Tesla Bankruptcy? Fraudulent Conveyance?

An interesting Tweet popped up on my screen today regarding Tesla, bankruptcy, and possible fraudulent conveyance.

The Tweet looks cryptic so let's explain.

"SCTY" was the symbol for Solar City.

Zucchi is referring to Tesla's solar business as described in this November 2017 Motley Fool article: Tesla's SolarCity Buyout Looking Worse By the Day.

A year after paying $2.6 billion for SolarCity, Tesla appears to be shutting down the company's operations at a speed no one anticipated. If the trend continues, there may not be much of a solar business left.

Why did Tesla buy SolarCity for $2.6 billion if it was just going to shut down most of its valuable operations within a year?

Tesla didn't need SolarCity to start selling solar in Tesla showrooms or to develop the solar roof, which was actually a Tesla development. It seems to have been a bailout for Elon Musk and his cousins Lyndon Rive and Peter Rive, who would have lost hundreds of millions, if not billions, if SolarCity had failed.

Fraudulent Conveyance?

When Tesla bought SolarCity in late 2016, it was supposed to create a vertically integrated renewable energy company. People thought Elon Musk could marry EV sales with solar and combine SolarCity's installation arm with Tesla's Powerwall to create a path for customers to eventually go off-grid -- or at least charge their car with solar energy. When the solar roof was shown off last fall, the expectations got even higher.

But even before the deal closed, Tesla signed a deal that would bring Panasonic in as a partner and cut Silevo technology out. Now, it appears the solar panels Tesla has introduced are just rebranded Panasonic panels. And with Panasonic running the Buffalo plant -- dubbed "Gigafactory 2" -- Tesla doesn't have a new or differentiated product at all. It's just installing Panasonic panels.

How Musk & Family Cashed in on the SolarCity Deal

What's becoming increasingly clear about Tesla's buyout of SolarCity is that it was a huge benefit to Musk and his cousins Lyndon and Peter Rive. The three had $100 million of solar bonds issued by SolarCity, bonds that were recently bought back by Tesla. The three will have bonds transfered to Tesla under the same terms, unlike outside investors, but would you rather have a struggling SolarCity owe you $100 million, or market darling Tesla, who has easy access to equity markets?

The debt is on top of the 22.2 million SolarCity shares that Musk turned into Tesla shares and the 2.3 million shares the Rives converted. Had SolarCity gone bankrupt, as some major residential solar rivals have done, rather than being bought by Tesla, they would have lost hundreds of millions combined.

​Tesla Bonds in Freefall

Bloomberg reports Tesla Bonds Are in Free Fall.

In August, investors lined up for the chance to finance Tesla Inc.’s ambitious rollout of its Model 3 sedan. Wooed by Musk’s personal appeals, bond investors pretty much ignored the carmaker’s prolific cash burn and repeated failures to meet production targets and lent it $1.8 billion at record-low interest rates.

But now, after a spate of fresh setbacks in the past week, including a fatal Tesla crash and a credit-rating downgrade, bondholders are asking hard questions about whether Musk can deliver on his bold promise to bring electric cars to the masses before the company runs out of cash. On Wednesday, Tesla’s notes plunged to a low of 86 cents on the dollar, the clearest sign yet creditors aren’t totally sure the company will be money good.

​>The company, which has never shown an annual profit in the 15 years since it was founded, will need to raise over $2 billion to cover not only its cash burn this year, but also about $1.2 billion of debt that comes due by 2019, Moody’s Investors Service analyst Bruce Clark said in a report Tuesday.

Tesla is burning through money so fast that, without additional financing, it would run out of cash before year-end. To put that into perspective, that amounts to more than $6,500 every minute of every day, according to data compiled by Bloomberg.

With a junk rating of Caa1 from Moody’s on Tesla’s unsecured bonds -- seven levels below investment grade -- coming back to the market might prove to be too onerous in any case, says Bloomberg Intelligence’s Joel Levington.

Absolute Craziness

Despite all this, and despite the fact that three executives quit (two from the finance team), shareholders approve a $2.6 billion pay package for Musk.

Question of the Day

What is a Block Hole Worth?

What If Musk Heads to Mars?

Addendum

Fraudulent Conveyance is heading to court: Tesla shareholder lawsuit against SolarCity deal set to proceed.

A class action lawsuit by Tesla Inc shareholders against the electric car maker's chief executive, Elon Musk, and the company's board over the SolarCity deal was set to proceed after a Delaware judge refused to dismiss it.

Mike "Mish" Shedlock

Comments (32)
No. 1-25
vboring
vboring

From the beginning, Elon said that the purpose of Tesla was to create a market for electric vehicles. They've done that. They won. With or without Tesla, mainstream EVs are coming to every segment of the market. Every VW group vehicle will have a version with a plug. He can declare victory and turn out the lights. Tesla doesn't need to exist anymore.

klausmkl
klausmkl

The only money Tesla has ever earned is by selling its carbon permits to other companies since its carbon free, literally hundreds of millions worth, thats it. Not a single penny profit from any of it's cars.

klausmkl
klausmkl

Not for the common man, maybe a novelty item for Doctors and Lawyers. Take away its federaL GOVERNMENT tax INCENTIVES and demand will be further reduced. The battery technology just is not there yet. Also you want to sit there for 8 hours as it recharges?

klausmkl
klausmkl

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ZZR600
ZZR600

There's something very wrong when a company losing Billions for selling no more than 100k cars per year can be valued at about the same as a company like Ford that sells 6M cars per year and manages to turn a profit.