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  • Why Micron Looks Undervalued Compared To This Peer [View article]
    I think that you are comparing apples and pineapples. They are both fruits but...


    Micron makes digital memory products on silicon. Avago makes analog optoelectronic products on gallium arsenide, gallium nitride, and indium phosphide.

    Micron manufactures its own products. Avago outsources its manufacturing to third-party foundries. Micron is primarily a manufacturer. Avago is primarily a designer. It even outsources some of its corporate infrastructure functions.
    Avago only manufactures its own products where that is necessary to protect its intellectual property.

    The level of debt you need to carry to build and maintain multi-billion dollar plants is quite different from what you need to carry design labs and engineering offices. So your comparison of the two companies leverage ratios is not particularly meaningful.

    The asset turnover for a company which makes and then delivers its product is necessarily different and not comparable to the asset turnover of a company that has its product made by someone else; tested by someone else; and shipped from there to the customer with the company ever seeing it.
    Aug 22 02:55 PM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    Big Volt,

    We agree.
    Aug 22 01:35 PM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    Big Volt,

    >>I don't see how SC can morph its business plan to sell systems profitably given their SG&A expenses, their $1200 to $2000 cost of turning a lead into a sale, and ever so important, training a sales force, one that has an incredible turnover rate, to have the knowledge to sell a system vs. the used car sales approach of offering a solar lease/PPA.<<

    Yeah, I understand the issues. I don't see any choice except to practically replace the whole sales force. But that can be done over a year or three.
    Aug 22 01:34 PM | Likes Like |Link to Comment
  • SolarCity: This Strong Gainer Can Still Deliver More Upside [View article]
    GuyWhoReportstoSEC,

    One minor comment.

    >>1) Retained value ASSUMES 90% of clients will renew for another 10 (ten) years AFTER their twenty year (two decades) lease expires.<<

    You got it backwards.

    Retained value assumes that 100% of clients will renew for another 10 years at 90% of their last year's rate.
    Aug 22 01:14 PM | Likes Like |Link to Comment
  • 3 Lessons From The Galena Scandal [View article]
    Richard,

    Your three points are applicable to more than biotechs.

    It's all about the product is mistaken whether the product is a drug or a car (Tesla) or anything else. Investments are about the security which is not the same as the company which is not the same as the product.
    Aug 22 10:45 AM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    That was the idea, seeker.
    Aug 22 07:06 AM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    cmnsnse,

    OK, I read the link to JB straubel's interview and I have changed my mind. See how easy that was. :-)

    My new mind is this. Storage isn't likely to be cost effective or practical space-wise for the residential rooftop solar customer any time soon.
    But it will work well for the commercial customer because a high demand charge represents a large proportion of the commercial bill and storage can lower that substantially.

    Do we still disagree? If so, please help me to change my mind again. There is mucho dinero in the final changed mind (if I still have one by then).
    Aug 21 06:59 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    user1499,

    Thanks. I got it.
    Aug 21 06:46 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    cmnsnse,

    >>Yes, I'm being bold in thinking you'll change your opinion here:)<<

    I do that often. That's why I write articles - to get the opportunity to make up my mind, and then change it 5 or 6 times.
    Aug 21 06:44 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    Thanks, Jonathon. Glad you liked it.
    Aug 21 02:25 PM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    user1499,

    >>unlock the full potential and value of distributed storage (as a grid balancing and reliability resource).<<

    Absolutely. The grid should be doing it. There is value for the utilities in the solar revolution if they can just get their heads wrapped around it.

    I'm counting on Warren Buffet's folk to do that here in Nevada. His MidAmerican Energy just bought the Nevada Utility.
    Aug 21 01:44 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    cmnsnse,

    I hope you don't mind my commenting on something you addressed to user1499.

