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Why the market is freaking out about Tesla

Elon MuskTesla CEO Elon MuskReuters/Bobby Yip

Financial opinions around Tesla are once again lurching wildly.

This always seems to happen when there’s a moment to reassess the electric-car maker’s stock. On Sunday, Tesla announced that it had greatly exceeded delivery expectations for the third quarter, with 24,500 vehicles officially sold to customers.

That news didn’t send the stock on a run. After a modest 5% bump, Tesla shares slipped back to around $210.

Then they fell off a cliff on Thursday, when Goldman Sachs downgraded its Tesla rating to “neutral” and dropped its target price to $185 from $240. This follows a much more substantial downgrade by Morgan Stanley’s reliable Tesla bull, Adam Jonas, who had earlier pulled back his target price to $245 from a lofty $465.

For many analysts, Tesla has nowhere to go but down, given that the company has probably achieved as much rapid growth as was possible and now has all its value effectively “priced in.” That situation offers a $30 billion market cap and a return of over 1,000% for the earliest Tesla investors — those who got in back in 2010, when shares were $17.

But for the past year, it’s been slowly dawning on Tesla analysts that this onetime high-tech, high-growth company out of Silicon Valley isn’t the Amazon of automobiles. Rather, it’s a maturing carmaker, a new entrant in one of the most capital-intensive businesses yet devised by humans.

Burn, baby, burn

TSLA Chart 10/7/16Ouch.Google Finance

Putting aside worries about Tesla’s other business lines — the $2.6 billion SolarCity acquisition, the emerging energy-storage enterprise, the $6 billion battery factory in Nevada — all attention has now shifted to near certainty that Tesla will once again need to sell shares to raise money, several billion in all likelihood.

Market observers have griped that there’s a deep conflict of interest between banks such as Morgan Stanley and Goldman Sachs grabbing Tesla’s stock issuances at the same time they’re making calls on its share price, but at the moment, those banks look as though they’re trimming their expectations for Tesla as an investment.

Tesla isn’t going to get a free pass on its capital burn forever. At the moment, capital discipline is all the rage in the auto industry. Fiat Chrysler Automobiles CEO Sergio Marchionne has been dining out on a scathing presentation he gave last year called “Confessions of a Capital Junkie,” in which he excoriated the auto industry for its flagrant cash-burning ways.

General Motors executive leadership is also preoccupied with how it’s spending its money — and it has a lot to spend. GM President Dan Ammann told Business Insider last week the automaker is making $1 billion a month. But GM is explicitly engaged with committing only to markets where it thinks it will see a good return on investment. That drove a decision in 2015 to exit the Russian market, one once thought to have the potential for major growth.

Triple-secret double-down mode

mary barraGM CEO Mary BarraBill Pugliano/Getty

Tesla hasn’t historically been bad at capital discipline; over the course of a year, it has a fraction of what a GM or Ford or Toyota might spend in a quarter, so it has to watch every penny. But CEO Elon Musk and his team are now in triple-secret double-down mode — I know that doesn’t make any sense, but Tesla future investment requirement are almost comically ambitious — and from the perspective of leadership, it would be dumb to let the stock slip before heading back to the markets to raise money. Musk wants to produce 500,000 vehicles annually by 2018, and getting there ain’t gonna be cheap.

The bottom line is that Tesla sees its stock price as a means to an end. The company’s own investment thesis, such as it is, asks investors to take a long-term view: Tesla will be a major player in the future of transportation. Whatever happens with the stock price day-to-day is a distraction. All that matters is that Tesla shares be considered valuable when it’s time to create a new cash pile.

Tesla is right on the edge of crossing a river when it comes to how it spends money. As it gets bigger and has to manage more lines of business, capital efficiency will become vastly more important. But for now, Tesla’s capital exists to be spent, and that’s clearly freaking out the analysts who cover the company.

