1/1/2015
guest I trade the range in both TSLA & SCTY with <10% of my equity portfolio (using Bollinger Bands - buy at the bottom & sell at the top band). For me technicals are more important than valuation for super-growth momentum stocks like these. When they settle down (ie are no longer momentum stocks) I will hold in a core long term investment position.�
1/1/2015
guest We've bought a Jan 15 put with $75 strike about 2 weeks ago (see my twitter feed @hedgesauce). You don't always time it perfectly but in this case we really did (simply luck). The investment thesis is that its simply nonsensical for this company to trade at 40+ times sales based on the fact that:
1) Legislation change in 2017 will force SCTY to forego a significant revenue stream (i.e. they can't pocket the gov rebates when they lease anymore)
2) Earnings growth is vastly overstated and does not reflect growth potential
3) The earnings that were restated twice raised a huge red flag
4) People who think that TSLA's gigafactory may somehow benefit SCTY don't understand shareholder laws. TSLA has to bid this contract out and can't just give it to SCTY. There's a huge conflict of interest there and a class-action waiting to happen.
5) This is AT BEST a $1Billion dollar (market cap) company right now
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I agree 100%. Forget financial modeling for SCTY, DDD, SSYS, or any other of these momentum plays as they trade purely on news and momentum and any attempt to value these companies in a traditional way will fail.�
1/1/2015
guest Teslafan123, I agree with your analysis. I think the only assumption that some are caught up on is lease/ppa vs. buying a system. Solarcity's retained value is heavily weighed on 20-30 year lease agreements. If customers purchase rather than lease, then retained value might stagnate or go down, since Solarcity is currently taking a loss on each system sale. Some analysts have pointed out that Solarcity is reporting a slowing in lease/ppa growth and system sales are growing. Therefore, they are worried that overall future growth is slowing and retained value(the measure of company value) will shrink. Thus, the growth premium built into the current stock valuation gets discounted.
However, I feel these analysts haven't committed to the possibility energy storage(as you've pointed out) will have on the lease/ppa equation. Most, maybe all, PV systems will be leased with energy storage. I have a feeling they will strive hard to develop it as $0 lease product as well. With this product, I feel growth in lease/ppa is still there. As a matter of fact, it might accelerate since no other competitor will offer a better product, zero down loan or otherwise.
I understand that energy storage isn't there today, and zero down loan is an enticing option for long term savings for some future users of solar right now, but I also understand the majority of potential residential buyers just want cheaper energy now. They don't want to worry about PV system production or maintenance or home owner's insurance claims if something goes wrong... they just want to get that lower bill at the end of the month. With zero down leases, there is still a payback period where payments are tied to how much you currently pay on your utility bill (or even more) so you don't see a lower bill now... you'll have to wait 3 or 4 years for a lower bill, and when when the 30% ITC goes away in 2017, buyers at that point might have to wait 7 to 8 years for a lower bill... and still have to worry about paying labor cost on warranty fixes, go through insurance claims if natural disaster damages the system, etc... In addition, when you purchase, production will go down over the life of the warranty. There are no 20-30 production guarantees like in a Solarcity lease agreement. This is important if you choose to sell your dwelling, since production is what is valued in a home sale, not the system itself. And for those worried about the new owner not wanting to sign a Solarcity lease, Bob Kelly in his recent ROTH conference presentation a vast majority sign onto a Solarcity lease. He stated that only 1 system has been taken off a roof out of all Solarcity residential customers in its history. That's a great track record, IMO.
In all, I think leases/ppa's will continue to grow today, and in the post 30% ITC world of 2017 and beyond... energy storage will only accelerate lease/ppa contracts. Therefore, retained value, which is the measure of Solarcity's value, will have strong growth going into the 2018 1mln customer goal time frame. I actually feel Teslafan123's six bagger prediction is low, since by 2018, I feel solarcity will set a 3 mln customer+ goal by 2020 which will add to the growth premium investors will be willing to pay... To me, there are a lot of other catalysts along the way that will prove Solarcity a strong power utility company, but that will have to wait till another time maybe
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Forgot to add, if Solarcity creates a PV+storage $0 lease product in the near future(which I think they will), it will negate the net metering losses that might come down the pike if utilities play hard ball and cut them down/out in their up coming rate reviews. Also, if Solarcity soon goes completely Solar ABS for capital needs (as opposed to tax equity), then the 30% ITC reduction will have no effect on Solarcity business operations. As a matter of fact, cutting out tax equity will only increase retained value since the money going to tax equity investors goes directly back to the company(shareholder). To me, the problem of reduced net metering and 30% ITC is squarely on the entire solar industry with Solarcity being the exception. How will the rest of the residential solar industry survive given this coming reality? How do you measure that in your "modeling" equations for investment?�
1/1/2015
guest I am not against SCTY, since I think that the company can do really well in the future. What I am against is that I read a lot about people blindly investing in SCTY without understanding anything about the business model or valuation of the company. I don't want to see you guys lose your shirts, because you haven't done your due diligence. I haven't done mine, so I am staying away from SCTY for that reason; I am not against the company or stock, I simply do not know how to value it or what it is worth so I am asking these questions to give you guys something to think about.
I already have TSLA for my high flying growth momentum dominate the world type of play so I don't need SCTY. SCTY has just gone from $88 to $58 in just a few short trading days; which is a 34% loss. If we were to hit a hard recession in the near future I wouldn't be surprised to see SCTY trading in the teens again. Yet, I read about people who are buying July $100 call options...seriously? Maybe it gets there with momentum, but that puts their market cap at $8.3b which is ridiculous at this point in time.
I am asking all of these questions not because I want to instill doubt into SCTY, but because I am hoping that one day somebody here makes an effort to research the topic and try to answer these questions; and nobody ever seems to try to answer any of them, probably because it is way too hard to understand their business model.
SCTY's business model also has tons of risks that could severely impair their ability to grow at a quick pace. They may as well navigate around all of these risks without a hiccup, but I never see anyone (but me) point out these risks.
The only thing I have against SolarCity is that they are a middleman that is exploiting an uneducated consumer base and seeking economic rent for it. I don't think that the company creates any real value by offering solar systems for lease. They have deep pocket friends, i.e. Goldman Sachs and others, that also decided to get in on exploiting the uneducated consumer for their profit (this holds true for all leasing companies including SPWR, RGSE, Sungevity, etc.).
Goldman Sachs needs to make its profit on the system and so does SCTY. This is money that is coming out of the customers pockets. I don't like the leasing or PPA business model, because you are still paying money to a utility, in this case called SolarCity. Buy your own system and be your own utility to reap the whole benefit of having a solar system on your roof. Don't let SCTY or someone else take the money that you deserve. There are plenty of financing options out there.
Some of these examples that people gave out at ~$0.04/kWh are not available anymore. SCTY used to offer those, because it wanted to grow market share at any cost and those deals are going to lose money for them going forward. Their new lease offers are not attractive at all.
Someone here mentioned that he is an Oncor customer, and maybe he got a good deal a few years ago when SCTY was handing out awesome deals, but today you would not get a good deal.
I challenge anyone here who lives in the Oncor delivery service area in TX to get a quote from SCTY and see if you can beat my deal (granted I got a great deal, but I am certain that you can find a similar priced deal by using a local installer and inferior panels such as the ones that SCTY uses; I got SPWR panels FTW). After Oncor rebate and 30% tax credit, I am paying $9k out of pocket for a 7.68 kWh system after including all applicable costs, sales tax, etc.
SCTY is a great stock, but I would recommend doing a lot more research into the company before investing. I am worried that a lot of people might try to jump on the SCTY bandwagon now at high valuations without doing the DD. If you got in early as a "play on Musk" when it was still cheap then you made a very smart investment decision last year. But at these current valuations I would recommend being a lot more cautious.
At these SCTY valuations you have build out a spreadsheet to model the companies financials to see where they are going to be 5 years from now in order to make a sound judgement on whether you are getting shares at a good price or not.�
1/1/2015
guest Sleepyhead, you, yourself, say you haven't done the due diligence on Solarcity, so how can you make any recommendations to others by this regard? By putting out questions and being frustrated no one answers the way you want doesn't count as due diligence either(correct me if I'm wrong on that conclusion).
If you look at prior "post-earnings drops" most have seen a 36% fall in share price from the high. However, in just a year and a half, the stock has gone from about $9 to currently about $62. I have a feeling most people on this forum are long term investors with a core share holding, so the currently volatility (although nerve-racking) is not of primary concern. Long term stock appreciation is.
In a prior post, on a different thread, you've insinuated that Solarcity is doing unethical business. It's hard for me to believe you think it's a great company if this is the case. I guess, I'm a little confused with your position here. I know you do a lot of research and many people follow your investments, so it's only fair to request that you do the same research and level analysis with Solarcity if you are going to advise people to "not invest blindly" and "lose our shirts" on Solarcity.�
1/1/2015
guest Sorry, I disagree with this bit. Not everyone can lay their hands on ~$10k of cash to purchase their own system. And those people, if they own their own (probably underwater) home, might have trouble qualifying for a home equity loan too. But because the collateral is good, they can finance the system through Solar City and still save $100/month (or whatever) on their power bill. The biggest problem is getting the possible customers to believe that they can save money with $0 down, and the money is coming out of the utilitys' pocketses. Even I admit it sounds like a scam. I do agree that if you can finance it yourself, you're better off... just not everyone can.�
1/1/2015
guest In various contexts I learned that SolarCity actually started by selling systems. Only later to increase the size of addressable market they went to the financing model. I believe Musk mentioned in the Tesla Financing call or in the subsequent call as well. As many people pointed here you can always buy a system outright from SolarCity, they always give the option to the consumer. People are voting with their money and 20 year contracts which model they prefer.
This is from the latest presentation: "Our U.S. Residential Solar Market Share Was the Equivalent of the Next 14 Competitors Combined in the Most Recent Data Available for Q3 2013". Their market share grew from 12% in Q1 2012 to 33% as of Q3 2013!
If their business model is so poor why are they growing the rate at which they are growing? They have grown at 100%+ rate over last 7 years straight. Do you honestly think all other consumers are just stupid to give into SolarCity somehow? What's the obligation on the consumer side?
Let me give you a counter example. Due to my circumstances and preferences, I will not buy a Model S or an X, and even a Gen-3 I will consider buying after it's second iteration in 2021 or later. Should that make TSLA a bad investment for me? It's not about what I prefer, it's about how many people prefer buying what Tesla is selling. It's good to get over yourself sometimes!
If you are really concerned with the question of why people would prefer taking leases instead out right system purchases, you should watch the ROTH presentation at investors.solarcity.com.�
1/1/2015
guest Correct me if I'm wrong, Sleepyhead, but I recall you stating you had one share of TESLA and are heavily invested in JASO. I understand you're still a shareholder, however to claim this as your "high flying growth momentum dominate the world type play" is a bit overstated, don't you think? And to be invested in JASO, which I've learned from your numerous posts in the "former SCTY" thread makes me feel you're understating your "high flying growth momentum" plays since JASO is exactly that, IMO. Again, I'm pointing these discrepancies because I only expect the highest level of forthrightness from a forum contributor that commands such respect in his researched opinions on various equities, but seems to fail mightily when it comes to knowledge on SCTY...�
1/1/2015
guest Here are just a few -- and I mean a few -- examples of drivers of growth for years to come already "in the bag," sort of speak, to enable Solarcity to reach that 1 mln customer number soundly (and potentially a lot sooner) from a short cursory research review...
Long term military contract...
--SolarCity's SolarStrong initiative, a five-year plan to build more than $1 billionin solar projects to provide power to up to 120,000 military homes in the United States by 2018. That's 120,000 contracted residential roof top installations into 2018.
Long term Utility partnerships in effect now...
--Viridian Energy will offer SolarCity products and services beginning in its New York, New Jersey, Connecticut, Massachusetts, Maryland and Delaware markets. Solarcity will have exclusive access to Viridian's currently more than 230,000 customers in the U.S.
