{ "docId": "019dd923-622c-750b-8b97-4517b3b2214e", "docSlug": "00da6c52307d", "documentTitle": "Sunrun Inc. (RUN)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-07-28 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 6, "pageCount": 33, "prevPage": 5, "nextPage": 7, "slideType": "preempt_rebuttal", "function": "preempt_rebuttal", "density": "dense", "nDataPoints": 6, "notes": "The slide details specific adjustments to valuation inputs like panel degradation, default rates, and developer margins.", "elementsJson": [ "paragraph", "bullet_list", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-4517b3b2214e/6", "deckHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e#slide-6", "components": [ { "bbox": null, "kind": "callout", "text": "We believe that valuing the tax credit is an absurd interpretation of the statute, and is not what Congress intended.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-e6e9-749a-ba77-5ebb8c50fd55", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.66, "x": 0.17, "y": 0.54 }, "kind": "list", "text": "RUN includes construction in progress without adding associated capacity to the denominator.\nRUN includes costs that we believe are ineligible, such as property taxes, call center costs, and billing costs.\nRUN includes profit from acquired third-party systems.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5c149423-86e2-44cf-a037-9c2c2b4c3f2c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.66, "x": 0.17, "y": 0.21 }, "kind": "paragraph", "text": "The tax incentives RUN's projects generate are based on two valuation approaches... We estimate that this recursive approach to valuing the tax benefits adds approximately $.40 / watt, or 13.5%, to the Income Approach component of the tax basis.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "07850e5e-17d6-4120-a0b3-3d13bf98ddd6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.66, "x": 0.17, "y": 0.71 }, "kind": "paragraph", "text": "In addition, we believe a 15% developer margin is more appropriate, while we understand from a former RUN finance executive that RUN uses an approximate 20% developer margin.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2302adff-8228-4dff-a92c-f53e5433eeac", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.66, "x": 0.17, "y": 0.16 }, "kind": "paragraph", "text": "Contract Default and Cancellation: RUN assumes no customer defaults or cancellations. We believe that a 3.75% default rate over the contract period is more realistic.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2d964e82-93c6-4c88-b220-86432b4407c9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.66, "x": 0.17, "y": 0.41 }, "kind": "paragraph", "text": "The second approach is the \"Cost Approach.\" RUN discloses (non-GAAP) customer \"Creation Cost\"... For Q1 2022, RUN's reported Creation Cost was $4.11 per watt, to which we add a 20% developer margin to estimate RUN's claimed Cost Approach value at $4.93 per watt.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "dc211653-a5a4-4335-9e81-a35461dd60de", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.66, "x": 0.17, "y": 0.11 }, "kind": "paragraph", "text": "Panel Degradation Rate: RUN assumes an annual panel degradation rate of 0.5%. We believe that 0.75% is in line with industry norms.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ddb10498-3149-42e4-8543-6e8f19282cf1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.66, "x": 0.17, "y": 0.88 }, "kind": "source-note", "text": "9 Interview with Former RUN Executive A, November 2021\n10 Former RUN Executive A cited a developer margin for cost approach valuations of approximately 20%.\n11 Interview with Former RUN Executive B, November 2021", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2882ba79-18ed-407c-a909-5c17e41f76c3", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 20, "from": 6, "beatId": "cf489be1-5d4b-47b0-b96c-139ebc5df28c", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Struggle", "beatSlug": "overcoming-monster-the-struggle", "evidence": "RUN's business practices and financial modeling are critiqued in detail.", "position": 1, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [ { "to": 10, "from": 5, "name": "Pattern Hunter", "slug": "02-pattern-hunter", "bestFor": "Time-pressed audiences, building consensus, when data is strong", "matchId": "4ad1a934-cbc4-4d42-9b70-a03c6c296293", "evidence": "The document presents a series of contradictions in RUN's financial modeling.", "position": 0, "objective": "Why RUN's financial modeling is flawed", "structure": "Evidence A -> Evidence B -> Evidence C -> Pattern/Conclusion", "confidence": 0.7, "description": "Group multiple pieces of evidence that together point to a pattern or conclusion" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }