Yahoo finance solar city

In this week's Industry Focus: Energy, organize Nick Sciple chats through analyst Jim Mueller about the latest in the never-finishing push spectacle that is Tesla (NASDAQ: TSLA). First, an upday on Tesla Insurance. The insurance website went live, and also customers were told they could snag rates 20% to 30% reduced than the competition. Where is Tesla Insurance gaining those 20% to 30% reduced numbers? That's unclear, and also the webwebsite was abruptly closed for an "algorithm upday."

The story that's been grabbing even more headlines, though, is the solar roofs at Walmart. Nick and also Jim talk around why the SolarCity acquisition is turning out to be a huge difficulty for Tesla, exactly how that difficulty can acquire also worse in simply a couple of months, wright here the roof fires fit into it all, and just how Tesla could turn this roughly.

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Stay tuned to the end for a ray of hope for the struggling carmaker.

A complete tranmanuscript follows the video.

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This video was tape-recorded on Aug. 29, 2019.

Nick Sciple: Welcome to Industry Focus, the podactors that dives right into a different sector of the stock market eexceptionally day. Today is Thursday, August 2nine, and also we're discussing Tesla, when aacquire. I'm your host, Nick Sciple, and now I'm joined in studio by Motley Fool analyst Jim Mueller. How's it going, Jim?

Jim Mueller: Hey, Nick! How are you?

Sciple: I'm doing great! It's been a while considering that we've had actually you in the studio, Jim. How has actually life been?

Mueller: It's been well. It's been pretty excellent. Enjoying the weather right here at the end of August, which is a stvariety point to say in the D.C. location, yet it's actually nice out this day.

Sciple: Yeah. Labor Day weekfinish. I'm heading down to Atlanta for a kickoff college footround. Very excited. Last time I had you on the display was a tiny bit under a year earlier. We were talking around the U.S.-China trade battle. We were talking about tariffs. We're talking around, once we acquire into 2019, maybe this will certainly slack off. Any updays on what's going on tright here, Jim?

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Mueller: Yeah, no such luck on the sabsence off tbelow. It's going fast and furious. The results are actually start to be felt now by U.S. providers and also will likely be felt by consumers quickly. For circumstances, Deere lowered the guidance -- the maker of the significant farm equipment -- bereason farmers are not buying the equipment bereason they're not being able to offer most their plants to China. Qualcomm lowered their guidance recently, also, bereason they're a chip supplier into China, wright here they use the chips to manufacture all kinds of customer electronic devices. Importers are taking care of the tariffs in many kind of different methods. They're not elevating weras. They're actually passing on prices to consumers. For example, Walmart freshly sassist they're going to have to raise the prices of the stuff they sell in their stores, simply in time for Christmas. That's going to make it painful for American consumers. And then, the entirety changing supply chains point. President Trump urged American businesses to obtain out of China newly. Companies are currently trying to, however after years of building up China as the manufacturer of the civilization, and the web that entails the service providers to the manufacturers and also the suppliers to the service providers, it's not basic to make shifts ameans from China and also find, hopecompletely, as inexpensive manufacturing, however then, the assistance infrastructure is not there. It's simply a hot mess best now.

Sciple: Yeah. I think literally and figuratively, you might say there are a lot of relocating components here. A lot of points to navigate. It's been hard for folks. Not even in the UNITED STATE Germany type of has actually talked about slowing auto sectors in China as an outcome of this. It's hurt their economic climate. A lot of trickle down worries. Hopefully, it gets resolved. But we're not that different from where we've been a year back as soon as we were talking around this.

We are talking around Tesla today. The primary topic we're going to talk about today is Tesla Solar, which has really remained in the news a lot freshly. But we did gain some more Tesla news last night, which has been interesting. Tesla Insurance released in California last night. We've been waiting for that product launch because it was initially stated by Elon Musk and Tesla earlier in May. It lastly launched last night in The golden state. However, 3 hrs later, the product was pulled down for an algorithm upday. I checked Tesla's website this day -- that's still ongoing. Obviously, things are continuing to play out. But just high-level thoughts on this rollout and also what's been going on so far?

Mueller: I don't know what Tesla's suffer is in insurance. Are they the ones pricing the insurance? Or execute they have actually another firm pricing the insurance for them, and Tesla's just being the front man? It's not really clear, at leastern not to me. One point that does problem me is a things that says that Tesla owners will certainly be able to gain rates 20%, probably also 30% cheaper than they could at various other insurers. That renders me wonder whether Tesla or the underwriter actually has actually enough data to justify a lower price like that. Insurance prices are set by information, both by exactly how a lot it expenses to repair the cars, how frequently the cars obtain into accidents and also need to be totaled, yada yada on that line, and the driver him or herself, exactly how regularly they gain into accidents or make clintends, and also so on. Is tbelow sufficient information for any kind of underwriter at this allude to say, "Hey, we're going to give you a 20% lower price bereason you deserve it and bereason the data backs us up?" And it's that "data backs us up" part that I'm not also certain about in this case.