--Direct Energy and SolarCity have undertaken a broad agreement to provide solar electricity directly to businesses. Solarcity will have exclusive access to Direct Energy Business's 180,000 commercial and industrial [FONT=Arial, Helvetica, sans-serif]customers in 14 states.
In just these three examples alone, they have a strong probability of gaining over 500k new customers over the coming few years... and that was achieved before Paramount Solar came on board late last year, imagine what this number will look like now that Paramount customer acquisition machine is in full swing with the doubled operational capacity increases obtain through the Zep purchase...
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1/1/2015
guest sleepy wrote that Solarcities business model is hard to understand. And he said that he finds it unethical.
He didn't say it is a bad business model. It seems to allow SCTY to expand its market share, so at least for SCTY it's a good business model. He didn't say it's a bad business model for the customers. As ggr pointed out, SCTY opens the possibility to go solar for home owners that couldn't buy or finance a solar roof otherwise, then save $100 every month on their utility bill. I'd consider that a good thing.
sleepy only says that it might prove unwise to jump on SCTY stock with both feed. As in, "Hurray, another Musk enterprise!". As long as no due diligence is posted here, analyzing SCTY's business models in depth, answering the questions that were raised, and projecting finances for 3-5 years to come, it is just gambling.�
1/1/2015
guest 1. Speculative stock for me when I bought in
2. Speculative
3. No model
4. Bull market, short term investment, small risk
5. I got in at approx. 20 (don't remember exactly), got out when it doubled after very short time. I thought at a time that Tesla was a better speculative opportunity so I sold to buy more TSLA.
6. I prefer leasing to owning, just a personal preference. I lease my cars and anything that can be leased as I have less trouble.
7. I am not very diligent investor. Unfortunately my best gains came from highly speculative stocks. I might crash.
8. Likewise, wish you best of luck and make lots of money! Don't crash.�
1/1/2015
guest I don't have time to respond to everyone's reply to my comment, but I would like to ask that if you ask me for my opinion and don't like what I have to say; then please don't be rude towards me (comment has since been edited, but not before I was able to see it)
This is the perfect example of why I am against the lease model. 0.03/kWh is about what you should be paying (if you prepay the whole thing), but if you lease with $0 down then you are paying $0.08/kWh, where SCTY and Goldman Sachs gets 0.05/kWh to keep for their own pockets. The consumer is getting $0.03 of value and paying $0.08 (167% inflated price) for it.
Couple other random replies to comment aimed at me:
- I have 1 share of TSLA, but a ton of options; mostly J16 LEAPS
- Would you rather buy a car for $10k with a 5 year warranty or sign a 10 year lease for $20k for that exact same car with a 10 year warranty? This is exactly what the SCTY lease option looks like. After 10 years you have to give the car back, but if you bought it outright then it could still drive 15+ years; all while paying 50% less.
- There are many ways to finance a solar system. I got a 3% 5-year loan from a credit union for mine. Those may be hard to find, but you can easily get 4%-6% financing. You can even borrow against your 401k and pay interest to yourself.
- SCTY is in an ethical dilemma, because they have an economic incentive to jack up the price of a system to squeeze the most subsidies out of the government. I called out SCTY as being unethical due to a very specific example that someone here posted in regards to battery storage and still stand by that comment. The situation was that someone looked into a 10kWh battery storage unit and SCTY said that it costs $2k, which is ridiculous because that is $2,000/kWh and we know that Tesla makes these batteries for $250/kWh. But then they said that because you are a SCTY customer, you can lease the system for 10 years for $15/month or $1,800 over 10 years. In this case either they are lying to the customer that the system is so expensive to lead them to believe that they are getting a great deal for $1800 on a $21k system. Or the most likely scenario is that they are jacking up the price to maximize government subsidies for battery storage. Either way, they are doing something very unethical in my book!
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I don't think that you are even trying to understand what I am saying here.
I have a very limited amount of time to research stocks and companies, and to me SCTY has a lot of risks and a very complex business model. For that reason it is a non-starter for me and I can't justify putting my research time into this company. Yes, it might overcome all of these risks and prosper, but I can't be bothered to find out what happens if they don't overcome them.
I have a few bull call spreads on SCTY that I created risk free when it fell below $30, so I would like to see them finish at max payout (need SCTY to close above $40 in Jan'15). Those are my only positions in SCTY, so I do not have any incentive to watch the stock go down.
I am not trying to do due diligence on SCTY. I am trying to get everyone else who is invested in the company to do the DD for themselves; that is why I keep asking these questions. I am worried about those who invest in the company "blindly", because nobody has ever tried to come up with a SCTY valuation here. Whereas there are at least 20 different people here who have done such financial projections for TSLA. But not one person tried to do the same for SCTY.
I am worried about you guys for this reason. I keep asking the same questions, not because I want an answer for myself. I ask those questions so that all of the SCTY investors can think about them and try to answer them for their own sake (not mine).�
1/1/2015
guest I just don't see anything unethical in a single word you wrote. Variable pricing . . . talk to the airlines.
There are better deals out there on panels . . . then why aren't people biting? Do you believe in the wisdom of crowds or that Tesla has people at a disadvantage and is "taking advantage" of them?
Isn't this a classic "arm's length transaction". It's true that people could be getting better deals from buying outright, but isn't that true of EVERY SINGLE THING sold, in the Universe?
Cars are a better deal if you buy instead of lease.
Homes are a better deal if you buy instead of lease.
We could keep making lists and the leasing party isn't doing something unethical by leasing . . .
There are two separate issues:
1. You don't understand SCTY's business
2. You don't think their business is ethical.
But it can't be both.
Either you understand their model (and they have a model to make lots of money) and don't think its ethical OR you don't understand their model and you have no opinion on their ethics.�
1/1/2015
guest He got the deal at $0.03/kWh and his system was installed in December 2013..
I think, you can still get similar deals from Solar City.. Just wait for good promotions to come up in your area or bargain hard just as if you were to buy outright for yourself.
�
1/1/2015
guest I don't think you understand what a "high flying growth momentum" stock is.
JASO is going to do close to $2b in sales this year and has a $500m market cap. That is not a high flying growth momentum stock. That is IMO an extremely undervalued company that just happens to be in the fastest growing industry in the world. It is a growth story, but valued like a company that is going bankrupt.
JASO has 0.3x Price to Sales ratio. SCTY's P/S is 100x higher than JASO.
JASO is trading at a discount to book value, which is ridiculous in my opinion.
There is absolutely nothing "high flying momentum" about JASO at all. It is my value play. If it were valued like a growth momentum play then the stock would be at $50+ today.
Lastly, I believe that SCTY will succeed long-term, but that its stock price will follow AMZN: meaning that the stock might even go to $100 - $150, but if we hit a hard recession, I can see it falling all the way back to $20 before eventually growing into its valuation back into the triple digits. And yes, I do understand that JASO would get crushed in a recession as well, but it has a lot less room to fall than SCTY does.
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If you don't see anything unethical in saying that a battery (that costs $2k to make) has a retail price of $20k in order to squeeze as much money from goverment incentive programs (and then sell it for $2000 anyway, even though they claim it costs 10x as much), then I have nothing else to say to you on this topic. I believe that SCTY is or was being sued for jacking up prices to get as much money from the tax payers.
I UNDERSTAND SCTY'S BUSINESS MODEL. I just do not understand how the financials work out, and quite frankly none of you guys do either (maybe DaveT and one or two others do). But I don't invest in the company (other than a minor position), so I don't care to know.
Their business model presents an ethical dilemma.
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Their business model presents an ethical dilemma. And it is due to the way that government incentives are strucutured, i.e. we get a tax credit instead of FIT.
Once the tax credit goes away in 2017, the ethical dilemma will go away too. In the mean time from a financial perspective, the more unethical you get by jacking up the price of the system, the more money you will make.
It is the government's fault and not SCTY's, but it is SCTY who faces this ethical dilemma.
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I already commented on that just before you did, but let me add that 0.03 is about as much as the system should cost.
SCTY offers this upfront option, because it needs cash. If you prepay the whole 20 year lease then you get the 0.03 rate, but you have to pay cash and SCTY does not offer a financing deal on that one. It is important to note that SCTY makes a lot less money if you prepay then if you sign the lease. If everyone took this option then SCTY would have to raise that price, because they would never grow into their $7b market cap.
The problem I have is that a system is worth $0.03/kWh (this coincides closely with my own calculations), but they sell it to you for $0.08 if you sign a $0 down lease.
The reason SCTY is successful is because the customer is paying $0.12/kWh for electricity from the utility company and thinks that he is getting a great deal for 0.08. But the real cost of the system is 0.03.
0.12 - 0.03 = $0.09/kWh and that is the benefit of owning a solar system in the Oncor delivery area. When you lease it from SCTY, you get to keep $0.04 of that benefit, while SCTY keeps $0.05.
If you get a loan to buy a similar system you get to keep all of the 0.09.
You are giving up more than half of the benfit of having a solar system to SCTY and Goldman Sachs.
And yes, the customer is extremely uneducated when it comes to solar. For this reason SCTY will most likely be successful in the future as well. People do not understand solar at all, so all they see is the money that SCTY is saving them and they don't see the money that they are leaving on the table that is going into SCTY's pockets.�
1/1/2015
guest Anyone see this ?
http://www.nasdaq.com/press-release/solarcity-enters-into-largest-rooftop-solar-aggregation-facility-20140325-00478�
1/1/2015
guest I think, you are making a mistake by saying that Customer is "uneducated" by selecting to lease at $0.08/kWh instead of $0.03/kWh.
At lease all of us (me + my neighbors) are pretty well educated in different disciplines (Lowest degree is mine, I am just a MS in Computer Science :wink
Anyway, For example, in my case + 12 other neighbor's case + in above sanjeever's case, SolarCity was upfront of each options.
They explained Pros and Cons of each options clearly (Buy vs 0 down lease vs Prepay Lease). It was fully our decision whichever way we go.
In my case, I specifically asked, why the difference of cents/kwh for 0 down vs prepay and SCTY was candid in saying that, they need to finance this system and they need to pay interest. He did say, by paying upfront, you are reducing our cost to finance and we are passing that to you in lower price.
I don't think there is anything unethical in SolarCity's business model, because, they are educating customer of all of their options and At least to me, they didn't force us to make a decision one way or other.
It is totally customer's decision and they can decided buy vs 0 lease vs prepay lease according to their personal situation.�
1/1/2015
guest I find all this discussion quite fascinating, thank you for getting it going once again. I struggle with this though - I want solar panels, but can't afford the upfront cost. I understand all the options and maybe people who go with SolarCity just want the easiest route to getting panels on their roof instead of having to hassle with a bank. It's one option over another.....
And about people not understanding solar, maybe true, but I don't understand every single part in an engine and I can still drive a car. I've only learned about EVs because technology is a passion of mine and therefore want to understand how they work. But future generations are just going to be buying EVs for their first car like it's a regular thing to do and they won't have to know how it works, so the same thing can be said for solar. If the end result is the same - people using solar, a renewable, then what's the problem with how we get there?�
1/1/2015
guest @sleepyhead
I think you are strongly underrating people's perceived value of a lease, and their understanding of "higher costs" associated to a lease model. It is in the consumer's best interest to switch to a lease of around $0.08/kWh with SolarCity vs. paying more than that with their conventional utility company. True, it is MUCH CHEAPER to buy the system outright, but that is to the advantage of those with the capitol to do so. If SolarCity is upfront about the costs of the system on a leasing model vs. an outright purchase, then there's nothing unethical about whom they sell the systems to.�
1/1/2015
guest I mean that customers are "uneducated" on solar and not that they are undecated overall. What I mean is that the financials behind a solar system are very complex and require some wicked financial engineering skills to be able to model out the financials of a solar system.
I am not saying that SCTY is unethical. I am sure that their sales people are very nice, forthcoming, and honest. I am just referring to that specific battery example that a TMC member posted; it sounds very unethical to me.
