Elon Musk Dumps $10 Million In SolarCity Notes In Favor Of 33,333 Tesla Shares

4 months ago by Eric Loveday 50

Tesla / Solar City

There’s been some indications that solar is struggling, but now it seems that even SolarCity might not be doing so well.

Elon Musk At Special Shareholders Meeting

We’ve recently learned that SolarCity slashed its workforce by some 20% in 2016 and that it will end door-to-door sales in favor of online and retail sales, but this latest bit of news is perhaps even more shocking:

“A new SEC Form 4 filing shows that Tesla CEO Elon Musk converted $10 million in SolarCity Senior Notes for 33,333 shares of Tesla stock at a $300 per share price.”

States Teslarati.

Musk acquired those Zero Coupon Senior Notes back in December 2015 for $10 million. They weren’t due until 2020.

Those the conversion of these notes in Tesla shares show a lack of confidence in SolarCity? Maybe. Maybe not.

Teslarati adds:

“The conversion of SolarCity Senior Notes is seen more as an administrative transaction, as the resulting number of shares gained is a little more than a few drops in the bucket when compared to the 33,599,088 number of shares of Tesla stock Musk owned prior to the transaction.”

Source: Teslarati

Tags: , ,

50 responses to "Elon Musk Dumps $10 Million In SolarCity Notes In Favor Of 33,333 Tesla Shares"

  1. jelloslug says:

    Musk did something so it must be bad

    -tesla shorter

    1. Spider-Dan says:

      Musk did something so it must be great!
      – Tesla apologist

      Let’s try removing the names from the story: Company X is experiencing a rough time in the market, with many outlets questioning whether their product is sufficiently distinctive from their competitors.

      Meanwhile, the CEO of wildly successful Company Y, who (along with his family members) happens to own a bunch of shares of Company X, arranges for Company Y to buy out and takeover Company X, even though there are other companies in X’s field that would be a more attractive target (e.g. better technology).

      1. Nix says:

        Spider-dan — What other company had solar roof’s that same quality and visual appeal as the current Tesla Solar Roof?

        1. unlucky says:

          We’ll have to see about the quality when it comes out, right?

          1. Nix says:

            What other company is offering an infinite warranty solar roof?

        2. Spider-Dan says:

          None, including SolarCity (and Tesla announced the roof before acquiring SCTY). That’s why Panasonic is making the solar cells for the Tesla roof.

          So why buy a foundering company with subpar solar tech when you don’t even need that tech for your shiny new roof of the future? It would be a lot harder to answer that question if Elon Musk and his family weren’t holding SCTY stock.

          1. Spider-Dan says:

            And just to clarify here: my point is not that Tesla should have stayed out of the roofing market (although I personally would prefer they stabilize their footing in the car market first, for long-term viability).

            My point was that, given that Tesla created the tile tech and Panasonic is making the solar cells, there was no reason for Tesla to overpay for a company teetering on the edge of bankruptcy… other than protecting investments (and good name) of House Musk.

            1. unlucky says:

              I agree. That’s my issue. Not that Tesla got into solar, but that they bought a money pit to get into the market. And the only reason they did it is because the people who were currently holding that bag were friends and relatives. Using your shareholders money to bail out your friends and relatives is not right. Not even if it works out.

              They would have done better to just move Tesla Energy forward without buying SolarCity.

  2. pjwood1 says:

    I don’t see anything, here, given the recent run-up above $300, it was the rational thing to do. The bonds were zero coupon, which basically made the convertables a call option.

    1. georgeS says:

      pj,
      trying to remember how convertible notes work. I never traded in them. but if what you are saying is true than your right.

      It’s kind of a non event.

  3. mx says:

    Musk chose appreciation of Tesla stock verse interest payments.
    That’s just smart.

  4. Longvsshort says:

    I believe he merged businesses to be able to quietly dismantle the solar business but avoid having a bankruptcy associated with his name and tarnish his success story. While talking about mostly non existing synergies and launching a very niche product (solar roofs) that may account for a very small percentage of Tesla revenue to then be discontinued.