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It’s time for Elon Musk to think about turning the Tesla CEO job over to someone else

spacex elon musk mars colonization Musk. Mars. SpaceX/YouTube

You may have missed it, but this was the most head-warping week in Elon Musk’s life, for anyone who has been following the man’s adventures for the past decade.

Early last week, at the 67th International Astronautical Congress in Guadalajara, Mexico, Musk outlined his master plan to start colonizing Mars in less then 10 years, using his private space company, SpaceX, to realize his ambition to make humanity an interplanetary species.

Later in the week, he had to send an email around to Tesla employees reminding them not to engage in discounting on vehicles sales.

Life on Mars versus … come on down!!!

The contrast was vivid. I think I’m safe in saying that no other captain of American industry has ever grappled with something so visionary and captivating on the one hand and so drearily mundane on the other. Henry Ford wasn’t trying to go to the Moon at the same time he was building the Model T.

Too much success

Musk has become a victim of his own success. There hasn’t been a viable new American car company created since the 1930s, but in just over a decade, Musk has forged not just a new automaker, but also a carmaker that has pushed electric vehicles forward for the first time since they lost out to internal-combustion engines over 100 years ago.

And although a mission to Mars has been much discussed since the late 1960s and the moon landings, the assumption has always been that NASA would undertake it. With SpaceX, Musk is striving to remake that notion. (NASA may still do it, but NASA lacks a charismatic leader to stand up and articulate the way it’s going to happen.)

spacex elon musk mars colonization Why stop at Mars when can go to Jupiter? SpaceX/YouTube

As Tesla progresses toward being a mass-market automaker — leaving its high-tech, luxury, niche existence behind — Musk will have to deal with more head-warping. Manufacturing and selling cars isn’t very space-age; rather, it’s plug-and-chug. Supply-chain management rules the day, and sales are largely transacted one at a time, between a buyer and dealer.

Tesla wants to cut the dealer out of the picture, selling directly to the consumer, so Musk doesn’t even have that buffer. He himself has to lay down the law if he detects any slippage in his full-price-only business model.

He’s certainly price conscious when it comes to the cost of space travel — he wants to make going to Mars as cheap as buying a Tesla Model S. But the ambition required to even bring that calculation into the picture is an order of magnitude greater than what Musk has achieved with Tesla. Rocket science is, after all, rocket science.

A hard choice

I don’t personally want Musk to stop running Tesla day-to-day so that he can focus all his energies on SpaceX. But I also realize that even if Musk moves the needle just a bit on “backing up the biosphere,” as he likes to put it, in case that wayward asteroid heads our way, then that’s where his attention should be. There’s no shortage of talented leadership in the auto industry, and Tesla could probably use a more experienced hand to guide it into its next phase.

elon musk Parting would be sweet sorrow. Justin Sullivan/Getty Images

I don’t think Musk wants to “retire” as CEO of Tesla, either. Ultimately, he sees electric cars and a mission to Mars as linked; the former gets us off fossil fuels and the latter provides us with an escape hatch.

But priorities are in order, and as much as Musk, a creature of Silicon Valley, has learned the lesson of Steve Jobs and Apple — companies that sacrifice their visionaries in favor of stewards do so at their peril — he doesn’t appear to fully understand just how daunting his objective has become.

Jobs wanted to sell more computers, music players, and phones, with cool design values. He never said anything about leaving orbit and heading for a red world 34 million miles away.

Musk has his issues and his critics, and he isn’t always the finest business leader in all the land. But there’s really never been anyone else like him in American business life — or really science and technology life, either. You have to go back to Thomas Edison at least to find anyone even close.

Tesla is an important company, but for several years now, I’ve had the sense that SpaceX is more important. Space has always been something that nations do. But Musk is changing that (even though NASA is still his biggest client). The Mars plan he laid out is astonishing. And he should now allow it to take up all his time.

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Article from GigaOm.

