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Speaker 1: This is a Bloomberg Business Flight from Bloomberg World Handquarters.
Speaker 1: I'm Charlie Pellett. The SMP five hundred index did move
Speaker 1: lower today after briefly approaching a record, as falling crewde
Speaker 1: prices sparked a sharp sell off in energy shares, denting
Speaker 1: confidence of the US growth and corporate profits will rebound.
Speaker 1: The SMP five hundred index down two points to one seventy,
Speaker 1: a drop of one tenth of one percent, and as
Speaker 1: Stack up twenty two points, a gain of four tenths
Speaker 1: of one percent. The down Jones Industrial Average down twenty
Speaker 1: seven points, a drop of two tenths of one percent,
Speaker 1: The Tenure down fifteen thirty seconds, with the yield of
Speaker 1: one point five percent, Gold of four dollars an ounce
Speaker 1: to thirteen fifty seven Again, there are three tents of
Speaker 1: one percent. West Texas Intermediate Crew down three point seven percent,
Speaker 1: declining a dollar fifty four barrel right now at forty
Speaker 1: dollars and seven cents. I'm Charlie Pellett, and that's a
Speaker 1: Bloomberg Business flash. This is taking Stock with Kathleen Hayes
Speaker 1: and Pim Fox on Bloomberg Radio. If Elon Musk's idea
Speaker 1: to merge Tesla Motors and Solar City Corps is such
Speaker 1: a good one, why did both share prices slump today?
Speaker 1: Tesla down more than two percent, Solar City down more
Speaker 1: than seven percent after an announcement was made an agreement
Speaker 1: for Tesla to acquire Solar City for about three hundred
Speaker 1: million dollars less than initially proposed six weeks ago. Could
Speaker 1: it have something to do with weaker solar demand in
Speaker 1: the United States. Let's put this question now to our
Speaker 1: next guest. We're very happy to welcome back to the show,
Speaker 1: Gordon Johnson. He's the head of Alternative Energy, Metals and
Speaker 1: Mining and Equipment and managing director at Axiom Capital Management. Gordon,
Speaker 1: thanks for joining us, Hey, thanks for having me. So.
Speaker 1: I guess the market doesn't like this deal. Uh No,
Speaker 1: the market doesn't like this deal. I mean, if you
Speaker 1: think about the deal's price, what like two point three billion,
Speaker 1: two point four billion, But if you add in the
Speaker 1: massive amount of debt that Solar City has um, Tesla
Speaker 1: shareholders are paying a much more than that, around five
Speaker 1: billion for this UH this acquisition. If if you also
Speaker 1: include the fact that Solar City has lost UM operating
Speaker 1: UM profit has been uh castle rather has been severely
Speaker 1: negative UM, it's even more costly for Tesla shareholders. So
Speaker 1: it looks like what Elon Musk is doing is he
Speaker 1: is using what what I think many would argue as
Speaker 1: a richly priced asset to go out and buy an
Speaker 1: asset that's struggling. And while that's beneficial to Solar City shareholders,
Speaker 1: it's certainly not basic beneficial to Tesla shareholders. Gordon, is
Speaker 1: the solar industry struggling in the United States? Hate them guests?
Speaker 1: Based on the numbers? The answer to that question is
Speaker 1: absolutely so. Last week we published a note that showed
Speaker 1: that UM if you look at total US installations UM
Speaker 1: that's e I A data UM both rooftop and commercial
Speaker 1: UM in the month of May and relations were down
Speaker 1: roughly fifty month over months, and the run rate is
Speaker 1: eight point six giga wats. The run rate in April
Speaker 1: is much higher than that, at ten uh ten point
Speaker 1: six gigawats. And then if you look at UM the
Speaker 1: rooftop applications data in California. Keep in mind this is
Speaker 1: just for California, but California cumulative solar installations. That number
Speaker 1: was also down roughly eight percent month over month in
Speaker 1: May and has been down and eleven of the past
Speaker 1: fifteen months. So that's a leading indicator. So both the
Speaker 1: leading and elading indicator for solar installations in the US
Speaker 1: is pointing down and actual installations are disappointing. So the
Speaker 1: data suggests that things are getting weaker, and we believe
Speaker 1: it's because of global weakness some places like China, India, Japan.
Speaker 1: You believe the weakness in US solar demand is related
Speaker 1: to the demand over the weakening demand overseas. I would
Speaker 1: have thought maybe maybe the the early adapters are not
Speaker 1: so early adapters. We've kind of run out of them,
Speaker 1: and people are seeing the lower oil prices, maybe heating
Speaker 1: your home with some of the traditional sources isn't going
Speaker 1: to rise as much as they thought. Yeah, so that
Speaker 1: is a good question. It's it's not I didn't I
Speaker 1: didn't tie that all together. So that the key is
Speaker 1: what's happened is when demand in China disappoints um and demand.