Sciple: Yeah. Obviously, still a developing story. They're doing this algorithm update. We'll view just how those rates materialize. But somepoint to watch going forward.

The primary topic I desire to talk around this day, though, is Tesla Solar. In the past week, it's been all over the news. SolarCity, considering that the 2016 acquisition by Tesla for $6.5 billion, the solar service has actually flown under the radar. The solar roof has actually been a lot in the news. Musk will certainly periodically surchallenge and also say, "Hey, we're around to ramp up the solar roof." But solar has really been brought front and center in recent days following a spate of legal filings and also some linked articles. Can you just present us to those, Jim, at a high level?

Mueller: The big legal filing that probably hit the news the majority of surprisingly is Walmart filing suit freshly, saying that it was, what, 140 roofs that they had?

Sciple: It was over 200 roofs, seven that had actually fire issues.

Mueller: Salso had fires over the last couple of years, and also they can, they felt fairly secure that they could trace that back to the solar panels that SolarCity had set up. The insurance claim was that SolarCity employees -- that is, Tesla employees -- were not inspecting the roofs on a constant schedule, were not keeping them as they were compelled to, and also therefore, Walmart believes that Tesla Solar was in breach of contract. And basically, I think they want the solar panels removed, and Walmart reimbursed for the expenses of having to cshed dvery own the stores, the loss of inventory, the damages, the repairs, and all that stuff.

Sciple: Yeah. This is a conflict that, if you check out through the legal filings, has been ongoing going back 2018 and also previously, but finally reached the suggest wbelow Walmart filed a lawsuit. Obviously, it's a legal filing, however some exceptionally aggressive language in tbelow. I think "utter incompetence" were the words they'd offered. So obviously, this affected the firm.

And then, over the top aget, this week on Sunday, we obtained Bethany McLean, incredibly famous for outing the Enron scandal, coming right into this Tesla story, publishing an short article in Vanity Fair titled "He's Full of : How Elon Musk Fooled Investors, Bilked Taxpayers, and also Gambled Tesla to Save SolarCity." Jim, just an additional high level, what is McLean talking around in this article?

Mueller: What she's talking around tbelow is that Elon Musk forced with the purchase of SolarCity by Tesla. She's basing her write-up on reporting by the Buffalo News, specifically David Robinchild, in that the bailout was basically misleading investors and shareholders who had actually to vote to grant it. Even though Musk and the Reeve brothers and Kimbal, I think, all recsupplied themselves from the vote, everyone knew what these men wanted to take place, so tright here was push for that. Tright here was a huge presentation, which introduced the idea of the solar roof, and also Musk presenting what showed up to be solar roofs currently set up on some buildings. Turned out to be just a mockup, installed on the collection of, what was it, Desperate Housewives?

Sciple: Yeah. It was the backlot.

Mueller: Backlot film, used in Despeprice Housewives. And this was going to be the saving grace of SolarCity. It was going to cause a bunch of cash circulation into Tesla, which would be good for the agency, and also rather has brought about all kinds of troubles, consisting of debt concerns, debt repayments, declining sales of solar panels by SolarCity, halting of their marketing themselves, and going out to the house and also doing the inspection themselves. Now, the homeowner is meant to take images and sfinish it to SolarCity to have actually the product figured out. It's simply been going downhill, and it has actually the potential to really cause some serious troubles for Tesla, unfortunately.

Sciple: Sure. The various other problem that you stated there, also, is that the company, once they had actually first gained the factory, received $750 million in financing from New York State. At the time, Tesla had actually planned to build 10,000 solar panels per day, develop countless tasks in Buffalo. As a problem of that capital from New York State. SolarCity, which came to be component of Tesla, later got a 10-year lease on the home in Buffalo for $1 a year, was tasked with: employing 1,460 high-technology work at the manufacturing facility, one more 2,000 in assistance and sales installation folks, one more 1,440 tasks in the state, and pledged to spfinish $5 billion in New York State over the next decade. However before, as Jim pointed out, we've viewed installations decline, and also they haven't quite hit those job numbers yet.

Mueller: Even the employee numbers. Tesla itself shelp there were only a few hundred employees in the state and also only a fraction of those in Buffalo itself. Then we have Elon Musk coming out and also saying, "Hey, we're ramping up manufacturing of the solar roof." I don't know if he actually said they expect to make 1,000 a week by the finish of this year, whether that was an expectation or a hope or whatever before, however through just a few hundred employees at this plant in Buffalo, it really doesn't seem as if the company's even going to be able to make that targain also if it is making solar roofs today, which is in doubt itself, unfortunately.

