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Just in case you hadn’t heard of him, Elon Musk is the genius behind such ventures as Tesla Motors, SolarCity, SpaceX, OpenAI and the Hyperloop. He has a vision and a wish to improve the world and I really hope it works out for him, and the rest of us.

Unfortunately, two of his best known ventures are having problems. Yesterday shares in SolarCity Corp (SCTY) closed down 20%. The company reported a bigger-than-expected loss for the quarter and slashed its forecast for solar panel installations. SolarCity had been a favourite with Wall Street thanks to its green credentials, overall innovation and Mr Musk’s backing. The company is working towards a future where households are solar powered. In addition, the Tesla Powerwall should provide a relatively inexpensive and efficient way of storing solar energy. Solar’s detractors have always pointed out the difficulty of storing solar power. However, critics have pointed out that the company has relied extensively on renewable energy subsidies for its survival. Not only that, but its business model relies on customers leasing solar panels for 20 years. Not only are there issues if the homeowner decides to move (will the new owner want the lease?) but there’s a credit risk for SolarCity. From this perspective it could be argued the company is less a green innovator and more a finance company.

The company beat its own expectations on solar panel instalments for the first quarter. Revenue came in at $122.6 million which was above the consensus estimate of $109.9 million. But there was a loss per share of $2.56 compared with the anticipated $2.32

As the chart shows, the stock is out of favour with investors.
  




  
There are also problems with Tesla – the electric car maker. The company has just warned of concerns with the Model 3. This is the much-publicised mass-market electric car which should be pouring off the production line within two years.

In its latest quarterly report the company announced that: "We have no experience to date in manufacturing vehicles at the high volumes that we anticipate for Model 3.” The company also warned that if one or more of its "many assumptions" turns out to be incorrect, its "ability to successfully launch on time and at volumes and prices that are profitable...may be materially and adversely impacted."

As the chart below shows, there has been no overall trend for the stock over the last couple of years.

  



  
Looking at the rally from 9th February to 7th April in more detail we can see that the share price is currently testing support around the 50% retracement of this move.
  



  
There’s no doubt that Elon Musk is a visionary and certainly not a conman. If he’s managed to get taxpayer subsidies for his ideas then it’s because he believes in the ideas themselves. So far investors have been anxious to back him in his ventures in the hope of sharing a slice of his riches. But innovators often hit obstacles. While these may not be insurmountable, they can often be deleterious to shareholders’ wealth.


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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