I agree that SCTY is very clear in presenting different options to buy, lease, PPA, or upfront PPA, etc. But they are not telling you how much it costs to buy the exact same system from a competitor. IMO SCTY's offer to buy a system is too high, and encourages you to lease the system from them instead. They are not competitive when it comes to buying systems. E.g. one member here posted a quote from SCTY for a 5kW system and I was able to find him a deal for a 5kW Sunpower system (which is significantly better than a SCTY system) for the exact same price.
If you compare SCTY's lease price to buy price, it might make more sense to lease; and that is what they want from you. But if you compare SCTY's lease offer to a buy price from a local competitor then it is a no-brainer to buy.
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Once again, I am questioning SCTY's ethics when it comes to getting as much out of the government as possible. I am not saying that they are unethical towards customers.
SCTY says that the battery costs $20k to rip-off tax payers and then sells it to the end customer for $2k. That is extremely unethical if this is the case.
The other possibility in this scenario is that SCTY only claims that the battery system costs $20k, and then sells it to the customer for $2k to make him believe that he is getting a smoking deal, when all they did is play the "Kohls" card of huge discounts (that courts have found unlawful in the past).
Either way, SCTY claiming that a 10kWh battery costs $20k is extremely unethical IMO. You can disagree if you want, but you won't change my mind on this one.�
1/1/2015
guest HenryF, I think SPWR is a wisely diversified company, with a specific mix of utility, commercial, and residential that works for them. In the Q4 conference call, they noted that they didn't give residential lease more weight because of the net metering risks and regulatory uncertainty. Cash sales were much safer and rev. rec. more immediate. However, the CEO did note that they will go deeper into residential lease/ppa now. It has become more of a focus and they will adjust their mix appropriately.
To me, I find this telling that they want a piece of what Solarcity is getting. I also see that they are topped out on capacity right now, so they will have to adjust resources from one area in order to compensate. Although their capacity should jump up nicely in 2015, I still feel they are keenly aware of "getting in now" on this market segment. I do say that the KB Home deal they have is big. I've seen a few KB Home communities pop up here in LA in the past few years and have even visited one and talked with a sales rep about the solar system and "Zero House." KB Home sells affordable homes focused on first time home buyers. They generate over a $1bln annual revenue, so no slouch in this market. As far as I know, the SPWR agreement is for cash sales to the KB Homes, then they include the price of the system in the home price.
Solarcity's primary strategy with home builders is to not sell only, but also to have an option to lease/ppa with the new home buyer. So far, as far as Bob Kelly has noted, home buyers like the lease/ppa(saves money) and home buyers are choosing lease/ppa which might be an indication of preference for convenience, immediate savings, or peace of mind.
Overall, I think we should see SWPR get more into the Solarcity "retail" game over the course of the year.(which indicates they Solarcity might be onto to something right here.) Besides, the turnaround on utility projects is long, residential much shorter. Therefore growth can be more immediately experienced with a heavier mix of residential.�
1/1/2015
guest Woodside Homes making solar panels standard feature | Las Vegas Review-Journal
Just read this article about a Nevada homebuilder believing the no up-front cost option is advantageous to its home buyers... might be more support for lease/ppa choice of the broader PV market.�
1/1/2015
guest Mod Note: some posts went to snippiness.�
1/1/2015
guest (this time without snippiness)
futureproof, Yes point taken. I was specifically addressing the remark that SPWR's powerplant business is more lucrative than SCTYs on a per unit electricity basis.
SCTY gets rates that a consumer typically pays utilities. SPWR's power plants make money that the grid typically pays electric generation powerplants.
I don't know how everybody's electric bill looks like. Mine has three rows:
Supply Charges: $1 <-- this is the price of producing electricity (at utility scale)
Delivery Charges: $2 <-- the cost of the grid
-------------------
Total Charges: $3
SPWR makes the equivalent of Supply Charges.
SCTY makes the equivalent of Total Charges.�
1/1/2015
guest HenryF +1�
1/1/2015
guest "SolarCity strength attributed to takeover speculation" April Fools?�
1/1/2015
guest Takeover by who?�
1/1/2015
guest
"Throughout his letter to shareholders, Buffett focuses on per share results. He compares the growth in Berkshire�s book value per-share to the performance of the S&P 500."
Buffett gets beat by the SP 500 over five years. (But wins over six.) - The Term Sheet: Fortune's deals blogTerm Sheet
Do a google search on "Warren Buffet Book Value" - you will find plenty of stuff.
I am not sure why BookValue/Share is freaking people out so much here.�
1/1/2015
guest HenryF, good to note. I was wondering if you had some kind of "growth and execution equation/quotient" you ever applied to an equity. Meaning, is there something out there that can account for growth potential and execution other than past quarterly or traditional metrics? I use Tesla as an example... Back in 2012, I was reading brokerage reports, analyst reports as I was making my investment decisions and every single one of them said it was a bad stock. I sat in the MS one day, experience the product first hand, evaluated the company, learned it had an extensive backlog on reservations, saw where the company was going with product deployment, supercharger deployment(solar power), environmental impact, and energy industry impact... and knew this was going to be a fantastic long term investment... the numbers and analyst said no, but my gut(growth probability) reaction was saying yes. Is their something (other than gut) out there that measures this growth/execution probability for a stock, even if past quarterly performance indicates otherwise?
On another note...
Former chairman and CEO of Chrysler Robert Nardelli made a great point about Tesla, that sparked a big idea on Tesla Service. I explain how Solarcity works into this in a second....
He gave an example of his friend getting a message from Tesla that his 12 volt was functioning appropriately and will need to be replace even though he has no idea the problem existed. Nardelli went to say his advantage is big data, market focus, customer centric. Customer loyalty FOR LIFE. Why?
What happens when you can diagnose the problem before it gets to be a problem? You don't need a lot of SERVICE/WARRANTY/REPAIR. Things last longer. Every single MS/Roadster sends DATA back to Tesla every day. By far, the most connected car brand to its customer on earth right now. Parts and repair service COSTS are minimized. RESIDUAL VALUE goes up. RESALE/LEASE become more attractive. Customers love to hear that and buy more Teslas.
How does this apply to Solarcity? Solarcity has the same big data capabilities. Everyone of their customers system performance data is collected. If something appears to be hurting performance, they will fix it before it needs to. But you say, PVs don't breakdown. Maybe it is more to keep degradation low, as well as, prepare for energy storage management as well... or just maybe... Tesla and Solarcity will work together to provide energy usage data on VEHICLE CHARGING at the home and at the Supercharger to also add to the big data on car performance. If they know how the battery is being charged and discharged, then they can tailor all service calls even more so. As Solarcity big data grows, so too does the Tesla big data and this can get very interesting very fast.
I just saw an interview with Elon sitting next to Philip Low(he's wearing an Occupy Mars t-shirt by the way). Philip Low is developing a device (iBrain) to record neuro data on hundreds of thousands of people at the same time creating big data scale capabilities in order to see if people are diseased before they have symptoms. Looking for patterns in the massive amounts of data that otherwise wouldn't be available. Many reasons probably, but could Elon be trying to get comfy with Phillip for the reason of applying this to Tesla, SpaceX and Solarcity system performance? Makes sense if you think fixing things before it's too late is helpful to your business and customer acquisition/retention...�
1/1/2015
guest Just received an Mckinsey and Company email with this article on disruptive power of solar...
The disruptive potential of solar power | McKinsey Company
Overall, solar is being "pumped" everywhere I look this week... hope this isn't just related to just short term stock momentum but more of a greater trend of spreading awareness...
... also received a marketing email from Solarcity today... not sure how they got my email, maybe through my investor relations emails or signing up to listen to the conference calls, not sure how, but this could be part of the new marketing push. However, I'm not one for marketing emails... tend to just delete.�
1/1/2015
guest SolarCity Shareholder Alert: Former SEC Attorney Willie Briscoe and Powers Taylor Investigate Possible Breaches of Fiduciary Duty by Officers and Directors
http://pdf.reuters.com/htmlnews/8kn...&u=urn:newsml:reuters.com:20140401:nBw016612a�
1/1/2015
guest Briscoe seems to initiate a lawsuit every other day against one company or another. Frankly it's legal blackmail (the companies usually settle to make them go away) so it's tough to read anything into it.�
1/1/2015
guest It always bothers me when headlines use words like: "Former" along with government branches (in this case the Securities and Exchange Commission) as if the SEC is doing an investigation - note the next words are "Investigate Possible Breaches". In reality, this is a law firm announcing that a class action lawsuit has been filed and seeking participant shareholders. Yet they are only investigating "possible breaches". Big deal.�
1/1/2015
guest NigelM, agreed.�
1/1/2015
guest Quincy mayor signs 20-year deal for solar power - News - Wicked Local Quincy - Quincy, MA
2MWs to Massachusetts municipality under Solarcity 20 year lease contract... more high quality long term payments to package up for the ABS market... more MWs to get installed for the lowest cost of capital possible... reinforcing the positive cycle...�
1/1/2015
guest @futureproof, I am not aware of any such quotients. Just like you, both my Tesla and SolarCity investments started with qualitative analysis to begin with. I used some fuzzy math to get a rough idea of what the size of addressable market is etc. Much of the growth projections I used were based on official and un-official guidance, and some rough assumptions. Analyst projections in early 2013 were beyond stupid and didn't make any sense.
Obviously for Tesla there is no way we can use historical data to predict the future. Much of it's growth happens in step changes: Roadster to Model S, Panasonic battery factories in 2H2014, Model X, Gen-3. There is some amount of continual growth in between these step changes but that's not what most long-term investors are after.
On the other hand I see SolarCity having smooth consistent growth, verifiable every quarter, on an year-over-year basis, using revenues or MW deployments or Retained Value or Book Value per Share (BVPS). So I feel lot more comfortable using historical data for near future projections. But again, we don't need to make any assumptions. Everything we need to forecast is already available as official or un-official guidance in public domain.
2014 will be fun time to watch SolarCity in a fundamentals perspective. Based on everything I see, they will grow shareholder value at a faster pace than MW deployments (which is already at 100%+ growth rate). As you can tell I'm firmly positive on SolarCity for years to come.
- - - Updated - - -
@futureproof, I was having a chat with friend who is a very senior engineer and he is into automotives, energy, batteries etc. I said I expect all SCTY stationary batteries to be internet enabled. They will be able to provide smart services like alerting users on smart-phones if say grid is out and battery is about to run out etc. Then he said, well if batteries will be internet enabled, they can do a whole lot more with it. The entire distributed network becomes a virtual grid that SCTY can program and control. So he thinks in addition to providing localized peak-demand shifts, they will be able to provide some grid services and charge grid for it!
Honestly, I don't know how much of it will come true or how big of a deal it is but all I can say is Musk and co never think small. They think big, as in 'really really big'. So never hurts to be a long-term shareholder of Musk enterprises.�
1/1/2015
guest HenryF, I also think Solarcity gives a little more visibility. My dilemma was how I was going to invest in "Elon" when Tesla's stock price exploded in April-May time period. I was dead set on accumulation of both TSLA and SCTY at the same time and weighed more toward Tesla. However, after many sleepless nights(I know why, right?) I decided to weigh my accumulation efforts more toward SCTY. For one, the shares were over 5 to 1 cheaper (at the time) and I also saw their potential growth being bigger. I felt guilty for investing less in Tesla at time (and depressed since SCTY was going in opposite direction (summer 2013), but I thought to myself this is still part of my belief in Elon's et al.'s vision, so I went with it.
I just looked at the numbers again on what Solarcity aspires itself to look like on July 4, 2018:
1 million customers.
6GWs installed.
$500mln annual free cash flow rate.
Let's say they hit the 1GW(total) mark in Q4 this year. That means they will have to install 5 more GWs in 3.5 years. If they compound like they are, that means 1GW(2015), 2GW(2016), 4GW(2017), 4GW(mid2018)... for a total of 12GWs by the 1mln customer goal time frame. That's seems like a wild number, almost unthinkable... I supposed that would also mean about 2 million customers and rough estimate of $1bln in free cash flow. But just for giggles, If today's stock price were attached to 12GWs, 2 million customers, $1bln in free cash flow, would that be an appropriate value(undervalued or overvalued) to give it?