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Sciple: Yeah. Just to ago up, with the SolarCity acquisition, Tesla had actually obtained a organization that had two-thirds of the residential solar industry in the U.S. They declared that it would certainly add even more than $500 million dollars to Tesla's balance sheet over the next 3 years. In truth, what has manifested is that it has actually significantly raised Tesla's debt place, their industry share has actually decreased meaningfully down to 7% of the UNITED STATE residential solar industry, their installations have declined about 85% because that day. So as a result, what is Tesla left with after this transactivity today?

Mueller: Tesla's left via a company that appears to be in decrease and also disappearing, actually. Tesla Solar just set up 29 megawatts of panels in the second quarter of this year. That's down from 200 megawatts set up simply two years prior in the second quarter of 2016. With the solar roofs not really out there yet, I don't understand wbelow SolarCity is going to be able to geneprice any type of kind of revenue or cash flow for the company. What that leaves Tesla and also Tesla shareholders saddled through is a bunch of debt that Tesla also bought once they bought SolarCity. One of the pieces is coming due on November first. It's a $556 million convertible bond. The bond holders have the alternative on November first of either converting their bonds into shares of Tesla or receiving their cash investment back plus any kind of unpaid interemainder. Given that the conversion prices are in the $500 to $700 variety of Tesla, and also wright here Tesla shares are trading this day -- in the low $200 array -- no holder in their ideal mind of any kind of of those bonds is going to say, "OK, I don't desire my cash. You have the right to store the cash. Just offer me shares of Tesla when I'm asking for somepoint that's worth a 3rd less than what I offered you." So Tesla's going to need to come up through $556 million plus a little little of interemainder and pay that off. If they don't -- and this is an unfortunate consequence of the purchase of SolarCity -- if they don't pay that once it comes due in two months, that deserve to have actually major results.

If they miss out on that payment, then various other bonds that they have actually out -- for circumstances, there's a convertible bond due in March of 2022 that says, "If you fail to pay off any type of other mortgage or bond or borrowing worth $150 million or even more, then our bond is going to be claimed to be in default, and also we have the right to acceleprice the payment." And that certain bond, on June 30th, had actually a balance of $977 million. So if Tesla stops working to pay that $556 million, then every one of a sudden, they could be asked to pay another $977 million, and also then the other bondholders -- there's simply this entirety cascade impact that can occur if Tesla falls short to pay this.

Now, is Tesla going to let that happen? I don't think so. They have to be aware of the covenants of the bonds they've issued. So unless they've already invested -- what did they have actually, $5 billion in cash on the balance sheet?

Sciple: As of June 31st.

Mueller: As of June 30th. There's no June 3first.

Sciple: I'm not here for my calendar skills.

Mueller: Right. So if they've currently invested a great chunk of that money elsewhere, such as paying earlier carriers money that they owed their carriers for the vehicle service, or if they cannot someexactly how negotiate with the bondholders coming due and also relocate the bond down the road, delaying payback like they've done with another bond numerous times, then if worst concerns worst, the cascading result of multiple bonds coming due and there's no cash to pay it back can potentially bring about Tesla's bankruptcy. It would be a damaging point for the shareholders and also, I think, for the human being in general. Let's challenge it, Elon Musk has actually done a lot to obtain electrical cars into the forefront of society's mind and also to the huge car manufacturers. VW is supposed to go all electric by 2025, somepoint like that. BMW, Jaguar, GM, Toyota, everybody you deserve to name is now making electrical cars, and I don't think that tide is going to reverse. It'd be a genuine shame if Tesla was not tright here to reap the fruits of their labor.

Sciple: Yeah. Whether that's going to occur, I don't know. The takeamethod here, I think, from this totality SolarCity acquisition, is you had actually a transactivity wbelow shareholders were promised --

Mueller: One thing.

Sciple: -- were promised that they'd have actually a agency that can make lower-than-market-price solar panels that would certainly have actually a leading market share, that would continue development into the future, and also would meaningtotally add to the company's bottom line going forward as part of its grasp plan. What has manifested is a decreasing operating business, a large amount of debt that has saddled the company with a number of complicated worries. Now, you need to allocate cash that otherwise need to be going to capex to construct your new cars, all those sorts of points, requirements to go to servicing this debt, too. And then, to bring this ago to the Walmart worry, and Amazon problem, also --

Mueller: We didn't cite that one. Amazon likewise reported a fire on a roof of theirs that had SolarCity panels on it.