    >You have to also remember that solar+storage will be in full swing by 2017 for Solarcity. It will be one package deal, that package deal will a wild success as a lease/ppa product.<<

    Storage is not very useful to a consumer right now. It costs too much and as long as the grid's charges for using it as a battery and a backup do not get up to where the consumer can pay for the costs of storage from savings by going off-grid entirely, it will not sell. Even then, it will not sell to a consumer who doesn't have the space to put the batteries in or the electric lines to that space or just doesn't want to use his good garage space for batteries. There is also an extra cost in home insurance if the inspector sees the batteries.

    On the other hand, the utilities seem determined to make solar cost so much that it costs more than the utility rates in their "kill Solar" campaign. They are too dense to realize that they it is really a "Kill Utilities" campaign. If those extra charges get too high, we all say screw the utility and give me the batteries. They are too dense but I know some people who are not who will tell them. whether they will listen or not is another question. The Queensland utility did not. $500 a month connection charge if you have solar = bring on the batteries. Duh.
    Aug 21 01:40 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    User1499,

    OK, I'm awake now. At least as awake as I ever get. I still love your post.

    First, thanks for the compliment. It's nice coming from someone who works in the solar industry.

    >>1. In your spreadsheet's fixed rate agreement, the customer sees a first year loss even though the cost of power from SC is below that of NVE. I think this is a calculation error (you're adding SC cost of power, NVE fixed charge, and then an additional 10% of your production at NVE's retail rate - net metering should offset 12 cent power from NVE with 11 cent power from SC 1:1, which is not reflected in your spreadsheet).<<

    The spreadsheet compares the cost to the retail customer of buying 4,306 kWhs a month from NVEnergy with the costs for that same amount of energy from SolarCity under its fixed rate lease. The calculation is correct. NVEnergy is fighting solar by making a homeowner with a solar system pay the taxes (about 10% at NVEnergy's rate) on his own generated power to NVEnergy. I don't know how NVEnergy persuaded the utility commission to adopt this charge. I wasn't at that hearing. But I will be at the next one and, as you can already tell, I'm not shy or soft about expressing my opinions. Anyway, the solar homeowner has to pay NVEnergy a "tax" on his production equal to 10% of it at NVEnergy's rates. It's not an error in the spreadsheet. It's a stupid rule. If NVEnergy keeps this up, eventually it will become cost effective for their customers to put in batteries and a back up generator and kiss NVEnergy bye-bye forever.

    >>2. Retained value to SC is calculated after Tax Equity financing obligations. Given that SC can get roughly $2/W from tax equity (http://bit.ly/1lizdNA), that leaves about $1/W in costs for SC to finance. They can raise $1.7/W through ABS issuances at 4.3% and lower, so 6% is (at least for now) a pretty safe number for them to use as a discount rate.<<

    I agree that it is a reasonable discount rate though awinch has a good point. It is not a rate that comes close to allowing for the risks of default over 20 or 30 years or any other of the issues awinch points out. My agreement with the discount rate is not based on its reasonableness in adequately taking account of the risks. It's based on exactly what you say - SolarCity's cost of money. That changes when and if the 30% ITC goes to 10% on January 1, 2017.

    >>cmnsnse nailed this with the comment that they can raise an extra 70 c/W than their costs. This allows them to plow money into sales, marketing and growth, securing future revenues.<<

    I don't understand this. Money is fungible. You can plow money into sales, marketing, whatever whether you made the money as profit, borrowed it, or got investors to put it in. I don't see any difference in the money based on where it came from.

    >>3. More on retained value. The $1/W in costs that that SC bears yields $1.72/W in retained value according to their most recent earnings presentation. This would drop to $1.2/W if you exclude renewals. They are definitely making money on every installation (somewhere between a 20-70% margin if you agree with their discount rate).<<

    I agree with their discount rate but I don't trust the numbers per watt from the earnings presentation. How much do they value a PPA at per watt? I think their valuation is based on those wholly ridiculous assumptions about renewal rates, etc. If their customer service does not improve and if they don't get their salesmen to come a lot closer to telling the truth they are going to have a near zero per cent renewal rate after 20 years.