Now back to the numbers Solarcity gives... they would have to get up to a run rate of about 1.5GW/year by 2016 to get to GW, which would decelerate their current growth rate by a lot, so it makes me feel they are being conservative in their estimates. But when does the law of big numbers start to kick in? With such a large addressable market, it seems like a lot longer then in the next 4.5 years, IMO. So, does today's stock price reflect 6GWs, 1 miillion customers, and $500mln annual free cash flow rate?
Unless Bob Kelly has a modified definition of free cash flow, but $500mln of FCF means thats cash after capex, so they will have cash left over even with it's growth rate to get to 1mln customers and 6GWs. Again, is today's stock price priced in for this?
Now, I'm not sure the $500mln FCF applies to compound growth, but if does continue to compound into 2018, will they be able to amass enough capital at that growth rate through ABS and their new individual level ABS?�
1/1/2015
guest
This is a positive news overall. But putting these three statements together, something is a miss:
Mayor Thomas Koch has signed off on a 2-megawatt solar-power project expected to account for about 10 percent of the city government's total energy consumption.
Koch�s office said the deal with SolarCity will last 20 years and will not cost the city any money.
The agreement sets a 9.6 cent rate per kilowatt-hour for the electricity over the full term of the agreement, Koch�s office said. The current rate being paid for electricity can reach as high as 13 cents or more per kilowatt hour.
** This is a good deal from the city point of view. Then why are they stopping at 10% consumption? Why not 20 or 30 or 40 or even 80? What's the limiting factor here? Could it be the amount of available roof space? Is it SolarCity's reluctance to commit more capital? Any thoughts here?
Answering these questions helps us understand the size/nature of the addressable market better.�
1/1/2015
guest @HenryF, I think the reason they don't do more Solarcity MWs is because of the contracting process. Most(not if all) of the MWs will be put on schools, which seems to me to be a single contract bid process. They could be in the process of bidding on other government buildings, but that's pure spec.
Just as with Quincy, recent residential 2013 market share numbers appear to indicate further support for a strong leasing/ppa market. The top two(Solarcity, Vivint) gained more market share well over the next handful of competitors, and they attribute much of their market share growth to lease/ppa. Solarcity gained from 16% to 26% (although it seems to have gone down from 32%? Is this correct?)
Vivint is second in market share with 8%, however, Vivint's growth rate is the fastest, up from just 1% of market share in 2012. I wonder what's their secret sauce?
KW14SolarServer
It is interesting to note that Vivint's COO joined Solarcity about four months ago. Breaking: Vivint Solar COO Jumping to SolarCity, Plus Other Greentech Exec Moves : Greentech Media
And the CEO of Vivint left for Solarcity last February. Green Jobs: Tanguy Serra Now COO at SolarCity, Plus Vivint, Soltage, Nexant : Greentech Media So, maybe more of that Vivint growth will go Solarcity's way (or could it mean Vivint got rid of what was dragging them down?)... to be determined, right...
Also, did some more back-of-the-envelop numbers... If Solarcity maintained 26% market share through complete market saturation of 42 million buildings(static number, no new roofs), assuming the average system per roof is 3.5KWs, they would have installed 38.44GWs worth of PV systems. If they achieve a 1.5GW/year rate, it would take nearly 25.6 years to achieve. If 2GW/year, over 19 years, if 4GW/year, 9.5 years.... and if they keep the current compounding growth rate, they would achieve 38.44GWs in 6 years, by Q1 2020. Bottom line, many many assumptions, makes an blank out you and me, but even so, were talking about dozens of GIGAWATTS with just household level systems... if it does turn out to be 38 GWs, that like building 38 nuclear power plants worth or generations capacity.
What does a 38GW energy company look like in terms of market valuation? What does that stock price look like, lets say give 100m shares, or maybe 200m shares outstanding? (not sure how much employee plan would dilute, or how many secondaries will be offered).�
1/1/2015
guest @futureproof I'm on my way out to a vacation, so will give a few quick remarks.
Deutsche Bank put a price of $90 based on cumulative installs of 9GW by 2020 and 1% growth rate after that. Many times in the document they themselves said it is very conservative. You can get a copy of their report for free at dbresearch.com click Contact at the top and fill out a small form.
26% market share is for the whole of 2013.
33% market share is for Q4 2013 alone.
Market share has continuously increased.
Per SolarCity, average system size if 6KWs by the way. But they include commercial with residential for the calc. Also they do the same, include both residential and commercial properties, for the 42mil building count.�
1/1/2015
guest @HenryF, at 6KWs average, that would mean a 65.5GW install base at 26% market share of full saturation. Just seems mindbogging to just achieve 1/3 of that... just shows how much potential there is in roof top solar in general in those 14 states alone.
SolarCity Announces Pricing of Second Securitization - Yahoo Finance
ABS announced this morning was interesting. Kelly talked about hitting 90mln-100mln mark this round, but it turned out to be 70.2mln. They did get 4.59% which is better then the 4.80% of the first $54mln ABS. However, this $70mln one is a shorter term(2022) compared to the $54mln(2026).
This is fascinating stuff. I wondering how these negotations go? Was this agreement about Solarcity sticking hard to getting that lower rate? How did they arrive at these terms? Since this is only the second solar ABS ever, is a standard offering starting to develop? Can we expect these terms to be the norm for future ABS?
Overall, I would like to hear how the ABS terms are developed and what factors go into how these eventual numbers materialize. I think they want to do at lease one ABS/quarter, so we should get a better sense of it, IMO. I think since this is so new, the market doesn't quite know what quite to make of it, so a shakeout of weak hands happens, IMO.
The way I'm looking at it right now: Solarcity has raised $124mln of capitial that never before was available otherwise. It is also the lowest cost capital achieveable as well. They anticipate doing this 2 or 3 more times this year. I'm going to do an initial projection, based off of today's $70mln ABS, of $140-210mln+ more by the end fo Q4 2014, and a total of up to $332mln of ABS capitial raised at the start of 2015.
Is this going to happen? No idea right now since it's so new and norms/standards are being established each time they do it. It could go down, but it also could go up(duh). My feeling, is this could go up a lot more as investors start getting used to this, as well as seeing more MWs installed and working to see how really secure these lease/ppa payments actually are. Things like this tend to have a tipping point, and when that hits, it could significant, especially if amass a few GWs over the next couple years.
Will be interesting to see how the individual level ABS initial run turns out. Might be less or a hardball negotiation process, but at the same time might present the risk of variabiliy in obtaining that individual ABS capital... meaning how much money will they recieve during a specific time period could be nothing or it could be llittle, at least with institutions you can get a large injection of cash at once... we'll see, right... very intreguing regardless... Solarcity is on the front edge of innovative financing in the Solar industry that's for sure.�
1/1/2015
guest To add, ABS is a pool of high quality, predictable long term lease/ppa payments. So the strength of the lease/ppa market is essential to growing ABS capital. Maybe this is why we're seeing many solar companies adjusting their mix toward residential lease right now. The question is, will these new comers to the lease/ppa market be able to gain market share on Solarcity? It will be also interesting to see the size and rate of their ABS offerings compared to Solarcity. All in all, of ABS is attractive to their business, then this will only add further strength to a lease/ppa market, since there is greater incentive to market it to the masses.�
1/1/2015
guest Just did a quick comparison... PG&E has about 8GWs of generation capacity and currently has a $20bln market cap. If by mid 2018, Solarcity has 6GWs and continues to see rapid growth ahead, is this currently priced in at $60?
For me, it just doesn't seem so. Therefore, if Solarcity executes on the 475-525MW goal and sets a 2015 goal of 900MW - 1GW (which implies continued compound growth) we should see a big jump on the scale of 2013. With that, will see even greater volatility, so strap on your seat belts if this happens. This also isn't accounting for mass energy storage, so that could really give support a big price jump/volitity.
My factors in seeing this execution:
CPUC regulation supporting energy storage deployment.
Continued strong growth of lease/ppa contracts.
continuous quarterly/annual capital infusions from solar ABS.�
1/1/2015
guest Did a little deeper dive on the back-of-the-envelop numbers... wow... the significance of ABS to retained value is massive.
If Solarcity were to achieve 6GWs of installs by mid 2018, retained value would be $9.060bln (based on $1.51 retained value/watt as of 2013YE).
Now if 65% of those 6GWs were lease/ppa payments, and those 65% were financed with the ABS market, then retained value would INCREASE by $6.443bln. So, total retained value by mid 2018 becomes $15.503bln.
How I got these numbers: Used 83,265 customers and 567MWs(total installed) to get average customer install being 6.81KWs. Used 6,596 PV system pool number and $70.2mln ABS number to get $10,643/PV system. So, $10,643/6.81KWs = $1,563/KW = $1,563,000/MW. Meaning every MW installed gets $1.563mln worth of ABS capital. So, By mid 2018, 3.9GW(65% of 6GW) are financed by ABS which totals $6.095bln. Now Solarcity has said the last ABS($54.4mln) raised retained value an average of $57.5mln(Q4presentation). So for every dollar of ABS raised, retained Value goes up $1.057. Thus $6.095bln X $1.057 = $6.443bln in ADDITIONAL RETAINED VALUE. So, add $6.443bln to to $9.060bln and you get $15.503bln in total retained value mid 2018.
Now I see where Bob Kelly comes up with $500mln in free cash flow. If you take $15.503bln and divide it by 30 years, you get about $516mln/annual after O&M and tax equity money... essentially free cash flow with absolutely ZERO GROWTH. And this brings me to STOCK VALUATION.
I am going to peg Solarcity to PG&E(PCG). Simply, they both are companies that sell energy. The metric I will use to measure stock valuation will be PCG NET INCOME TO SCTY RETAINED VALUE and thus figure out market share and share price.
PGG has had about a $20bln market cap for a few years. It's stock oscillates around this value, so I see it as a low/no growth stock and thus will use it's net income of about $900mln as a constant to which to base Solarcity's valuation.
Now this is where RETAINED VALUE gets simplified. If Solarcity were to be a no growth stock it would realize it's retained value as FREE CASH FLOW over 30 years. So currently, Solarcity's retained value is $1bln. If they STOP GROWTH COMPLETELY and just dealt with it's current customers for the next 30 years, if would see $33.33mln/year in free cash(net income for this comparison) just like PCG sees about $900mln every year from its nearly static customer base. So, 900mln/33.33mln =27. Then divide PCG's $20bln market cap by 27, and get 740.7mln in market cap. Divide that by 91.571mln shares and you get a share price of $8.09 at zero growth. Today's close was $59.08 so it's trading at 7.3 times greater then PCG's current value. Not too coincidentally, but still interesting, current compounding ground is 73-75%y/y, so many a way to see the multiple attached to SCTY stock price.
If they achieve 500MW(ave.) this year with $210.6mln of ABS (3X70.2) then retained value would be approx. $1.834bln. FCF(net income for comparison), without growth, would be $61.126mln/year. 20bln/14.72=1.359bln market cap. 1.359bln/91.571mln shares = $14.84/share(NO GROWTH). If we apply same 7.3 growth multiple in current stock price, then the share price by 2014YE should be $108.34
Now, if they achieve the 6GW goal by mid 2018, then retained value could reflect 15.503bln and thus $516mln/year FCF(net income for comparison) and a stock price of $125.23(NO GROWTH). With 7.3 growth multiple, stock price would be $914.22.
Now, more shares will inevitably be floating out there, and maybe the growth won't compound at 75%, but think about this, even if they stop compounding in 2018 and continue to install the same amount of GWs after, they will still achieve about 12-14GWS total installed by 2020, and given approx. 65GW of addressable market(static 2013 buildings) in its current 14 states, it doesn't seem likely will slow down from that number much for years after either...�
1/1/2015
guest On today�s close SCTY was priced at 63.0% of its highest close on February 27. On an intraday basis it shrunk today to 60.0% of its peak on February 26. Those figures surround the Golden Ratio (Fibonacci) 61.8% that often marks a bottom, as was the case for the autumn decline in TSLA.
