Sunday 16 June 2019

Solar troubles flare up to add to Elon Musk's Tesla headache


Tesla Motors Inc CEO Elon Musk
Tesla Motors Inc CEO Elon Musk

Brian Eckhouse and Molly Smith

With all the car-making troubles that are hounding Tesla these days - from the Model 3 bottlenecks to the furious cash burn - it's easy to overlook the company's SolarCity headache.

But 16 months after chief executive Elon Musk kicked up controversy by acquiring the solar-panel installer founded by two of his cousins, its obligations are a strain on Tesla's finances.

The $2bn (€1.63bn) purchase came with a $2.9bn debt load, and a chunk of that is soon coming due. That's bad timing for a company churning through about $6,500 a minute and trying to stave off the need for another capital raise.

"SolarCity debt may not be the immediate cause of Tesla's problems, but it certainly isn't helping right now," said Alexander Diaz-Matos, an analyst at credit research firm Covenant Review.

Tesla representatives declined to comment for this story. The solar business generated positive cash flow last year, according to the company.

Tesla's debt runs the gamut - convertible bonds, promissory notes, term loans, cash-equity debt, asset-backed securities. Most of the total is tied to Tesla the carmaker.

For investors, the focus has largely been on the cash burn linked to struggles speeding up production of the Model 3, the sedan Musk is betting will be the first to bring electric cars to the masses. There's also fresh concern over Tesla's Autopilot after the fatal crash of a Model X last month while the driver-assistance system was engaged.

Tesla shares plunged 22pc in March and closed at $252.48 on April 2, the lowest in more than a year. They climbed 21pc through Thursday, after the company stood by its next Model 3 production target and said an equity or debt raise won't be required this year. The stock traded down 2pc to $299.67 as of 11:31am on Friday in New York.

The SolarCity debt is mostly non-recourse, meaning Tesla doesn't guarantee repayment; SolarCity does. That's backed by cash flow and assets. It's still included in Tesla's overall debt, though, which is used to determine credit ratings and impacts borrowing costs.

Mounting financial pressures, in addition to the Model 3 shortfalls, spurred Moody's Investors Service's downgrade of Tesla's credit rating last week to B3, six levels below investment grade.

In recent months, Tesla's solar business lost the residential-solar throne to rival Sunrun, a San Francisco-based installer with a market capitalisation about half the SolarCity purchase price.



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