    1. ¯\_(ツ)_/¯ svengali says:

      I guess Tesla overpaying and acquiring SolarCity for top dollar when it was on the verge of bankruptcy was a better business decision than Elon instead getting The Boring Company to dig out a huge money pit and filling it with Tesla’s cash.

      1. Pushmi-Pullyu says:

        I presume Elon is funding his hobby project, “The Boring Company”, out of his own pocket. This attempt to paint it as funded by Tesla is the sort of FUD which, sadly, we’ve come to expect from Sven.

    2. Todd says:

      I’m a huge fan Elon, but he does some questionable things sometimes, including the incest between all of these companies. I think you are on to something here, since Solar City was not doing so well. They are basically cutting down on sales costs and selling off their portfolio on energy generation. Now they start from a clean slate with a high-end solar product that is worthy of the Tesla name. It will be niche because of the cost, but then again, that’s how their cars have been up to this point. There is an opportunity to sell the entire package of products to a high end buyer of Model S/X. I’m not sure there is huge money in it for Tesla, but maybe it could be a sort of halo effect like Apple had with iPod/iPhone/Mac.

    3. AlphaEdge says:

      Wow, even more impressed by how smart he is. 😀

      But, there is a synergy there that makes sense, and it’s perfect for Tesla’s showrooms, to sell to those that are interested in a electric car. Along with the Powerwall, they compliment each other, so it’s not a straight up cynical play.

    4. Cavaron says:

      I don’t know – might have been a mix of reasons. Panasonic produced great solar cells and there could have been more benefit in combining the technologies instead of competing. Like with batteries – Tesla does the tec improvement and sales, while Panasonic doeas the manufacturing (because they know how to). Also I totally buy the “market powerwall and solar together”-thing, instead of selling powerwalls to SC and add retail margin.
      But yes – Solar City was struggling (like the entire sector) and that would have been hurting to Musks reputation.

    5. Nix says:

      “[Elon Musk] merged businesses to be able to quietly dismantle the solar business”

      by “quietly”, you mean launching 2 entirely new product lines (solar roof and new solar panels built in partnership with Panasonic), and moving solar sales into existing Tesla stores for everybody to see?

      Is that your idea of quiet? Or dismantling? I don’t think those words mean what you think they mean.

      Damn, you even give ignorant trolls a bad name for such ignorant trolling as this.

      1. Longvsshort says:

        Think before applying knee-jerk accusations of trolling.
        My point is that I believe there will be a gradual, down-scaling and eventual dismantling of the solar power products of Tesla. Meanwhile they will sell the solar roofs to a subset of their car customers and maintain Solar City’s existing customer base.

        1. Nix says:

          If you aren’t trolling, you must just be very, very poorly informed.

          Tesla Motors dropped the “motors” from their name for a reason. They have gone all-in into the energy sector. They aren’t just a car company anymore.

          Do you even know what other products Tesla has gone all-in with for the solar market? Do you know who they have partnered to open a factory with?

          1. Longvsshort says:

            Yes, I know they partnered with Panasonic. I know they sell the powerwall. I know they have a factory in Buffalo.

            The reason I “believe” Elon Musk will want to give up solar is simply because, looking around, smart people see nuclear as the option for transition from fossil fuels, and as Elon is “smart” that logically he would feel the same. Solar City was founded ten years ago. At that time Elon was still quite young and perhaps uninformed. Now, I imagine that he knows better but has invested to much into solar in both talk and money to simple give up quickly, and wants to do it in an orderly manner.

            1. TomArt says:

              No – Musk is firmly in the solar camp. He was just tweeting last year about only two or three multi-acre solar farms could power the entire US.

            2. Nix says:

              short — I see, you’ve simply replaced reality with whatever fantasy you have running through your head, and then claim to have some sort of knowledge.