The winter rally to new highs for TSLA may have quashed the shareholder suits against Tesla Motors officers. How likely is something similar to occur for SolarCity?�
1/1/2015
guest Hey Curt,
It's funny how the the 1603 grant program investigation pops up every time the stock goes down. The whole Barron's article came out the weekend before the stock was hitting its low around $28-29 after reaching its ATH of around $52 a couple months earlier. Dark Clouds Over SolarCity - Barrons.com
Solarcity responded with its own blog:
Burying a Dead Horse
Looks like to me their costs had to be signed off on by independent auditors just to get the funds, so I can't wait to see how this investigation concludes.
It's also funny that Solarcity is the only company among all the companies in the 1603 investigation that has publicly stated they are being investigated. I would think other companies would be as transparent, but that doesn't seem the case. But, no one wants to talk about that since Solarcity is way more interesting. It is also curious that this investigation came out during the run up to the presidential election where the issue du jour was government money going to busted "green" programs recipients like Solyndra and dare I say it Tesla... remember that speech?
SolarCity becomes focus of US Treasury investigation: pv-magazine
It's funny how in the PV magazine article the Treasury Dep. said this investigation could go on "for some months." Since this was initiated in JULY 2012, it is more like YEARS... HOW LONG DOES IT TAKE TO INVESTIGATE? Solarcity has been cooperative, giving them all the data they need dating back to 2007.
In the News - SolarCity Lawsuit Could Encourage Other Section 1603 Cash Grant Recipients to Push for Higher Awards
Also, this investigation by the "Feds" is again another "old issue" brought up when the stock is down. Solarcity had a suit back in MAY 2013 suing the federal government for wrong doing and the government is just now taking its chance to do get is discovery done! Hopefully, since the "feds"(as the title of the article suggests) have a suspense by DECEMBER to finish their discovery, maybe things can stop DRAGGING along and get done. If this is such a pressing issue, you think they would have some findings by now, right?
Feds to troll SolarCity books while company seeks another $14.6M Watchdog.org
Oh, and if only one person with 100 shares out of all other owners of the rest of the 91,000,000+ shares is filing a law suit, I don't think it becomes front page news on anyone's radar other than those that want Solarcity to fail. It's funny how the same law firms are investigating and chomping at the bit to file a suit against Solarcity are the ones that filed against Tesla (as Curt pointed out). What happened to those law suits? Exactly.
I wonder what happens if or when Solarcity is cleared? What will happen then?
- - - Updated - - -
And now what I originally intended for this post... here is what I think Solarcity will set out as their Q2-Q4 MW goals:
Q2: 98-102MWs
Q3: 118-122MWs
Q4: 195-205MWs�
1/1/2015
guest During the last couple of days, not only has SCTY been holding at Golden Ratio support, but also at its 200-day moving average. The bullish significance of these considerations is discussed in my McGraw-Hill book "The Investor's Guide to Technical Analysis".
I was long SCTY for two periods during the spring and summer of 2013 and made significant profits despite missing the later runs up. I see FUD regarding a stretched out government investigation of the basis for consumer credits, along with lawsuits in relation to the recent share price correction, as being way overly discounted by the market.
Today I again became a SCTY shareholder. This time I hope it is for the long run. I created this thread to gather information for making a decision. I've appreciated the inputs from all who have been participating. I hope many others have benefited as well.�
1/1/2015
guest Curt, do you believe that technical indicators on individual stocks have value and/or get discounted when stocks are tracking the NASDAQ so closely, such as has been the case for TSLA lately? TSLA, NFLX, AMZN and others are moving minor amounts on company-specific news lately, but major amounts on NASDAQ (macroeconomic) movement.
Does the NASDAQ itself have a "Golden Ratio?"�
1/1/2015
guest Curt, hope it works out for you in the long run too... might be hard with all these big price swings, but that seems to come with compounding growth, right?
Honestly, the more I think about the asset backed securitization, the more it becomes apparent how important it is becoming for the business model. Based on the 54.4mln ABS, for every $1 they raise, they increase retained value by $1.057. If 65% of the 567MWs they have installed thru 2103YE is lease/ppa (which Lyndon stated on the Q4 conf call the number is actually above 90%), they still $451,443,650 of possible ABS funds.... and that's after the $54.4mln & $70.2mln. If they continue to do $70.2mln offerings, it will take nearly two years to get it all. And if they reach 525MW(65% lease/ppa), they will have another $533,373,750 worth of funds to tap into... and another 2 years(at $70.2mln) to get through it! Since the recent $70.2mln ABS was oversubscribed, I imagine they could put together bigger offerings, hopefully $100-200mln. I think this is where the individual level ABS comes into play as well. Individual level ABS could speed up obtaining the money as well as add volume in funds available.
Crowdfunding Seen Topping $5 Billion for Rooftop Solar - Businessweek
From this article, it seems the individual level ABS will be exactly like the institutional level ones, just you and I will be able to go on the internet and get a piece directly. My belief is that they will price offerings by KW. Based on the $70.2mln offering, the ABS price/KW = $1,563. So, if a 1 million people world wide went on the internet and participated in buying 1 system worth (average is 6.81KWs) of ABS, Solarcity could get $10.64bln in ABS funds. And at 65% lease/ppa, that means it would have to have installed over 6.8GWs to do that... and if each ABS dollar continues to increase retained value by $1.06, this could turn out to be a major, major deal when it comes out.
I think some important questions for the next conference call as it relates to ABS could be:
How much did the $70.2mln ABS improve retained value?
How quickly is Solarcity turning bookings into installed systems?(important to turn debt financing of installs into ABS financing of lease/ppa payments; also important for customer satisfaction)
When will the individual ABS come on line?
With this, I will be all ears for these answers on the Q1 conference call in May. Should really give perspective on scope of growth as well as the impact of low cost financing on the future heath of the company going into 2015 and beyond...�
1/1/2015
guest What happens to the value of these contracts if we experience significant inflation? Won't they drop?�
1/1/2015
guest What type of scenario are you thinking of?�
1/1/2015
guest When the Quincy mayor signs a 20-year deal for 2MW of solar power and the rate they pay is fixed for the entire term, what happens to the value of that contract in SCTY's hands after a few years of inflation?�
1/1/2015
guest I didn't see any specifics of the deal, but I think Solarcity has either calculated in cost reductions/depreciation,etc...to mitigate modeled inflation over time OR they might have a predetermined escalator built into the contract...
Would be be interesting to see the contact... Since this specific case is a government deal, there might be a public record floating around out there somewhere on the net.�
1/1/2015
guest The mayor stated that the price was fixed for the life of the contract which is 20 years. So the income will diminish with inflation over time. After 20 years it will be almost nothing. We're likely to experience some strong inflation at some point in the next few years. I keep hearing in this thread about how calculated cost reductions will mitigate this or that future risk. Cost reductions won't do anything for this contract with Quincy MA. As I understand it, most of their leases are drawn up under similar terms.�
1/1/2015
guest How much inflation are you expecting and when? I would think the entire economy would suffer if high inflation hit. However, since the sun is a free feed stock, I would imagine solar energy production might experience a little less. But I get what you're saying about the fixed price. I guess in the case of greater then expected inflation things could get interesting with the fixed price model. However, if it gets bad economy wide, I'm thinking renegotiation would occur. Inflation would really hit traditional utilities prices, so even if you pay a higher solar bill, it might still be lower then the utility at that point. So, the mayor might welcome the renegotiation as opposed to terminating service due to breach of original contract.�
1/1/2015
guest If I was futureproof I would probably be riding around with Elon, Larry, and the bunch right now. Believe me, futureproof is purely aspirational...
as far as inflation, my guess is sensitivity analysis has been done, and Solarcity is comfortable with the numbers. But again, inflation could be a concern if unexpected rises occur. I personally, haven't hit the panic button in this regard, so of course, I'm a little more optimistic then some. I have yet to conclude a massive rise in inflation will occur in the near future or within a timespan of reasonable guesstimation...
I do think that inevitably, inflation will be our demise if we remain a fossil fuel based economy and the sooner we make a sustainable energy production and consumption economy the better... Hence, my specific investments in Scty and tsla.�
1/1/2015
guest Good luck with that.�
1/1/2015
guest Just read Solarcity PV systems produced 3GWs of energy in a single day over the weekend and 1 billion KWs in total output thus far. This time last year, they produced 1.7GWs in a day... Pretty impressive growth where it matters it appears...
Infographic: One BILLION Kilowatt-hours of Clean Electricity
What's in a 3GWh Day?�
1/1/2015
guest Chandler adding more solar projects
Chandler, AZ prepaid 20 year ppa contract with Solarcity April 10th. Interesting article for SCTY critics and supporters alike.
update: I have noticed from SCTY lease/ppa contract holders in various article comments receive sometimes 3x the amount of energy they paid for over the course of a year. It is interesting that Solarcity does not charge them for the overproduction, but will pay the difference if it underperforms. Wonder if the competition does the same... Also wonder if this supports lease/ppa over system purchase in the wider market going forward...�
1/1/2015
guest Colorado solar advocates speak up for net metering
Relevant risk of net metering changes: Xcel energy seeks to pay wholesale instead of retail prices to PV system owners in Colorado... If this happens, big problems for entire solar industry in Colorado.�
1/1/2015
guest Solar Summit 2014Greentech Media
Solarcity COO, Tanguy Serra, will be speaking at the Solar Summit this week on Tuesday, April 15th, at 9:30AM(PT). Could be interesting what he puts out there, maybe a hint here and there on some early Q1 numbers or Q2 outlook and beyond...
this, to my knowledge, is the first time he's spoken at a conference of this scale as a SolarCity exec, so, could be interesting in itself to see how he thinks and/or sees the future of Solarcity and solar in general...�
1/1/2015
guest This Week in Solar
It is interesting to see the argument of rising module costs as affecting Solarcity in a significant way... however, Solarcity itself has said in the Q4 conference call (and in previous quarters conf calls and briefs), that even as module costs have "stabilized," overall costs have reduced ahead of the planned 5.5% annual cost reduction rate... so much ahead, they've reduced costs over 30% in 2013.
That means, to me, they are doing a lot more cost savings in other areas outside panel costs...significantly more...
I've read that cost reductions in "balance of system, all payroll, customer acquisition, legal, and other overhead..." have made and continue to really drive things for Solarcity. In addition, below is from card 8 of Q4 presentation:
Reduction in Project Cycle Time Lowers Costs and Improves Customer Satisfaction:
*10 new operations centers in CA doubles presence in state to within 30 miles of >90% of the population.
*With additional openings in Blackwood, NJ and Seaford, DE, total operations centers up ~50% in 2013 to 46.
*Las Vegas facility centralizes account management and provides superior customer experience.
*Tanguy Serra promoted from EVP of Operations to COO as co-founder Peter Rive focuses exclusively on CTO role.
So, will a future potential 20% increase in module prices affect Solarcity's ability to continue 5.5% annual cost reduction plan? In my opinion, no it won't. Therefore, I think the focus on module prices is misplaced and should focus more on the other areas of costs reduction in order to figure out if growth will slow or accelerate going into 2015....�
1/1/2015
guest I'm new to this board and just spent the last 2 days or so reading the 23 pages of replies on this subject. I have a lot to say about this company and how I envision it growing massively over the next 5-10 yrs. I see a lot of fighting about perceived "risks" and a lot of that is just pure fear due to lack of imagination by the naysayers.
Lease vs. PPA: Many people do not have the money to buy nor the time to maintain the system. 33% market share and most of it being leased is proof that leasing option is preferred. I'm the type of guy that will not lease anything, but I"m a risk taker. My 65 yr old mother would never buy a solar system, but she'd surely lease one without a doubt. There is no argument to be had on this subject. Car leasing is a perfect example of why there is no reason to argue about leasing ANYTHING.
20 years from now: Why is everyone so worried about 20 yrs from now? These solar panels are assets to SCTY for the entire 35 yrs they should be operational. If 90% of the people renew the lease at the 20yr mark, that means 10% did not. So worst case scenario is SCTY will take the solar panels off the roof and either lease them again to a governmental agency, another homeowner or just sell them to the highest bidder. That may be a local installer or a DIYer who wants to put up their own system. The best way to increase the 90% re-lease rate is to offer a discount for the last 10-15 yrs left on the panels. Instead of being at 10-15% savings over local utility maybe they can increase it to 20%.
Inflation: Everyone experiences inflation and some of the worst inflation over the next 20 yrs will be gas/oil/coal/nuclear. This actually helps SCTY, not hurt them. As the price of fossil fueled energy increases and the cost of renewables decrease, it makes the shift towards renewables even easier 20 yrs from now. I actually saw someone argue the point that we don't know what fossil fuels will do in the future. It's a sure bet they will be much more expensive 20 yrs from now.
Book value vs. SP500: I really enjoyed the calculations used for the book value argument vs. the SP500. If book value for SCTY happens to be 8x today and growth is 70% compounded for the next 5 years then compare that to SP500 book value at 3x with minimal growth rates. What's SP500 growth rate expected to be for the next 5 years??? 10%? 15%? It's a long ways from 70% and it's not a fair comparison to suggest 8x book being expensive when 3x book on the SP500 seems fair today.
Sourcing panels: In 20yrs (or much sooner) I'm sure SCTY will be creating their own panels to shakeup the marketplace. It's very likely that they could buy a panel maker, redesign them slightly and put them out on the market under their own brand. They will be the leading installer so why not brand their own and become a leading manufacturer? They can build a gigafactory of their own right next Elon's battery factory for all we know. They have mastered installing/servicing/financing panels, why can't they start producing them as well?
Volatility: The stock price volatility can easy be seem by people panicking whenever news comes out that is not perfectly foreseen by the market. Even the smallest news can move the stock 10% in a day and most people cannot handle that volatility. Most short-minded traders can't handle watching a stock rise 200% without being tempted to short it just because "it's too high". Usually those types of folks are stampeded on the way up when a company continually hits their goals over and over. If you do not understand this stock, don't short it. The longs outnumber you and you're going to lose big. Wait until the company starts missing it's goals before you grow hostile and try to take it down.
Tax credits: Once 2017 rolls around the 30% drop to 10% is not going to be a big deal to solar's growth. Keep in mind by 2017 we should see all energy prices higher and solar panel cost lower. The #1 marketing tool for SCTY right now is referrals. By 2017 as SCTY penetrates deeper in the 14 states it services, people will jump on the leasing bandwagon and cut back on fossil fuel energy. If SCTY keeps a referral program in place this will help spread the word and keep the 70% forward looking growth targets in view.
Labor growth: Mr. Rive in one of the videos posted in this thread made an interesting point that every 6 months they can almost double their installation crew. Junior crew members quickly learn how to install the system fast so they become Sr. crew members and possibly within a year could be running their own crew. I do not see a reason why SCTY cannot keep growing at 100% growth as long as the labor force and panels are available. The market is certainly there and the price is right. Just because SCTY keeps doubling doesn't mean it has to stop being "it's too large". 1 million installations out of 42 million roof tops is a HUGE market. Everyone should be thinking much bigger numbers. Everyone has a cell phone today but 20 yrs ago very few had them. When 25% of the homes are covered in panels THEN I'll start believing in the saturation theories people whine about.
Recession: This has to be the one arguments that I happen to believe is very weak. A recession would be great for SCTY. People want/MUST save money during a recession. What's the fastest way to save money --- have your electricity bill cut by 10% or more? SCTY will increase market share during a recession out of the sheer number of $0 down loans that will dry up for the other panel installers. The banks will cut back on lending and not fund panel loans or home equity lines. This will hurt the local installers that cannot lease their systems. Anyone not leasing systems during a recession will lose their potential customers to SCTY. I cannot think of any reason why a recession would hurt SCTY unless ABS dried up. Why would ABS dry up? It's less-risky than a conventional mortgage. People pay their electric bill before they pay the mortgage. It's a 20 year low-default rate debt that is likely never going to be refinanced. Mortgages are good for 9 years on average and we all know default rates on mortgages are high during recessions. The money for ABS is never going to dry up.
Storage: The battery technology will help SCTY keep it's edge over the competition. It's the main thing that actually sets them apart from the rest in the future as others will adopt the leasing program. It's hasn't come to reality 100% yet so I think most people are discounting whether the battery production will happen or not. If netmetering is cut back in 2017 there will be a huge rush to SCTY if they can provide those batteries in time, whether free or added value leases.
I am in the mortgage business and over the past 25 years Quicken Loans has taken as much at 80% of the online market share for mortgages. Let's not pretend 33% for SCTY is a high number. It can go higher. I believe it will go higher. It's an industry were efficiency and service will dominate, not the "quality" of the panels. If SCTY is viewed by most as being the best servicer of their energy needs and they are efficient at delivering the panels quickly then they should dominate the field. These mom/pop shops are never going to gain traction to gain market share. They just don't have the technology or experience to compete with SCTY. I believe the industry will consolidate as time goes by. The 80/20 rule should be in full effect soon whereby 80% of the solar installations will be done by 20% of the companies offering the service. When you have a SCTY office within 30 miles of 90% of the CA population, you have the entire state covered. I believe that's 12% of the entire population of the country already covered by the SCTY net. Which state is next?�
1/1/2015
guest @TheBanker - welcome to the site and thanks for your post. Just curious, how did you find this site?
@futureproof - thanks for your posts as well. Also curious how did you find this site?�
1/1/2015
guest I really don't recall how I got here. I scour the net for anything that has news on SCTY. I may have been pointed over here from a comment on SeekingAlpha SCTY post.�
1/1/2015
guest Welcome to TMC. Just a heads-up, coming in with your first post suggesting experienced investors here are scared because they lack imagination is not so cool. Many people here have been investors in Tesla since the early days, that has required plenty of imagination and plenty of guts to stick with it.
Discuss the merits, leave the personal stuff out of it. Thanks.�
1/1/2015
guest @thebanker, wow, big post, like it... My favorite quote: "It's an industry were efficiency and service will dominate, not the "quality" of the panels." I echo this sentiment. Hope to read more of your "mega posts."
@davet, I've been lurking since 2012, not much for posting on too many sites, but was motivated to start here recently. Hope to hear more of your "mega" thoughts on Solarcity as well...
Solar panels to save Long Beach Unified $2 million over next 25 years
i think this is another ppa contract, but for 25 years? 805kws for long beach school district up and running at the end of March. This is another long term, high quality, reliable revenue stream that will pull in further low cost ABS in the future....�
1/1/2015
guest SolarCity's Musk Ethos
Just got done reading through all the pages here. I'll start sharing some of my SCTY thoughts here. I've posted some long posts on SCTY in the past (on the old thread) so it kind of feels I might be re-hashing some of what I've posted in the past. But we'll see where it leads.
Here's a few starter points:
1. International expansion - one thing that people are missing here on this thread is the inevitable international expansion of SolarCity. In a recent conference call, Lyndon Rive noted that they've discussed international expansion in the past and it's likely to come this year. They'll probably acquire an existing company in a target overseas country and basically re-brand that company into SolarCity with all of SolarCity's systems (ie., marketing, ordering, system design, installation, maintenance, financing, etc). This will allow them to expand much quicker than if they were to start from scratch in another country.
2. The Musk ethos - Tesla, SpaceX and SolarCity all have a religious fervor to cut costs on all levels through constant and unending iteration. This is the main competitive advantage of SolarCity. One example is with their acquisition of Zep Solar (ie., see mount installation, Zep Solar ZS Tile Installation video | RENVU.com - YouTube). Solarcity installation teams are now able to install 2 systems in a single day with Zep's fast-install mounts. And with the Musk ethos, they will continue to improve their mounting systems even further.
Some people look at SolarCity as an installation company but I think that's missing the point. SolarCity is really just getting started. Here's how I look at their evolution.
1. Early stages (2006-2011) - discovering how to thrive in the solar industry. Focus on the high value-add first (ie., bringing down costs of design, install, finance, etc).
2. Ramp (2012-2014)
- scale lease financing (ie., raising funds, etc)
- bring down customer acquisition costs (ie., acquiring Paramount Solar will help)
- automate via software (ie., internal processes, customer management and customer portals)
- ramp installation (ie., massive expansion of installation teams, acquisition of ZEP solar mounting, etc)
3. Ramp #2 (2015-2018)
- continue cost reduction efforts religiously on all fronts (customer acquisition/marketing, design, installation, equipment, maintenance, etc).
- continue to scale lease/PPA funding, maybe even crowdfunding (ie., SolarCitys acquisition of Common Assets points to a new investment strategy - Local: In The Peninsula )
- expand internationally
- reach 1 million customers
Also, this is speculation but I think within the next 1-2 years that SolarCity will get into their own inverters (either release their own or acquire an existing company). Lyndon Rive hinted during a recent conference call that they wouldn't do micro inverters but could do inverter(s) mounted at the side of the roof (my paraphrase). I envision SolarCity's new/future inverters to be possibly some kind of micro inverter (but maybe not as small as current micro inverters, so maybe "small" inverters) that are mounted to the side of the roof and can be easily expanded. For example, if SolarCity needed to add several more panels to an existing system, they could add one or two of their "small" inverters to the system to add more panels. Basically, these "small" inverters would work similarly to micro inverters but they wouldn't need one for each panel (maybe one for 5 panels or so) and they would be chained together so you could add as many panels as you want in the future. One of the current disadvantages of micro inverters is that when they fail it's a pain to replace (since their attached to a single panel on the roof). By installing their own "small" inverters on the side of the roof/house, it'll be easy for Solarcity to replace any failed inverters and they can add more inverters/panels as well. It's the best of both worlds.
Ironically, I don't think Solarcity will get into making their own solar panels. I think they'll be taking over every other part of the process (ie., marketing, design, installation, mounts, inverters, monitoring, etc) but I think they'll leave panels to other companies since I think panels are/will be a low-margin business and it's advantageous to have access from multiple/many suppliers.
4. Ramp #3 (2019-2025)
By expanding internationally, Solarcity will probably be able to expand to 5-10 million customers by 2025 or so. This is my speculation but it's based on me betting the SolarCity will have the lowest costs and will offer the best overall product (ie., ease of signup, monitoring, transfer, scaling battery storage, etc).
5. Ramp #4 (2026-2040)
This is when it gets really juicy with stationary storage becoming much more affordable. If SolarCity can continue their cost reduction efforts (ie., with the Musk ethos) and iterate religiously, then they will become increasingly dominant in residential and commercial installation. I can see SolarCity eventually have 50-100m customers by 2040 (ie., remember international expansion).
Another huge area of possible SolarCity profit expansion is into the home improvement arena. Since SolarCity is monitoring energy production and usage, they can recommend various home improvement items to make one�s house more energy-efficient. For example, new windows, insulation, tankless water heater, attic fan, HVAC, etc. Initially, SolarCity can make money off of referral fees but eventually I think this part of the business can be very large and thus SolarCity would probably want their own division installing and maintaining these items. Their main competition in this field is probably Nest (recently acquired by Google).
