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When two companies with negative financials and high debt marry a
good response to the nuptials is … Huh?
When Toto pulls back the curtain in the Wizard of Oz to reveal that
the Wizard is just a normal man with no special powers the Wizard
says: Pay no attention to the man behind the curtain.
In the case of the proposed stock acquisition of SolarCity by Tesla
pulling the curtain would reveal two debt ridden companies with cash
Just the Facts Please
The facts are: two companies with high debt and consistent net
losses have joined their net losses and debt to enjoy the synergies
offered by Tesla’s (TSLA)
electric car and Powerwall Lithium Ion battery technologies with
residential/commercial lease business model and its Silevo
crystalline cell technology.
Other facts include that SolarCity has experienced setbacks with its
module assembly/cell manufacturing ramp up and optimistic
announcements aside are likely far away from com-mercializing its
Once SolarCity’s PV cell/module technology is commercial it will be
competing in a market with significant downward price pressure.
Also, given that China’s PV cell/module manufacturers are ramping
capacity in countries that are not subject to import tariffs
competition on price will get a lot more painful in the near future.
Also to be considered is that with demand for solar leases slowing
SolarCity has announced that it will compete in the highly
competitive utility scale space, a segment of the PV market that is
highly capital intensive on a much bigger scale.
Finally (or, really not finally) the company’s reliance on debt
renders it highly vulnerable.
Now to Tesla: facts include consistent net losses, high debt and a
residential/commercial battery product that is not widely deployed
and is quite expensive.
Both companies have liability/asset ratios over .50, which means
that a higher proportion of each company’s assets are financed by
So … just where is the synergy in combining two companies into a
massive, debt-laden, clean technology powerhouse?
The proposed acquisition DOES make sense for SolarCity, which can be
viewed as the weaker party. For Tesla, it only makes sense when
thought of as a lifeline for SolarCity.
Table 1 (click for larger version) offers total revenues, net losses
and the Liability/Asset ratio for SolarCity and Tesla from 2010
Tesla is not the only company to recently make interesting
acquisition decisions. SunEdison, currently in bankruptcy, went on a
buying spree with the goal of creating a massive clean technology
powerhouse and now finds itself selling assets and seeking a
busi-ness-savior-marriage of its own.
Paula Mints is founder of SPV Market Research, a
classic solar market research practice focused on gathering data
through primary research and providing analyses of the global
solar industry. You can find her on Twitter @PaulaMints1
and read her blog here.
This article was originally published in the June 30 issue
a bimonthly executive report on the solar industry, and is
republished with permission.
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