              Me, I prefer sources. Like asking Elon what he would choose, Solar or Nuclear. He doesn’t have a problem with nuclear, as long as you build it away from where there can be a natural disaster. But he would rather clear the entire grounds of the nuclear plant, and put solar up all the way to the edge of the huge amount of land that Nuclear power plants take up.

              But don’t believe me, listen to him tell you himself:

              Sometimes when you get it wrong, it is simply easier to just say you are wrong, than to keep squirming and proving how wrong you are. It just discredits you more and more.

              This is one of those situations for you.

              1. Longvsshort says:

                I stated a theory from the start. Not claims of “knowledge”. A reasonable hypothesis, which of course you would twist to a “fantasy” in my “head” (where else would you or I think?). I know your thing, sling degrading words at your opponents to intimidate and get them to back out.
                Tesla energy collapsed in Q1. Fact of the matter is they are a miniscule player and solar and battery storage will make zero material impact on the energy landscape with a few billion of sunken costs that Elon won’t give up to save face.

                Even a 1 GW/year solar factory is close to nothing. It will produce the equivalent of the output of one nuclear reactor in five years of production in best case, worst case ten years depending on capacity factor in the deployed location. US has a hundred nuclear reactors. The energy will be intermittent meaning mostly useless for the consumer. Coupled with batteries it becomes less useless but far more expensive.
                The talk about acreages is nonsense, and misleading. Nuclear is the most energy dense power source, solar the least so. Elon can twist it any way he likes.

                You’re the only one here obsessed with right and wrong. There isn’t any in this case. You take Elon at his words, I speculate about his intentions. Give it up.

    6. mx says:

      Solar City / Tesla just released it’s solar roof option. So, bankruptcy Isn’t an option. They already have too much business.

  5. TomArt says:

    I keep reading that solar power is doing very well – installations in the US have continued to skyrocket year over year…but solar stocks just keep tanking…it makes no sense…yet another reason why the stock market is not rational…if solar is doing so well, then at least some solar companies should have stock prices higher than Tesla’s!

    1. Pushmi-Pullyu says:

      The stock market is indeed highly irrational, but your assertion that “at least some solar companies should have stock prices higher than Tesla’s” makes no sense.

      Even if the stock market were entirely rational, there are a lot of entirely rational factors affecting price. The solar power market may be expanding rapidly, but it can still be oversupplied, it can still have tiny or non-existent profit margins, and — perhaps most importantly — it can still be difficult or impossible for first-world companies to compete with the highly subsidized price of solar cells from China. The latter is the primary reason for the well-publicized failure of Solyndra.

      Furthermore, if the stock market were entirely rational, then the price of Tesla’s stock would be significantly lower.

    2. Mark.ca says:

      Tom,
      What other solar companies also produce cars?
      The US solar panel companies are pushed out of the market by Asia, nothing new here. The solar installers have a hard time with competition from new smaller companies which have less overhead and offer lower prices. The solar boom is real. It’s just a big mess and the consumer is the winner here.

    3. mx says:

      The dying 80 year old generation of “I don’t believe in those new fangled solar panels” are dying out, and solar stocks are rising again, as they should. These companies are all profitable and incredible bargains.

      First Solar has a P/E of 6.8.
      Canadian Solar P/E 11.8.
      SunRun P/E of 5.72.
      Vestas Wind P/E of 16.8.
      JA Solar P/E of 3.43.

      “A major growth area in the renewable space is solar energy. An EIA report indicates continued growth in utility-scale solar power capacity, in fact by almost 44% from 21 GW at the end of 2016. The projected increase will bring the amount of solar capacity to 31 GW at 2018 end. In spite of the rapid uptake, solar will still constitute just 1% of total U.S. utility-scale generation in 2018, indicating immense scope for growth.”

      The “Greatest Generation” is turning sadly senile.

      1. ¯\_(ツ)_/¯ sven says:

        Perhaps it is you who is going senile.