SCTY vs Chinese Solar
I know there�s a lot of folks here that are invested in Chinese solar. Here are some thoughts on SCTY vs Chinese solar. I like certain Chinese solar companies - most notably, CSIQ� and TSL and perhaps JKS. The most important factor I look at is management and how these companies are approaching their growth strategies. In my opinion, I think the panel business is limited since it�s very crowded and it�s somewhat of a low margin business. However, I like CSIQ, TSL and JKS not because they are solar panel manufacturers but rather because they are aggressively entering the utility-scale solar installation field. This utility-scale solar arena is much higher margin than panel production and there�s a huge future ahead for the companies that can deliver a strong product/offering in this field. So far, the Chinese companies like CSIQ, TSL and JKS have a lot of advantages in that they are integrating the complete panel/module manufacturing process and achieving some really amazing low costs. They can then leverage this to offer utility-scale installations are very attractive prices. To me, this is where the largest growth will happen with certain Chinese solar companies. In other words, I don�t think the panel business alone is sexy enough (ie., not high enough margin and is not growing fast enough) to justify high multiples when valuing these Chinese solar companies. However, when these companies are able to grow rapidly into utility-scale projects, I think margins will improve and the companies will look more attractive. They can continue to grow their panel business as well by building more plants and by acquiring other companies.
The Chinese solars have had a huge run in 2013 and have rallied from a place of being grossly undervalued to being maybe slightly under-valued (and certain companies being already fairly valued). Certain companies still probably have some way to go to become fairly valued but the majority of the huge run toward being fairly valued probably has already passed. (Note: I�m not saying companies like CSIQ�s stock won�t increase a lot, I�m just saying not as fast as in 2013. I can see CSIQ doubling or more from it�s current $25 price within a year, so I think companies like CSIQ are actually a very good near-mid term investment if you�re looking 1-3 years out. Actually, I recommend those wanting to invest in solar to check out CSIQ. I think they have the best management among non-SCTY solar stocks and their prospects look very good. Also, currently CSIQ is off 44% from it�s all-time high. I love buying great companies when they�ve fallen at least 40% from their ATHs. CSIQ, I think, can be a great enduring company and I�d choose it over TSL, JKS, SPWR, etc.).
So while I�m a big fan of CSIQ, I�m a even bigger fan of SCTY. In my opinion, SCTY has better management and they�ve got a better business model (at least with residential and commercial). Here�s how I look at� the solar industry is growing at a fast rate, but there�s limited profit to be made. By �limited� I don�t mean small but rather that companies need to have a good business model to extract profit out of areas of high value-add. In other words, even though solar is growing fast not all companies will make a lot of profit in the field. Rather, it�ll likely be a few big winners that take the majority of the profits in the solar industry. It�s easy for a company to release a product in an area of low value-add (ie., something that everyone else is already doing) but they�ll be faced with huge obstacles in extracting large profits. So, the key in the solar industry is for a company to analyze all the possible areas to extract profit from and to choose the areas that offer the highest value-add (ie., in other words, areas that other companies aren�t excelling at and there�s still a lot of margin to be made).
SolarCity, directed by the insight of Elon Musk, chose to go after not panels (or equipment) but after the rest of the solar system for residential and commercial. In other words, they saw solar panel manufacturing as an area where companies are already competing aggressively in and where margins where already low. Further, the bulk of the extraneous cost of a solar system lies in the other parts of the system - marketing/customer acquisition, design, permits, installation, etc. So, SolarCity decided to go after the non-panel (and non-inverter) parts of a solar system in hopes that they could go weed out the greatest existing inefficiencies in the system and thereby achieve the highest margins. One of their first/biggest problems to solve was the lack of funding available for house owners to install solar systems. Through their various funding vehicles SolarCity has managed to put together an impressive system to fund and lease solar systems, and they�re doing it better than anyone else in the business. Besides funding, SolarCity also has invested huge amounts of resources into developing their own systems to manage customer acquisition, internal process, design and permitting, installation, monitoring, etc. Further, with the acquisition of Zep Solar last year, SolarCity is now going into some of the hardware of the system (ie., mounts). I expect SolarCity to continue as I mentioned above to expand in this hardware area with inverters.
SolarCity�s value-add to the customer is they�re saying, �We�ll give you clean energy at the cheapest price with the most convenience.� This might sound all good, but it�s extremely difficult to do. It�s a very high-value add when you combine all the areas that need to be done right to achieve this end goal/result.
Now, some might disagree with SolarCity�s value-add proposition, and I can understand. If one purchases a system outright, typically it likely works out to be a better deal over the long-term. In my personal research, I�ve interviewed several local installers and I found they charge a very large markup for their services. I�ve looked into the possibility of just buying a solar system kit (ie., panels, inverter, mount, etc) and what it would take to do the design/permit process myself and have an installer just do the installation. But it turns out to be quite complicated and that�s why solar installers typically charge a very large markup.
Also, while some people have access to funding themselves (ie., cash, HELOC, etc) others aren�t so keen to take out a loan or to use cash that they might not have to outright purchase a solar system. Granted, if you have a lot of cash laying around purchasing a system makes a lot of sense.
Some people view SolarCity as mainly a financing company, but I disagree. Financing/leasing/PPA is one of the key aspects of the company, but the main ethos of the company is to drive down costs in all areas to offer the most appealing product possible to the customer.
Generally speaking (of course there could be exceptions), currently no other company does solar financing (on a large scale) better than SCTY. No other company does design, permitting, and installation more efficiently than SolarCity. And no other company offers a more convenient experience than SolarCity.
As SolarCity improves all areas of their business (financing, marketing/customer acquisition, design/permitting, installation, mounts, monitoring, offering other home improvement products, etc), their value-add proposition (We�ll give you clean energy at the cheapest price with the most convenience.�) will grow stronger and stronger. This will be the key impetus in driving their future growth to millions of customers (hopefully).
Risk Factors
Now there are important risk factors with SCTY. One can read their annual report and find a whole list of them. However, I think the key is the rate of customer acquisition. Let me explain.
In order to justify super high earning multiples in their valuation, SolarCity must exhibit very fast growth. It�s SolarCity�s growth that makes it a sexy stock (ie., hopes of world domination, etc). However, if their growth slows and, for example, they aren�t able to hit their 1 million customer goal by mid-2018 then the stock could get hit hard. (Note: SCTY's stock price is factoring in future growth several years out and will continue to go higher if growth continues at a rapid pace but will get hammered if growth slows/tapers more than expected.)
One of the key weaknesses in the SolarCity business model is the high customer acquisition costs. SolarCity doesn�t have a very viral product. Sure, there�s some word-of-mouth referral but the majority of new installations come from their aggressive marketing and customer acquisition campaigns. In Q3 of last year customer acquisition expenses worked out to be about $2000/customer (SolarCity - Crisis or Opportunity? | Alternative Energy Stocks). One of the reasons, SolarCity spends this much money to acquire a customer is because IMO SolarCity�s offerings aren�t super sexy. In other words, if they were super sexy (ie., super cheap, etc) then customers would be raving about them and evangelizing all their friends. However, since this isn�t the case, SolarCity needs to spend money to acquire customers and it�s not cheap.
One of the reasons SolarCity�s offering isn�t viral is because it�s a very mundane product and proposition (ie., save some money on your energy bill). It also largely depends how much a person will save by switching to SolarCity from their current energy provider. If everyone could save 40% of their energy bill by switching, then SolarCity probably wouldn�t need to spend anything on customer acquisition because people would be flooding their phone lines. However, when/if SolarCity only saves them 10-15% of their energy bill, then it becomes much more of a hassle to switch to SolarCity (because of the perceived unknowns of a solar) and thus SolarCity needs to spend a lot of money to educate and persuade.
So, can SolarCity keep driving down costs and pass it along to its new customers to make their offering more and more attractive over time (thus making the product more viral and driving down customer acquisition costs? I think they can but it will be challenging.
Also, owning a solar system is inherently more sexy than leasing a solar system, especially as long as there�s net metering (ie., California passed a regulation where people can keep net metering for 20 years as long as they install their systems by mid-2017, California says current solar owners can cash in off their excess power for 20 years | 89.3 KPCC). If someone (or some company) can figure out a way to allow people to own their own solar systems in net-metering friendly states and to do so with easy/competitive financing, then this could be very appealing (and could become viral). I�ve thought about this quite a bit and it�s quite a big challenge. There are certain cities/counties where attractive funding/financing for solar already exists. In those areas, I think companies could provide a path to solar ownership for customers that might be more appealing than what SolarCity can offer. But in the majority of cities, there needs to be some very aggressive way to lower costs of design/permitting/installation. One can already buy a solar system kit (panels, inverter, mounts) for fairly inexpensive. If there can be a way where people can crowdsource (or open source) the design/permitting process and even open up installation to a super efficient bidding system, then it might be possible to drive down these design/permitting/installation costs to make it much more affordable to install a solar system. In other words, I think SolarCity could be at risk but something revolutionary and scalable needs to be created to make affordable solar ownership a reality. To me, this is probably the biggest risk as a SCTY investor.
Early on in the thread sleepyhead was making a point that owning solar is better (ie., more appealing) than leasing. I think he was trying to address this risk factor for SolarCity, meaning if there�s a cost-competitive way to own solar than it�s more appealing to the end customer than leasing. I think this is a valid point. For someone to have a fully-paid off solar system is very appealing, especially if they�ve got net metering for the next 20 years guaranteed (ie., in California). In 20 years, stationary storage will be much more affordable and as long as someone has the money they can go completely off the grid with a large enough stationary storage unit. Now, that�s sexy.
The reality though is that most people will probably not be owning their own system but rather be buying energy in a similar manner as they do now, except the new utility will be SolarCity and the energy will be clean and cheaper. But again, if there was an easy and scalable way to own solar for the average Joe who has very little in his bank account, then yes that is a risk factor for SolarCity�s business model. I don�t think it ruins SolarCity completely (as there will probably always be a sizable leasing/PPA market, but it sure will put a damper on things). I think the risk is low to moderate since there�s a capital cost to be paid for a solar system and that cost needs to be paid over time, and that financing usually doesn�t come for cheap, meaning there�s an interest rate and cost to be had. So, if someone doesn�t have cash up front, then they�re going to be paying monthly payments and that�s an arena that SolarCity plays well in.
In the event where there�s a disruptive, revolutionary business model where it allows people to own their solar system via affordable monthly payments, then SolarCity could adjust it�s model to compete. However, where it gets tricky is if the disruptive/revolutionary model is so disruptive that it uses crowdsourcing/open-source/transparent-bidding to make the design/permitting/installation process much cheaper. In other words, a new disruptive model could basically suck the majority of the profit out of the design/permit/installation process (ie., opensource/crowdsource the design and permitting process and have a transparent bidding system for installation) then there might not be much profit to be made for companies like SolarCity. I think the likelihood of this happening in such a manner that it displaces SolarCity is low but it�s something that should be acknowledged and considered.
SCTY at $53.70
So, I�ve shared some pros and cons of SCTY as stock and company and I�ll end with some final words on the stock price. SCTY closed at $53.70 last Friday, down 39% from it�s all-time high of $88.35. While I don�t have time to share about a valuation model for SCTY in this post (I might do it later), I can say that I like buying stellar companies when they�re on the operating table (Warren Buffett quote). Who knows how far SCTY will drop with the current market correction happening but at these levels (especially at almost 40% from the ATHs), I think if you�re a big Elon Musk fan and you don�t own any SCTY, then I�d say it�s a decent time to get in and buy some SCTY shares. Sure, it could go lower (ie., $50 or even $45 but chances are fairly low it dips under $45 IMO) but then again it could recover as well. Nobody really knows. But in the long-term, I like having a position in SCTY because Elon Musk is chairman of the board and largest shareholder. He inspires the companies with his values and the Musk Ethos has brought SolarCity this far and it will likely lead it to much better places ahead.
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For reference, here's some old posts I wrote on SCTY from several months ago. Some of it might be outdated since SCTY has released better info since but it gives some more background on my thoughts with SCTY.
