The only hope for the SolarCity boondoggle, centerpiece of Andrew Cuomo’s Buffalo Billion scam, is for Elon Musk to sell Tesla stockholders on a buyout.
We last reported on the SolarCity boondoggle back in May. I noted then “the key element of the Buffalo Billion fiasco now being looked at intensely by Preet Bharara is in serious trouble, Andrew Cuomo is in bigger trouble and the taxpayers of State of New York are in the biggest trouble of all.” Since then, things have only gotten curiouser and curiouser. Elon Musk, the trendy super-hustler, has ridden to the rescue of his cousins, the Rive brothers, with a proposal for Tesla to buy them out. It’s losing money, too, though and, given his own hype, he may not be able to talk his fellow stockholders into the family rescue. What will Cuomo do if the maestro of renewables happy talk fails to sell this one?
Following our last post on the subject of the SolarCity fiasco, two major events have occurred. SolarCity released another earnings report and Elon Musk offered to buy the rest of the company to save his cousins. The “merger” of the two companies naturally captured the news, of course, but the earnings report should have. It suggests huge and possibly insurmountable problems at SolarCity, the project Governor Corruptocrat chose as one of his alternatives to fracking for Upstate New York.
Consider this; during the first six months of 2016 SolarCity managed to lose $533 million on sales of $308 million. Moreover, $408 million of that loss was from operations. Revenue was up 81% for the first months of 2015, while operating losses increased only 58%. This suggests things were getting marginally better. The sacculated losses and debt, though, meant interest nearly tripled, so net losses increased 76%. This was only barely less than the revenue gain.
SolarCity’s future was pretty much cast in stone with these figures, which were filed with the SEC on August 9. This is, apparently, why the palefaced knight, cousin Elon, rode in to save the day by announcing he’d buy out the rest of the company (merge SolarCity with Tesla) ahead of the SEC filing. There’s just on problem; well, two problems, really. First, Tesla Motors is also losing money. It had a net loss of $575 million for the first six months of 2016, up 70% compared to a revenue gain of 28%. But, that’s a story for another day.
The other problem for SolarCity is that Tesla’s other stockholders must approve the family rescue. Paul Alexander, writing in Crain’s New York Business writes “Dark times for SolarCity could leave New York out in the cold.” He asks “What happens if shareholders of Tesla balk at bailing out the company that Cuomo and Buffalo are counting on?” That’s a great question, isn’t it?
New York government officials are gambling Buffalo’s long-hoped-for economic recovery on SolarCity, the nation’s largest rooftop solar panel installation company whose chairman is tech guru and Tesla Motors co-founder Elon Musk. The state of New York has provided $750 million in cash and tax breaks to build a solar panel manufacturing megafactory on the site of an abandoned steel mill in South Buffalo, hoping SolarCity can create 5,000 new jobs and help reverse the city’s 40-year economic decline…
But have state officials set up Buffalo for yet another disappointment, risking the city’s financial fate—and hundreds of millions of taxpayer dollars—on a company with an uncertain future?
…throughout 2015, as lenders and investors became averse to energy-sector business models requiring high capital investments, SolarCity—which finances its solar panel installations in order to make a profit on a lease that can be as long as 30 years—found it increasingly difficult to secure debt.
In the first quarter of 2016, SolarCity posted a $251 million loss. Its second-quarter loss was $230 million. By June, after the company’s stock price had plunged more than 60% from its peak, Musk had to stop the bleeding. He announced that Tesla Motors would purchase SolarCity…
While Musk praised the deal, promising the combined companies would help revolutionize the solar industry, critics claimed it was little more than a bailout of a failing company that could no longer secure financing. Musk raised more questions when he disclosed that, now that the megafactory was almost finished, SolarCity no longer intended to manufacture solar panels but would instead produce complete solar roofs, a venture Dow Chemical recently abandoned after five years because it could not find a way to make a profit on the technology.
Shareholders of both companies must approve the merger, which creates an interesting situation. Will the shareholders of Tesla Motors, a company generally viewed as having a stellar future, placate Musk and take on the troubled SolarCity? If they balk, there could be far-ranging implications for SolarCity, New York taxpayers and the government officials responsible for spending their tax dollars, not to mention for the beleaguered citizens of Buffalo.
I’m guessing Alexander is also skeptical of Tesla’s “stellar future,” but, if trendy Tesla stockholders believe in it, his theory raises the interesting possibility the SolarCity deal may not fly. Any of them looking deeply at its financials would certainly hesitate. I can only imagine what Governor Corruptocrat is thinking about now. It’s probably something along the lines of who on his staff to blame for being suckered by Musk and family. Perhaps that will lead him to do something rash, like reverse the fracking ban he was also sold as smart politics.