SolarCity, which started as a residential solar installer and is planning a $201 million IPO, has now jumped into building solar panel farms for utilities. The company announced on Thursday a deal to build a 12 MW(ac) project for Hawaiian utility Kaua’i Island Utility Cooperative.

The $40 million project is unusual because SolarCity, founded in 2006, has spent most of its resources building up an installation and financing business for residential and business customers (including schools and public agencies). This business has positioned the company as an electric retail service provider who competes with utilities. The Kauai project is the first announced project by SolarCity to build a solar farm for a utility, said Jonathan Bass, SolarCity’s spokesman. (The company previously also lined up a fund from Pacific Gas & Electric‘s investment arm to market solar panels and leasing products to home and business owners).

The engineering and construction contract on Kauai will give SolarCity the experience of working with a new class of customers. More utilities across the country are interested in building their own solar energy projects in order to meet regulatory mandates or because they see it as a good investment opportunities to bet on renewable energy. We have noted in previous posts that SolarCity was going after larger and larger projects, and that placed the company in direct competition with more established players in that segment, such as SunEdison, SunPower and First Solar.

The utility solar market is growing faster than the residential and commercial segments primarily because the projects involved tend to be larger, in tens or hundreds of megawatts, and potentially more lucrative. And many utilities in large states, such as California, need to serve an increasing amount of renewable energy to their customers. Some of the overhead costs also could be lower when it comes to utility-scale projects: you don’t need to send out an army of marketing and sales people to sell consumers systems that are kilowatts in size.

If SolarCity has any ambition to expand beyond the U.S. market, it would do well to gain an expertise in developing and installing utility projects. In many markets overseas, the biggest opportunities lie with working with utilities to boost the amount of renewable energy they serve and taking advantage of government subsidies for that type of projects.

SolarCity is among the first to offer homeowners leases so that they don’t have to pay a high upfront cost of installing solar panels. Instead, homeowners pay a monthly fee via long-term contracts for the electricity from the panels, which are owned by the investors, typically banks, that have set up funds for SolarCity to install and manage the equipment. Solar leases have become popular and are offered by many more companies now, and they accounted for over half of the residential installations in California, the country’s largest solar market. Part of the sales pitch for the leases is a promise  – or at least a strong suggestion – that consumers will end up paying lower electric rates over time than they would with their local utilities.

The California company also has lined up some big-name business customers, including Walmart, eBay and Intel. Nearly a year ago, SolarCity said it had secured a loan to install 300 MW of solar panels in military housing communities across the country.

In recent years, SolarCity entered other types of energy service businesses. It began to offer energy audits and home-improvement services to help homeowners save electricity use and cost. It also now offer energy storage using lithium-ion battery packs from Tesla Motors and install solar powered charging stations for electric cars (such as Tesla’s cars).

For the Kauai project, SolarCity intends to install solar panel on 67 acres that are part of a former sugar plantation. The utility and SolarCity still need to secure local and state permits, but the plan is to start construction in July 2013 and switch on the solar farm in 2014. Electricity from the solar farm will be enough to serve about 6 percent of Kauai’s daily energy demand, the companies said.

Kauai is one of the Hawaiian islands and is home to nearly 68,000 residents. It’s set a goal of generating renewable energy to meet 50 percent of its needs by2023. The project announced Thursday is one of the three solar farms, totaling 30 MW(ac), that are being developed by the Kauai utility.

Read more here.

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Here is an interesting article on Cleantech/ Greentech IPO´s from Earth2Tech.

“Electric car maker Tesla Motors officially delivered the biggest venture backed IPO of the quarter, raising $226 million, according to numbers out this week from the National Venture Capital Association and Thomson Reuters. What made the public debut different from some of the other venture-backed IPOs that happened this quarter? Well, among a variety of things, last summer Tesla managed to score a coveted $465 million in loans from the Department of Energy.

