed ideas if it comes down to it.

Having said that, I hope that Tesla succeeds and continues to change the automotive market.

Didn't they just (effectively) get a ~500 million dollar interest free loan in the form of the hundreds of thousands of model3 pre-orders that were placed ?

I would have thought tesla was relatively cash rich these days.

I'm not very knowledgeable about how that stuff works but it almost seems like a power play setup vs just a bank innocently managing their risk.

I wouldn't overthink things. Revolving credit facilities like Tesla has are very common and typically secured. It's not entirely clear to me what "firewalled" means, but adjusting terms in the wake of a merger/change of control event is to be expected.

Tesla had drawn $678 million under the agreement as of June 30, and had several billion in assets (inventory, machinery etc.) pledged against this and various other credit agreements.

What some might not realize is that although Tesla are doing very well from a PR perspective, they are still massively cash flow negative, even at the operating level (i.e. excluding capex). Solar City is even worse (-$741 million operating cashflow last year and -$2.47 billion including capex).

These are numbers that any loan officer would be wary of.