    >>4. I agree that their renewal renewal projections are overstated. Customers are going to have a lot of bargaining power and I'd expect they end up giving up many systems for free or cheap.<<

    That's what I think. If you agree with that, then you can't believe the $1.72/watt in Retained Value because that is what that number is based on.

    >>5. Their business model will have to change by 2017 - they'll be able to raise less tax equity per W, and ownership will make more sense for customers with the lower tax credit. SolarCity will have to be the go-to loan provider and O&M company for solar to continue their growth, and these are business areas with lower barriers to entry. The only way for SC to continue its dominant position at that point is cost leadership (which they know, hence the recent transparency around their costs, acquisition of Silevo, and investment in operational efficiency).<<

    Agreed that the business model has to change. Also agree that they need maybe not cost leadership but at least cost parity. Silevo helps. But what do you do about the sales force which has gotten used to huge commissions and now has to take half of that for SolarCity to compete. SolarCity sells systems at $5.00 a watt and only makes 3% margin. How can SolarCity match 1SunSolar's or SolarHome's price at $3.67 a watt and make any money? I think a lot has to change for that to happen and they are going to need a whole new sales force to do it. People can't take a 35% cut in pay. They bought houses at prices and with mortgages that depend on the higher pay level. And people don't want to trade in their Tesla for a Leaf.

    >>6. Right now SC is worth $6.5 B. This is almost 4x their retained value (over 5x if you exclude renewals). If you believe that 6% is a reasonable discount rate given customer repayment risk on existing contracts, this is like buying a company that is trading at 5 or 6x revenues, reasonable for a company growing as fast as this one, but higher than your typical market multiple.<<

    We already talked about that. I don't believe the $1.72 a watt so the 6% discount rate doesn't help. I think that we are discounting a vastly inflated number at 6%.

    >>7. You can't discount the potential for SC offering other services to their rapidly growing customer base. Energy storage has the potential to allow SC to eliminate utility rate design and net metering risk, and provide value-added grid services (given the right market design). Home energy management is another value-added service SC is well-positioned to get into.<<

    I don't discount that. I inflate it. If there is a way to create a consumer value that can be sold at a profit, any business Elon Musk is the creative director of will find it. If I can find it, he can. And I think that I can find it. All the ones you mention plus others. How about local area grids supplying just a neighborhood? Residential and commercial?

    >>Hope this adds to the conversation!<<

    It sure has done that in spades.

    >> I work in the solar industry and have been following SC and its peers since the beginning.<<

    Good to have you here. We need people contributing who know what they are talking about.
    Aug 21 01:23 PM | 1 Like Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    Tales,

    >>Why would anyone loan/lease at this point and not just buy the system from one of many (often local) competitors?<<

    They won't. They will buy the system.

    Key question: Can SolarCity morph its business plan to selling systems profitably. I don't know. Yet. I'm pretty sure that I will know after this series of articles.
    Aug 21 12:29 PM | Likes Like |Link to Comment
  • SolarCity: An Analysis Of Retained Value And A Price Comparison Of Its Offerings [View article]
    Tales,

    All true. SolarCity is selling tax credits and depreciation right now and getting them by using zero down deals.

    What happens when those tax credits financings aren't there and anybody can get zero down from a bank?

    Those are the big questions we are exploring. SolarCity's business plan will have to change. they have already shown the flexibility to adopt their business plan to new realities. (Offering loans, for example). But can they adopt their business plan in a way that makes them a profit? They have a reported gross margin of 3% on sales which are priced 27% higher than a local installer's. Is that real or are they just manipulating a lot of the costs into sold systems so that they can show big profits from leased systems and support their financing mechanisms? I think some of that is going on. Also, can they create a selling environment where their salesmen tell a lot more of the truth and a lot less BS? I could. So I think Elon can too.

    You have your finger on the key questions and I don't know the answer yet. I hope to after another couple of articles with a lot more data in them are published and a lot more of you help educate me.

    Thanks. You are one of the people helping to educate me.
    Aug 21 12:26 PM | 1 Like Like |Link to Comment
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