The link with Uncle Sam likely helped allay investors fears over supporting a risky company that has yet to make a profit and doesn’t plan on making any profits for the next two years. Tesla isn’t the only greentech IPO hopeful backed by the government. In fact, a large number of the greentech companies that have been gunning for the public market, or have recently gone public, have significant government support.

Take lithium ion battery maker A123Systems. The venture-backed company raised $371 million in its public debut in 2009, which was the largest IPO of the year, and represented about a third of the overall IPO market that year in terms of dollars raised. A123 secured a sizable $249 million grant from the Department of Energy last summer.

Before Tesla, the venture-backed greentech IPO hopeful of the hour was solar panel maker Solyndra, which hosted a speech by President Obama in May. Last year the company won a whopping $535 million loan guarantee from the U.S. Department of Energy, and that loan guarantee translated into a loan from the U.S. Treasury. However, despite the government support, investors’ appetites for solar, and Solyndra’s, IPO just wasn’t there and Solyndra ended up ditching its IPO plans last month, in lieu of raising funding from its current investors.

This week, shortly after Tesla’s IPO, an investor behind another venture-backed and government-supported electric car maker suggested it will also one day go public. That would be Fisker Automotive, and Ray Lane, the Kleiner Perkins venture capitalist and former Oracle executive, said this week that “Certainly we would plan to sell shares in the public market once the Karma is on the road and we have visibility into the revenue plan.” In April Fisker closed a $528.7 million loan agreement that will be used to help the startup launch its luxury plug-in hybrid model and set up manufacturing in Delaware for a line of lower-cost plug-in hybrids.

Smart grid company Silver Spring Networks, which has been planning an IPO for the last six months, might not have direct government support, but the close to $4 billion in funds for smart grid projects from the U.S. stimulus package has been a major boon to its utility customers. The Silver Spring folks told me in an email last year that the funding “will go a long way toward accelerating and broadening deployment of the critical smart grid infrastructure.” Silver Spring is working with stimulus award winners Florida Power & Light, Oklahoma Gas and Electric, Sacramento Municipal Utility District, PHI Holdings (including PEPCO, Atlantic City and PEPCO DC) and Modesto Irrigation District.

Other rumored greentech IPO hopefuls (here’s Earth2Tech’s 10 Greentech IPO Picks) that have some sort of government support include solar thermal developer BrightSource Energy and Smith Electric Vehicles. BrightSource received a commitment earlier this year from the Department of Energy for a $1.37 billion loan guarantee to build out BrightSource’s Ivanpah solar project, which is set to be the first new solar thermal power plant built in California’s deserts in 20 years. Smith Electric Vehicles won a $10 million DOE battery grant last summer, and added $22 million under the same program in March.

Of course, not all of the greentech IPO candidates are under the wing of the U.S. government. Biofuel developer Amyris is planning a $100 million IPO without direct government support. But the odds are if you see a greentech startup hit the Nasdaq it’s got Uncle Sam in its corner.

The reality says a couple things about the greentech industry and the IPO market in general. First the IPO market for venture-backed startups is actually relatively weak right now. A significant amount of companies have actually pulled their IPOs in recent weeks and that extra bit of confidence via government support can help push these plans onto the public markets (Solyndra as the exception).

Another issue is that many of the government loans, grants and loan guarantees given to these greentech startups come attached with a cost-sharing requirement over a certain time frame. To unlock the full extent of the government funding companies like Tesla and Solyndra have to raise their own matching funding, by a certain date, and many are turning to the public markets for that.”

Read the whole article here.

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Here is some IPO news from SFgate.com

“Codexis Inc., a Redwood City startup that makes designer enzymes for pharmaceuticals and biofuel production, sold its shares for the first time Thursday on the Nasdaq exchange, the first of what could be a flurry of IPOs this year from Bay Area clean-tech companies.

Codexis shares opened at $13, the low end of the $13 to $15 range predicted by the company last week, and closed at $13.26. The initial public offering brought Codexis $78 million.