Sciple: Yeah. This story, on a number of levels, has actually also had an adverse result on Tesla. You have actually a perception worry when you have an extremely strongly worded negative lawsuit coming out from a major retailer favor Walmart. As well, you have some amount of unparticular liability if this roof concern goes to various other residential installations throughout the country. We've watched some follow-up reporting from Bloomberg on that.

Mueller: And just how a lot will certainly it price Tesla to settle through Walmart? And exactly how much did it price to settle through Amazon? And how much will certainly it cost to resolve via all those homeowners? And on and also on and on.

Sciple: It's a bag of worms that has actually really created a lot of worries for the agency. We will say, Tesla has ongoing to tout the solar roof as somepoint that is going to shift the narrative approximately the service. Again, customer trust has been impacted, also. It's been a while because we've seen this come out. What are your thoughts on the prospects of the solar roof to revolve the solar service roughly for Tesla?

Mueller: If they deserve to carry out it, and also if the product meets the high bar that Musk collection for it -- cheaper than a consistent roof, much longer lasting than a continuous roof, and that's not also counting the electricity the roof is going to generate for you -- if they deserve to perform that, then that could indeed rotate the case about. Tbelow are numerous concerns. One, does that solar roof actually exist? Or is it engineering drawings still on paper and also not in production? Two, just how shortly can they get those out? Three, exactly how quickly deserve to they ramp it up, given the other constraints on their cash and their cash flow? And 4, are they as well late to the market? I expect, SolarCity has declined as a large player in the solar panel sector. Are customers willing to come ago to them and try a brand-new product that hasn't been tested, that's not also out there yet, and also could not concerned the assures that have actually been offered so far?

Sciple: And has publicly brought about many fires?

Mueller: Well, the roof hasn't.

Sciple: True, true. It's to be determined. A lot of points via Tesla, there's constantly this promise out in the future, whether it's full self-driving or the solar roof or the Chinese manufacturing facility. We'll check out how points materialize. I will certainly say that the solar roof has been promised considering that October of 2016 when the SolarCity merger was beginning to happen. We're now, in August of 2019. Likewise, self-driving was promised approximately that very same time and has not manifested. Those things are the sorts of levers that, if Tesla can pull them , all these question marks arguably can go amethod. But lots of points to navigate. It's a challenging time to be navigating these concerns if you're management at Tesla this day.

Alappropriate, Jim, any kind of positive thoughts going right into Labor Day weekend? What are your plans?

Mueller: Well, there was some positive news for Tesla, actually. Moody's, the bond rating firm, had actually some great news for Tesla. They affirmed the bond ratings they had actually for Tesla's current bonds. That suggests they didn't make it worse. They improved what's dubbed the speculative grade liquidity level, which is a rating of the danger that a agency that will not be able to meet its short-lived liabilities. That's a meaning I'm analysis off The Free Thesaurus. Level from 4 to 3, four being the worst, one being the finest, many liquid. So 4 to 3. That's an innovation. They likewise changed the outlook on the firm from negative to secure. That's a huge thing for a firm when it hregarding negotiate new debt or roll debt out or what have actually you. Having a secure outlook from one of the significant bond rating agencies is good news for Tesla.

Sciple: Yeah. We just had Elon Musk speak in China last night with Jack Ma, so we perform have actually the China factory, also positive news coming dvery own the line for Tesla. There's been some rumors that they're going to reveal that initially auto they've created at that factory. That'll be exciting to check out. But lots to follow through this agency in the future. It's constantly in the news, Jim.

Mueller: That it is. That's what renders being a shareholder exciting, I guess.

Sciple: It's a rollercoaster ride, for certain. Thanks for coming on, Jim, as always!

Mueller: Thanks for having me!

Sciple: As always, human being on the regimen might have actually positions in the companies disputed on the present, and The Motley Fool might have formal referrals for or against the stocks disputed, so don't buy or offer anypoint based exclusively on what you hear. Thanks to Austin Mbody organ for his job-related behind the glass! For Jim Mueller, I'm Nick Sciple. Thanks for listening and Fool on!

John Macessential, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Mueller, CFA owns shares of Amazon and also has the complying with options: long January 2020 $1370 calls on Amazon, brief January 2020 $1380 calls on Amazon, short January 2021 $200 calls on Tesla, long January 2021 $200 puts on Tesla, brief January 2021 $230 calls on Tesla, long January 2021 $230 puts on Tesla, short January 2021 $240 puts on Tesla, and long January 2021 $270 puts on Tesla. Nick Sciple has the adhering to options: long January 2020 $50 puts on Tesla, lengthy January 2020 $100 puts on Tesla, long January 2021 $100 puts on Tesla, and also lengthy January 2021 $50 puts on Tesla. The Motley Fool owns shares of and recommends Amazon, Moody's, and Tesla. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure plan.