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