After a drought in clean-tech IPOs last year, several green companies have already announced their intention to go public, and many more are thought to be waiting in the wings. Codexis’ premiere, therefore, was closely watched in the industry, even as analysts cautioned against reading too much into it. One IPO isn’t enough to gauge investors’ appetite for clean-tech stocks.

“There’s definitely a hunger – I’m not sure that people are starving, though,” said Joel Makower, executive editor of GreenBiz.com. “There’s a lot of temptation to read into the first clean-tech IPO of the year, but I don’t think this tells us much.”

Tesla Motors, the Palo Alto maker of electric sports cars, has also announced its intention to go public. So has Amyris, a biofuel startup in Emeryville, and Solyndra, a Fremont firm whose solar panels look like fluorescent light tubes painted black. IPO rumors have swirled around BrightSource Energy in Oakland, which is developing large solar power plants in Southern California, and Redwood City’s Silver Spring Networks, which makes hardware and software for smarter electrical grids.

The pent-up interest in IPOs isn’t confined to clean-tech startups. Five other companies – with products ranging from software to pharmaceuticals – premiered Thursday, making it the busiest day for IPOs since November 2007.”

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Here is some possitive news on Cleantech.

“The Cleantech Group this morning announced first quarter statistics, and the buzzword expression of the press conference was “bounce back.”

As in: “Following the decline in cleantech investments from 2008 to 2009, the industry has bounced back in the first quarter of 2010,” said Sheeraz Haji, president of Cleantech Group.

You can check out a press release here.

Among the key talking points from the press conference are:

-Q1 saw a record total of 180 deals, which raised $1.9 billion.

-Cleantech venture investment was up 29% from the previous quarter and up 83% from the same period in 2009.

-Government funding and VC dollars do not go hand-in-hand. Of the top 10 deals, only one had received government support. Haji said that although government-related financing is critical, this trend shows that private capital is not at all dependent on government stimulus.

-IPO window is open, Haji said, with seven companies on the IPO launching pad, including Tesla and Solyndra.”

Read the full story here.

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Here is an article from earth2tech.

“Will 2010 be the year for greentech IPOs? When lithium ion battery maker A123Systems successfully debuted on the Nasdaq back in September, there was much speculation that the move would ready the market for a following of greentech IPOs. The notion seemed over-enthusiastic then, but three months later solar power startup Solyndra has registered for an IPO, which will likely happen in 2010, and we’ve heard rumors that Tesla is plugging away at its S-1 (Reuters also reported an upcoming Tesla IPO).

Then there’s Silver Spring Networks, which just raised $100 million and looks like it’s getting to that stage where it’s too big to be acquired but will need more financing to compete in the smart grid infrastructure market. Silver Spring isn’t commenting on any IPO rumors, but it is clearly one of the best candidates in the greentech world. If these three — Solyndra, Silver Spring and Tesla — do go public in 2010, it’ll make investor Steve Westly look like a pretty solid market forecaster — he predicted in May that these three would go public by early 2010 and he’s already good for one out of the three.

Out of any of the venture capital investment sectors, greentech has the most bullish outlook in 2010 from a VC standpoint. According the National Venture Capital Association, more than half of a group of venture capitalists surveyed predicted that clean technology would see higher investment levels in 2010. According to a report by PricewaterhouseCoopers, venture capital investing in cleantech already rebounded sharply in the third quarter of 2009 to $898 million in 57 deals, up from $475 million in 49 deals in the second quarter of 2009.

The IPO market in general is also looking better to VCs. VCs surveyed by the NVCA are predicting “a mild improvement” in the number of venture-backed IPOs overall in 2010, with 74 percent of respondents saying they think there will be more than 20 IPOs in 2010. However, according to this Reuters article, greentech companies’ offerings represented only a small portion of the overall U.S. IPO market in 2009, ranking fifth by dollars raised in 2009 in the IPO market, and accountng for 8.5 percent of issuance by companies going public in 2009.”

Read the full article here.

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