SolarCity (NASDAQ:SCTY) is expanding into Florida's residential market after voters last month rejected a utility-backed ballot measure that critics said would make going solar more expensive.
"Though the Sunshine State doesn’t get quite as much sun as the southwestern U.S., it consistently ranks among the nation's ten sunniest states (the Orlando area, where we’re initially launching service, enjoys more than 230 sunny days each year)."
CEO Lyndon Rive told the Orlando Business Journal the move would "eventually lead to 200 to 300 jobs based on the demand."
Morgan Stanley's Adam Jonas and team trim the price target on Neutral-rated Tesla (TSLA +2%) to $242 from $245 (still 30% upside), as stronger Q3 earnings were offset by the issuance of more than 13M shares for the SolarCity (NASDAQ:SCTY) deal.
"Given (SolarCity’s) financial condition and recent reduction in guidance, we have assumed zero value for (SolarCity) equity to (Tesla) shareholders," says the team. The "ultimate outcome" for Tesla and its stock will continue to be dominated by the core automobile and transportation business.
"The bigger mission remains developing a sustainable transportation ecosystem," they say, and estimate Tesla's global fleet drives about 5M miles per day, with roughly one-third of these on Autopilot.
That pace is expected to double in a year, giving the company the opportunity to push state-of-the-art algorithmic driving and machine learning in personal transportation.
Tesla's (NASDAQ:TSLA) new solar roof product will cost less to manufacture and install than a traditional roof - even before savings from the power bill.
"Electricity," Elon Musk said, "is just a bonus."
How is that possible? Not only do Tesla's glass tiles weigh up to 80% less than conventional roofing materials (cheaper to transport), they are more durable (less breakage) and glass is made using, basically, sand (a cheap material).
Tesla (NASDAQ:TSLA) is reiterated with a Sell rating and a $160 price target at UBS, which sees challenges in integrating SolarCity (NASDAQ:SCTY), ramping up auto production and developing the upcoming Model 3.
UBS considers the SCTY deal an "an unneeded distraction at a time when Tesla has many challenging targets ahead," including plans to start delivering the Model 3 within a year or so and to hike auto production to 500K deliveries per year, as it works to complete the construction of a massive battery plant in Nevada.
As a side note, the firm thinks competition from TSLA bodes poorly for Sunrun (NASDAQ:RUN).
Baird analysts are more optimistic, seeing potential long-term benefits as TSLA has identified growth opportunities (solar roof/complete energy systems) and SCTY is shifting toward cash sales and to become less reliant on capital markets; the firm rates TSLA at Outperform.
SolarCity (SCTY -0.9%) is downgraded to Sell from Hold with a $16 price target by Axiom Capital's Gordon Johnson, a day before shareholders will vote on the proposed merger with Tesla.
Johnson now predicts a 70% chance of the merger's approval but is highly critical, saying "Tesla investors either: (a) lack a very basic understanding of the solar market, or (b) lack a very basic understanding of accounting."
Johnson also downgrades several other solar stocks (TAN -0.2%) - JA Solar (JASO -0.9%), Trina Solar (TSL +0.7%) and Yingli Green Energy (YGE -3.9%) - to Sell from Buy, citing an expected drop in support for solar in the U.S. following the Trump election.
He also cites caution on Chinese module prices given profit-dilutive quotes being submitted by Chinese module companies in the government's Top Runner program.
"We cannot see this in a positive light for Tesla (TSLA +0.9%)," says Morgan Stanley's Adam Jonas, reflecting on the election results. "An environment that moves away from incentivizing electric vehicles is clearly adverse to the story."
Trying to get positive, he does note the company was set to exhaust its $7.5K federal tax credit by 2018 anyway, and given the high vehicle price, Jonas doesn't think the incentive was that big of a deal.
As for the energy side of the equation, the removal of incentives for solar adds to headwinds, particularly ahead of the SolarCity (SCTY +0.7%) purchase.
Again trying to get positive, he notes there's no direct exposure to Mexico and limited exposure to China, thus capping protectionism risk.
Solar stocks (TAN -5.4%) are among this morning's biggest losers ahead of a new Trump administration that likely will favor traditional energy sources over alternatives.
"Trump would allocate more resources to traditional energy sectors (oil, gas and coal) than would Clinton, but allocate less to alternative energy industries,” says Mickey Levy, chief economist for the Americas and Asia at Berenberg.
"Tesla (NASDAQ:TSLA) will definitely absorb SolarCity (NASDAQ:SCTY) debt," Tesla CEO Elon Musk tweets. Musk was responding to someone who asked the following: "@elonmusk in the Q&A, you said Tesla would assume SCTY debt (1 co.). Merger agreement thought, suggests SCTY would be a subsidiary of TSLA. Important distinction for debt."
Musk continued: "Although extremely unlikely, I would pay it personally if need be. Debts must be honored."
SolarCity (SCTY +8.5%) is sharply higher as proxy firm ISS backs its pending merger with Tesla (TSLA +1.4%), saying shareholders of the companies should vote in favor of the proposed $2.3B deal.
TSLA would be able to bridge the funding gap with cash-burning SCTY, the deal is a necessary step in its push to become an integrated sustainable energy company, and TSLA is giving minority shareholders enough of a voice to overcome governance concerns, ISS says.
For SCTY shareholders, the offer represents a 14% premium over the stock price on June 21, the last trading day before the proposal was announced, and gives them TSLA stock which is easier to trade, ISS says.