Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

SolarCity's Wednesday started with a bang and ended with a whisper.

At the end of a day many Americans spent adjusting to the election of Donald Trump as president, SolarCity Corp. reported its third-quarter results. Despite these being potentially the last ever set of numbers as a public company, they were even more downplayed than usual, with no accompanying analyst call.

This might seem strange, given shareholders are due to vote in about a week on whether to approve the company's merger with Tesla Motors Inc. and that Trump's elevation is widely seen as a yuge risk to the incentives underpinning the solar leasing business (the stock dropped 4 percent on the day). Bear in mind, though, that last week's Q&A with the management of the two companies wasn't the most convincing sales pitch. On that basis, maybe it was best to let the figures speak for themselves.

Not that they were entirely convincing. The first thing to note was the cut to guidance on installations, something SolarCity has now done in all three of this year's quarterly updates.

Off Target
SolarCity's target for panel installations has dropped by 28 percent since the start of the year
Source: The company
Note. Data for 1Q2016 and 2Q2016 are the mid-points of guidance ranges.

SolarCity has been struggling with growth ever since it reset its strategy just over a year ago to rein in costs, especially what it spends on acquiring customers. On this front, it showed some progress versus the second quarter -- but that's about it:

Stuck
SolarCity's cost of installing solar panels has actually risen slightly since the third quarter of 2015
Source: The company

Tesla's boss Elon Musk -- who is also SolarCity's chairman and the largest shareholder of both -- insists the merger will fix this cost problem.

It had better, for Tesla's sake. Because, really, the only thing that counts at SolarCity is cash flow and debt. And it didn't take a call on Wednesday to show these remain problematic.

Getting a handle on SolarCity's cash flow and debt isn't easy -- something even the SEC had a bit of trouble with this year (see this). SolarCity focuses on how much cash it "generates," which can include all cash flows from operations, investment and financing, other than issuing equity or convertibles. This is not a standard measure, it should be pointed out.

SolarCity highlighted in the latest shareholder letter that its cash balance had increased in the quarter by almost $114 million. This partly reversed a striking drop in the second quarter. Which is all great until you realize that $100 million had come in the door via selling the company's Solar Bonds -- a branded form of unsecured debt it has been peddling since 2014 -- to Musk and other related parties. Presumably, these bonds will be paid back to these lenders under the umbrella of Tesla.

Borrowing cash is, of course, a great way to boost your cash flow (ever taken out a mortgage?). But the money has to be paid back. And on that score, SolarCity's latest set of numbers hit a new high:

Burning Issue
SolarCity's net debt has risen by more than half in the past year
Source: The company
Note: Includes recourse debt and convertibles.

For SolarCity's investors, those numbers are reason enough to vote "yes" next week, even if they are, as of now, getting a discount to the undisturbed price. No questions asked.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net