Speaker 1: The reason I'm saying China's China is the world's largest
Speaker 1: solar market and the man in other markets is the point.
Speaker 1: What happens is everybody rushes to the market of strongest
Speaker 1: strengths UM and the in the in the the market
Speaker 1: UM that is the strongest right now is the US market.
Speaker 1: So you have a bunch of Chinese guys rushing for
Speaker 1: this market, not just to sell their panels, but also
Speaker 1: to develop projects. And what's happening is you're getting a
Speaker 1: saturation UH solar projects and key markets i e. California
Speaker 1: and Texas where now at sometimes during the day you're
Speaker 1: having negatively negative electricity prices, which if that persists, will
Speaker 1: sell the end of you know, utilities, and clearly we
Speaker 1: need utility electricity. Solar is intimittent. Peakloads cannot replace UH.
Speaker 1: You know, fossil fuel, which is distributed baseloads meeting you
Speaker 1: get the same amount all day solar, you don't get
Speaker 1: it any at night and even through the day it's intermittent.
Speaker 1: So what happens is utilities start to push back and
Speaker 1: they win those battles. We've seen this happen in Germany, Spain, Italy, Hawaii, UH, France,
Speaker 1: you name it. Anywhere you've had massive solar installations. You
Speaker 1: start to get dislocations in the grid, and when that happens,
Speaker 1: um even though countries have you know, robust uh uh,
Speaker 1: you know, renewable energy ambitions, you know, they have to
Speaker 1: revert back to reality, i e. We need fossil fuel.
Speaker 1: So that's effectively what's happening. You have a bunch of
Speaker 1: guys rushing into the US market, which is causing saturation
Speaker 1: and thus limiting future growth. What does the private transaction
Speaker 1: of Trina Solar They are going to be bought for
Speaker 1: one point one billion dollars in the world's biggest solar
Speaker 1: panel maker. What does that tell you about the industry?
Speaker 1: That's another good question. So every week prices come out
Speaker 1: um poly silicon, solar wafers, solar cells, solar module prices,
Speaker 1: and the way they think about that is you use
Speaker 1: probably to make waifs waivers and make cell cell to
Speaker 1: make modules. In a nutshell, prices are completely collapsing. They're
Speaker 1: they're literally falling. The levels of I think a lot
Speaker 1: of people thought were impossible in the clods are accelerating
Speaker 1: on a weekly basis. Every week it's getting worse and
Speaker 1: worse and worse. So the industry right now is defined
Speaker 1: by over lot. I think the reason why Train and
Speaker 1: Solar is going private, and a lot of others will
Speaker 1: try to follow suit. Keep in mind j Solar hasn't
Speaker 1: been out there to go private as well, is because
Speaker 1: things are so bad that they need to do things
Speaker 1: behind the scene they don't want investors to see. And
Speaker 1: in addition to that, they want to relist on either
Speaker 1: the Shanghai or Hong Kong stock exchange where you're not
Speaker 1: limited to you know um or you're not um I guess,
Speaker 1: limited from having to you know, abide by gap rules um. So.
Speaker 1: I think the impetus for them going private is that reason.
Speaker 1: Not necessarily that the the industries in the state of
Speaker 1: you know, in a good state. It's actually quite a
Speaker 1: bad state and worsening with every week that passes. So
Speaker 1: Gordon seems to me that's a big red flag for
Speaker 1: investors be aware of these companies as future investments if
Speaker 1: they're going to go back on when the Chinese exchanges
Speaker 1: to avoid international gap accounting, right, And I don't think
Speaker 1: this is I don't think that that's another good point.
Speaker 1: I don't think this is a mystery to people who
Speaker 1: know Chinese companies. The problem is the bulk of you know,
Speaker 1: the guys watching and listening to your show, UM probably
Speaker 1: don't know about you know, companies that have you know,
Speaker 1: UM been been you know U s A d R
Speaker 1: S when when private and then relisted on Chinese stock exchanges.
Speaker 1: So I think it's important to know that. I want
Speaker 1: to thank you very much. Gordon Johnson. He is the
Speaker 1: managing director and head of Alternative Energy as well as
Speaker 1: Mining and Metals equipment research for Axiom Capital Management, giving
Speaker 1: us his perspective on Trina Solar and it's one point
Speaker 1: one billion dollar purchased by a private equity group and
Speaker 1: of course the Solar City Tesla Motors combination. As as
Speaker 1: you said, Kathleen, at a lower price. This is taking stock.
Speaker 1: I'm pim Fox my co host, Kathleen Hayes. This is
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