Latest / Bloomberg Intelligence / Axiom's Johnson on Solar Market: Weakening U.S. Demand (Audio)

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Axiom's Johnson on Solar Market: Weakening U.S. Demand (Audio) · Bloomberg Intelligence

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