{
  "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": 7,
  "pageCount": 33,
  "prevPage": 6,
  "nextPage": 8,
  "slideType": "villain_critique",
  "function": "expose_contradiction",
  "density": "overcrowded",
  "nDataPoints": 4,
  "notes": "The slide uses quotes from industry experts and former employees to undermine the credibility of the company's valuation models.",
  "elementsJson": [
    "paragraph",
    "quote_block",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b97-4517b3b2214e/7",
  "deckHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-4517b3b2214e#slide-7",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "The result of these renewal assumptions is to add approximately $3,000 in value for each PPA customer. RUN's business is too new for there to be any empirical evidence to support these assumptions, and we are highly skeptical that this value will materialize.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd952-e6e9-749a-ba79-77ee72b93f0b",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.18,
        "w": 0.764,
        "x": 0.118,
        "y": 0.31
      },
      "kind": "paragraph",
      "text": "RUN's Investor Models and Income Approach Tax Model are discounted free cash flow valuations. However, it is apparent that the assumptions used for renewal rates, system removal costs, operating & maintenance costs, panel degradation rates, and default rates are problematic. We believe that RUN and its appraisers assume at least 90% of PPAs will renew after the contract period for a total use period of 30 years. This seemingly fails the laugh test when considering factors that cause churn, such as roof replacements, and system obsolescence. They also assume that there is no system removal cost because customers will forgive the removal obligation. We use a company favorable assumption that the NPV of the cost to remove a system is approximately $1,100. RUN assumes O&M costs of $15 / kW, whereas Kroll Bond Rating Agency and we assume $24 / kW.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "00c4ac68-e9ee-4293-92fb-5ec5f0ed560b",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.764,
        "x": 0.118,
        "y": 0.11
      },
      "kind": "paragraph",
      "text": "The common theme from industry experts is that the financings on which RUN depends to conduct its business are too complex for the IRS to understand. In the words of a former solar industry appraiser who now funds renewable energy projects:",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "5eaff094-d8d9-4ce8-8665-7e9af517d6ad",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.08,
        "w": 0.764,
        "x": 0.118,
        "y": 0.535
      },
      "kind": "paragraph",
      "text": "Both RUN's Investor Models and the Income Approach assume that no more than 10% of customers will terminate upon maturity at the end of the 20- or 25-year contract periods. We believe this is unduly aggressive because customers' roofs will need to be replaced, and the systems will be obsolete. Further, there is a significant risk that RUN's post-contract electricity rate assumptions are materially high.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e1723530-2a62-4cef-b4e9-cfdb1a78b00b",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.06,
        "w": 0.764,
        "x": 0.118,
        "y": 0.64
      },
      "kind": "paragraph",
      "text": "The result of these renewal assumptions is to add approximately $3,000 in value for each PPA customer. RUN's business is too new for there to be any empirical evidence to support these assumptions, and we are highly skeptical that this value will materialize. A former RUN finance executive concurs:",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e1cc87a9-1626-42a6-be22-6b2e424c3e09",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.035,
        "w": 0.66,
        "x": 0.17,
        "y": 0.175
      },
      "kind": "quote",
      "text": "I don't think that the IRS has solar experts, so when they audit us, we [were] basically educating [them on] what's going on.",
      "attrs": null,
      "subkind": "pull-quote",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "32b937fd-e1ca-4649-876f-84618dc2429c",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.1,
        "w": 0.66,
        "x": 0.17,
        "y": 0.71
      },
      "kind": "quote",
      "text": "That $3,000 [per customer] of renewal value is not real value. You should be very skeptical there... and you know, I would say there's significant creative license taken in calculating those renewal values. They're nowhere near what they should be; they're not being conservative... and in those numbers, in fact, it's the opposite. They've been quite aggressive, right?",
      "attrs": null,
      "subkind": "pull-quote",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "8210200d-4782-4ece-87e2-7de1ae10850e",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "quote",
      "text": "\"I don't think that the IRS has solar experts, so when they audit us, we [were] basically educating [them on] what's going on.\" — Former solar industry appraiser. \"That $3,000 [per customer] of renewal value is not real value. You should be very skeptical there... and you know, I would say there's significant creative license taken in calculating those renewal values. They're nowhere near what they should be; they're not being conservative... and in those numbers, in fact, it's the opposite. They've been quite aggressive, right?\" — Former RUN finance executive.",
      "attrs": null,
      "subkind": null,
      "toolName": "Authority citation",
      "toolSlug": "authority-citation",
      "confidence": null,
      "componentId": "019dd952-e6e9-749a-ba79-7a92c0a65164",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.03,
        "w": 0.5,
        "x": 0.118,
        "y": 0.905
      },
      "kind": "source-note",
      "text": "12 Interview with Former Novogradac Executive E, October 2021\n13 RUN Q1 2022 Earnings Release; industry appraisals reviewed by Muddy Waters Capital",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "1c42ebaa-1b02-4908-b477-4967ee64171e",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.035,
        "w": 0.764,
        "x": 0.118,
        "y": 0.252
      },
      "kind": "title",
      "text": "Why RUN's Investor Models and Income Approach Tax Model Don't Hold Water",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "3fd02be9-738f-4aee-a3d9-e061cdaca622",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.25,
        "x": 0.118,
        "y": 0.5
      },
      "kind": "title",
      "text": "Renewal Rate Overstatement",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "7ae4bfd5-5357-4e61-8710-7553e81e003d",
      "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
}