        First Solar has a negative -7.02 P/E ratio since the had a big honkin’ -$358 million Net Loss for 2016.

        Talk about your alternative facts. [rolls eyes]

      2. unlucky says:

        These problems these companies’ stocks have had have little to do with “solar doesn’t work” but their financials. Cutthroat competition locally and dumping from China really made it hard to make any money.

  6. Steve says:

    One day it is doing well, one day it is not doing well. It’s the trend of his businesses, but through every failure, he has come back with a larger success. I wouldn’t underestimate how fueling and powerful a setback is for him, he doesn’t give up. I think SpaceX is his greatest example.http://www.spacex.com/elon-musk

  7. Pushmi-Pullyu says:

    I guess I’m confused. I thought SolarCity had been absorbed into Tesla Energy. Does it still exist as a separate corporation?

    At any rate, I agree with most of the others posting here. It seems rather odd for the writer of this article to try to spin this as something negative. With Tesla’s stock soaring so high, why would Elon not want to convert his SolarCity stocks to Tesla stocks?

    That’s the smart play, and still would be even if SolarCity was performing much better.

  8. unlucky says:

    I thought Tesla (SolarCity) has been retiring these notes early for everyone. They bought out SpaceX’s notes (ahem) and others who bought their solar bonds are getting offers too.

    I don’t think this buyout is anything unusual or is even anything done with intent to compensate Musk. It’s just what Tesla is doing in general with the SolarCity debt they acquired. Musk owns some of the debt and SpaceX did too.

    I don’t really see the author as spinning it negatively. But I think the author didn’t provide the context which indicates this is a broad policy action and not specific to Musk.

    1. unlucky says:

      Actually, in retrospect I think the use of “dumps” in the title is rather loaded.

    2. Nix says:

      Yes, you are correct. Tesla is cashing out SCTY’s regular interest bearing bonds that folks like Space-X bought. Those bonds are very different than these convertible notes.

      The motivation for that decision is that Tesla can raise money for much less than the 6.5% + overhead that it costs to service those standard SCTY bonds. Heck, Tesla pays 0% interest on Model 3 deposits….

  9. as says:

    Uhm, you guys did catch that SolarCity and Tesla merged, right? Musk lent SolarCity money when the company struggled. Now it’s part of Tesla and doesn’t struggle. This is now Tesla’s debt. Musk obviously believes that the yield of owning Tesla shares are higher than the fixed yield of these bonds. Case closed.

  10. Nix says:

    Solar City (SCTY) is in the process of being delisted from NASDAQ. There won’t be any SCTY shares anymore once the delisting is complete. They filed the Form 25-NSE back in November.

    http://files.shareholder.com/downloads/ABEA-4CW8X0/4199921236x0xS1354457-16-556/1408356/filing.pdf

    Elon can’t “invest” into the future value of SCTY. They won’t exist as a separate entity in the future.

    This is most likely related to the delisting of SCTY. It certainly has nothing to do with speculating on the future value of Solar City shares between now and 2020. Because they won’t exist anymore once SCTY is delisted.

    1. unlucky says:

      This isn’t about SolarCity shares. It’s about SolarCity bonds. The bonds would continue to exist, they’d be payable by Tesla.

      I think that the reason for this is simply that these bonds were issued by SolarCity and thus probably pay a higher rate of return than Tesla debt would (and Tesla has the equity option too). Higher return for owners means higher costs for Tesla, Tesla would rather retire the debt and (if necessary) issue new debt as Tesla at a lower interest rate.

      1. Nix says:

        unlucky — They are Zero Coupon Convertible Senior Notes

        They don’t pay interest. They are convertible into shares in SCTY. The value of buying a convertible is that you can convert them into shares. But SCTY shares will not exist.

        Buying a convertible is a bet that the company stock price will be more valuable than if you don’t convert.

        That is why even though they are Zero Coupon
        Convertible Senior Notes, the delisting of SCTY is very much relevant.

        The only way to continue to bet that the value of SCTY shares will grow in value, is to now switch the bet to TSLA shares.

        1. unlucky says:

          Okay, thanks for the info.

          I had previously received a prospectus for other SolarCity bonds, but not these zero coupon ones. I didn’t know this was for another type.

          I looked up the prospectus for the due 2018 version of these convertible notes, they say that you could hold on and convert after the SolarCity stock no longer exists. You would get an equivalent value in Tesla stock instead. Equivalent value being set by what the ratios were set at in the merger. So Musk could have delayed converting and still received the same amount of stock. But it hardly makes any difference when he converted as long as he was going to convert at some point anyway. And he likely was.

          So while you’re right, they are zero coupon bonds and thus there was no continuing cash outflow to stanch, the delisting of SCTY is not relevant and whether he converts now or later he is still betting on a growth of TSLA by converting instead of redeeming. And he is betting the same amount no matter when he converts.

          1. Nix says:

            The connection to the delisting is that there won’t be SCTY shares in the future, so as you correctly confirmed, a conversion would be in TSLA shares in the future anyways, not SCTY shares.

            More to the point, I was responding to this question in the story:

            “conversion of these notes in Tesla shares show a lack of confidence in SolarCity?”

            The delisting makes it impossible to have either confidence or a lack of confidence on the future value of SCTY, because it won’t exist separately from TSLA. And the delisting SCTY is the trigger to why you saw those terms in the convertible SCTY notes, where once SCTY is delisted, you can get TSLA shares instead. That option only exists because of the delisting.

            1. unlucky says:

              I agree. Given the conversion rate has already been fixed there’s no way to spin this such that it indicates a lack of confidence on SolarCity/Tesla. His only material choice is to convert or not convert. And he was never going to do the latter anyway.

              A non-story all around.

            2. TomArt says:

              Thanks for the clarification, Nix!!

  11. Alex says:

    What Musk did to Solar City is called turnaround and he did it brilliantly. He moved the company out of cheap solar panels and into expensive roofs.

    But brilliant marketing move and execution aside we owe some appreciation to the man who made solar affordable when it was expensive.

    And then saved the industry.

    This guy is a true believer in what he’s doing.

    PS: I bought some Solar City shares when times were pretty bad and was ready not to see my money back ever again. Once again Elon Musk did what seemed impossible.

    1. TomArt says:

      Agreed – same here!

  12. EV4Life says:

    very odd headline and mini article, with very real obvious bias.
    The “latest bit of news” is three weeks old but is being tied to other unrelated news to paint an unrealistic picture.
    As other comments (and the original Teslarati article) point out, this is Elon Musk reinvesting in Tesla, not propping up a struggling solar company.

  13. Somebody says:

    If Musk is dumping shares then your decision should be clear.

    1. Nix says:

      Nobody — He isn’t.

  14. Michael Will says:

    So many FUD articles lately, the SFGate respin of Jones as a sign of tesla having been on a winning streak but now luck is turning. Nope, it isnt. Nice try. And then this. SolarCity is now tesla, and restructuring is part of integrating it. The tesla solar roof will be great for new homes or houses where the roof needs to be replaced anyways. When the roof is new ore recent, then adding panels will be cheaper. The electric driving revolution has rooftop solar as its natural consequence. I was already fed up with paying $2400/year to PG&E just for air conditioning etc, so when we replaced our first gas car with an electric car we also got solar panels that pay for themselves in less than 7 years, sized it to support replacing both cars with electric. That was 2015, first electric car VW e-Golf, 2016 second electric car Tesla Model X. This year we consider replacing the eGolf with a Tesla Model 3 since the phone app for that is free and Volkswagen actually wants to charge you $15/month after the initial free period for their carnet service, does not have a supercharging network, doesnt have the range etcpp.

    Whenever I see so many slanted articles featured on my newsstream then I know the tesla shorts are getting desparate and just confirm that tesla is on the right track to massive growth.

Leave a Reply