Understanding SolarCity (8/13/13) - Alternative Energy Investor Discussions (formerly SCTY thread) - Page 74
More thoughts on SolarCity (8/18/13) - Alternative Energy Investor Discussions (formerly SCTY thread) - Page 76
SCTY�s focus to drive down costs (11/6/13) - Alternative Energy Investor Discussions (formerly SCTY thread) - Page 208�
1/1/2015
guest Thanks for the excellent analysis, Dave. I'm considering dipping into SCTY myself as an Elon play regardless of my reservations about the long-long term viability (10+ years) of the leasing vs. panel sales model, but am already fairly significantly into Elon with TSLA and haven't jumped in yet. Always value your well-reasoned analysis.�
1/1/2015
guest Agreed, thanks for the analysis DaveT. I have some comments/questions for you, but don't have time to post them now and will try to do so later.
@FluxCap - I don't have any worries that the lease model will survive, but if it doesn't then SCTY can very easily transition back to selling systems instead of leasing. My biggest long-term question market with SCTY is that their lease model is going to have to significantly reduce margins in the future, because those are not sustainable as competition moves in. Their business model has no proprietary advantage and anyone with deep pockets can easily replicate this business model if margins are too high. Case in point is Vivint, who went from 0 to second biggest installer last year; because it is backed by deep pocket private equity firms.
Lease or sell - SCTY can do both. I am sure that the company will prosper and the stock will go up, but once margins contract I do not expect no 5-10 bagger out of SCTY in 5 years like some people here are expecting.�
1/1/2015
guest I hear you on that, but I continue to wonder about the business model. My current theory is that if panel prices come down to levels that make installation on new/existing homes a super-desirable/no-brainer perk for home buyers, then it seems that companies that have branded themselves as installers with great service, support and prices might fare better than companies that branded themselves as primarily leasers in the longer-term (i.e. 5-10 years out).
I have little doubt that Elon will work his magic as long as he is involved in the company though, and the potential for valuable "cross-pollination" with Tesla Motors is certainly significant.�
1/1/2015
guest I know what you meant, but wanted to point out that panel prices are already cheap ~$0.60 - $0.70 per Watt in the US, but SCTY installs and sells systems for $4 - $4.50 (from the quotes I have seen). So panels make up only less than 20% of the cost, while the rest is BoS costs and other soft costs. BTW, GTM research is predicting panel costs to go up to $0.80 - $0.85 in the US in the second half of 2014, because supplies are going to run low as panel manufacturers won't be able to keep up with demand if the economy holds up.
In the near future, residential systems will be installed for ~$2/watt. Theshadows already installs them for ~$3/watt today.
This is a problem when investing in the solar industry, because prices will come down as technology scales and gets cheaper, but also when permitting and other costs (such as financing) come down. You need to grow in size by 20%-30% per year just to keep revenues flat YoY. This applies to all companies in the solar industry.
So SCTY is selling systems for $4/watt today and will be selling them at $2/watt in the future to stay competitive.�
1/1/2015
guest Does anyone know what the current spread is for the average SCTY lease vs. the average electricity rate?
For example, if SCTY is charging .08/Kwh and most utilities average .14/Kwh then the "spread" is .06.
Over the next year or two as the economy picks up and costs continue to decline for SCTY, shouldn't this "spread" widen? Utility rates always go up during economic growth, at least for the past 10 years. Assuming this spread widens .01/Kwh every couple years, shouldn't this cause people to move to leasing even faster than they currently are?
I don't see how the "margins" are going to decrease. No competitor entering the leasing segment of solar is going to be able to do it cheaper than SCTY due to size alone and the lack of a track record should keep their capital costs higher than SCTY in the ABS market if they go that route.
I don't think people are factoring in the rising costs of fossil fuels enough. Any risks to SCTY regarding a more competitive solar business should be offset by rising utility rates.
If SCTY just cuts their costs by 3% a year and utility rates go up by 3% a year that really helps speed up the decision to make the switch to solar. This should bring down SCTY's marketing costs as well. I see an enormous positive feedback loop here if you can imagine all the moving parts in both the fossil and renewable costs. They are headed in opposite directions.....�
1/1/2015
guest @thebanker, agreed. Maybe COO Tanguy Serra could shed more light on this utility vs. solar costs tomorrow at his 930 talk... I think this is one of the topics of discussion for his session.
Also, i think it will be hard for us to compare $/watt without having two competing contracts to view here. Please provide links. Until we do that, very hard to accept statements point to one company or another being a better value to a potential customer than Solarcity... also, every state has different pricing and values so difficult to use just one contract to normalize all the rest... Maybe the only way we can see if Solarcity lease/ppa isn't working or not being a value add to customers is by reviewing the q1 numbers on bookings as well as lease/ppa revenue vs system sales. Does anyone have any other suggestions on how to track/validate ppa/lease success vs. the wider market of system sales?
@davet, thanks for the great post, enjoy hearing your thoughts in such detail... I agree about international expansion. I think Zep will be the initial method of how they will expand into foreign markets. Management seems to indicate japan being a primary target, as well as Australia.
A Tribute to Zep Solar
Can't forget that zep acquisition has made Solarcity a manufacturing company as well. The mounting system scaling will be cheaper, more innovative, and responsive to changing tech and market conditions. Plus, they can sell mounting systems to everyone else, and as the industry grows, this could turn into a lucrative profit center in unto itself.
I have to disagree on the effectiveness of word of mouth referrals... Lyndon rive has said referrals is a huge part of the business... Over 40% of its current business. So, I think if one person in a community gets Solarcity, you tend to find the rest of the block will go Solarcity as well... This is key to their continued compounding in my opinion... I feel over the course of this year we should see a nice reduction in acquisition costs ... Maybe reflect best in the future q4 numbers I think....�
1/1/2015
guest I am not familiar with the cost of leasing in CA vs. the electric utility. Maybe someone involved with a SCTY lease in CA can chime in. Instead of looking at a 10% discount, maybe think about 10% turning to 11% into 12% and just seeing the spread widen over the next couple of years. Commodities have sold off (uranium/coal) and NatGas has turned higher in the past 18 months. I don't see NatGas going lower and coal has definitely bottomed for the foreseeable future provided we don't end up in another recession. Uranium is turning up as well since Japan is turning the reactors back on soon. There's no doubt in my mind utility rates will keep climbing with GDP 2%+.
I think I read it's taking up to 4 months to get a SCTY system installed. That shows margins are very healthy. We shouldn't worry about margins until it's taking < 30 days to get a system installed. Same goes with delivery of TSLA cars. It's funny people are talking about TSLA auto peaking in the US already and they don't realize they can't build right size/left size cars at the same time! The time delay to put panels on the roof is the best indicator of healthy margins in my book. I would also assume leasing is 65% of the business and should stay that way regardless of price. If leasing were to drop to 50% of installs I'm sure SCTY would drop the leasing rate accordingly.
If SCTY doesn't already have one, they should consider developing a long term maintenance contract for those that do buy the system. Basically insurance. Everyone loves insurance.
Does anyone have any details on the time it takes SCTY to install panels now vs. 1 year ago? For example if it took 3 months to install panels a year ago and 4 months to install them today, that would suggest stronger growth momentum. The number of units in backlog doesn't matter cause the install crews are growing fast. Any links to track this backlog would be appreciated.�
1/1/2015
guest @thebanker, I think the rate has increased from .4 installs/crew/day to .9 installs/crew/day. (Bob Kelly Roth conf. 2014). This is over 100% improvement from before zep acquisition to march2014. I also think I remember lyndon saying at CPUC talk with Elon that they are at or near the 3 month mark from contract to finish now. If that's the case, we could start seeing booking and completion date happen in the same quarter which would be a big milestone, IMO.
from my estimates based on 1.51/watt retained value and knowing the total number of MWs, the backlog is currently at roughly 129MWs(I'm out of town right now so I don't have the number in front of me right now so off the top of my head). If this is anywhere near accurate, it shows they are really chipping away from 2012/2013 backlog and are now getting to the point accelerating bookings through expanded marketing. I remember lyndon saying saying he was excited to really let paramount opening up its m&a efforts in order to bring in the bookings... Based on the the record q1 bookings thus far, looks like it might be working. Lyndon did say the installing capability now supports increased bookings, so we might see higher install numbers for q2 guidance.
If they follow their current pattern, they should guide for 98-102MWs installed for Q2... Anything over this estimate will indicate they will deliver over 525Mws by year end, IMO...�
1/1/2015
guest I think we are talking about separate things. I was talking about the backlog in terms of contract to install delay. I realize the crews are growing fast so the size of the backlog is meaningless. In terms of customer service a short backlog is excellent.
If you know anything about the CA energy market, I'd love to know the spread between the cost of leasing a system per KwH vs. buying from the utility. Keeping track of that spread would be interesting to see if it widens over time, increasing the "discount" leasing customer gain from leaving the utility. I am not a customer so I'm not familiar with the contract rate for leasing in CA vs. the utility rate.
Someone please post any link to any video of tomorrow's COO speech. That sound be a very interesting video or transcript.�
1/1/2015
guest Agreed. Look at the following picture of my community. I was the first one to sign up with Solarcity and referred 11 more systems.
�
1/1/2015
guest 400 solar business professionals were surveyed and majority vote showed the #1 method of which consumers will obtain PV systems is through lease/ppa...
Twitter / greentechmedia: RT @mikemunsell: Heres 400 ...�
1/1/2015
guest IMO, this is the risk issue for SCTY. The system I recently installed with a local company here in SWFL cost me $2.72/watt all inclusive. Now admittedly I didn't have any option to lease but with the federal tax credit and the local rebate my system will have paid back in exactly 2 years. I installed Axitec panels and SMA inverters, so good quality stuff.
Brand, and leasing options, can take SCTY a long way but they have to be able to compete a little better than $4/watt if that's where they are right now.
�
1/1/2015
guest Beautiful looking system there, and 2 year payback period is just WOW!
I know that a reputable TMC member got a quote from SCTY that was above $22k (can't remember how much exactly) for a 5kW system. I have read articles that the average price for a residential system installed in the US in 2013 was around $4.40 per watt which was a ~20% decline from 2012 when it was above $5. I think that there is no reason that the average is so high when you got your system for $2.72/W and Theshadows once posted a similar $2.70/W quote here on TMC. I got my system for $2.50/W installed and a ~5 year payback period.
I think that the only reason why these systems are still averaging $4.40/W is because of the uneducated consumer. Like I said, when SCTY comes knocking on your door and offers electricity at $0.08/kWh, it sounds like a great deal when you are paying $0.12/kWh or more from your local utility. So people sign up and SCTY's "system cost" ends up being above $4/W, which allows them to maximize tax credits too. If the customer knew that he could get that same system for $2.70/W and get a 5 or 7 year loan from a local credit union at 4%-6% and pay ~$0.03/kWh for solar generated electricity rather than $0.08 offered via a lease contract, then that person would most likely at least reconsider signing that lease.
There is no reason why the national average is above $4/W when you can get these systems installed for under $3/W by local installers. Econ 101 says that these costs will converge and we will see avg. residential system costs below $3/W fairly soon. In that same article Germany is already down to $2.21/W for residential systems.
Here is an article about Germany $2.21 vs. US $4.93:
http://cleantechnica.com/2013/12/06/getting-bottom-us-germany-solar-soft-cost-differences-make-solar-cheaper-us-germany/
$2.16 cents of those costs are financing costs, which lines up the pockets of SCTY and Goldman Sachs, while the actual customer loses the vast majority of the economic benefit of having solar on their roofs.
Customers will get more educated on solar, I have no doubt in my mind. They will demand better pricing as competition heats up.�
1/1/2015
guest My payback was positively impacted by a winning a 60% rebate in the lottery with our utility provider. That said, the local installers around here all let you sign an installation contract with a rebate clause (i.e. no rebate, customer has a no-fee cancellation right).
On that pic you can't see all of my system, there's more on the opposite side of the barn on the right, but system size is 29.0kW (116 panels and 4 inverters) with a complete installed price was $79k.�
1/1/2015
guest And I think, only reason people buy out right is because they can't do simple math.
See we both can play the same game..
like I and some one other in TX said in previous posts, We are getting $0.03/KWH not $0.08/KWH from Solarcity.
but Seriously, 2 yrs pay back period, I will also buy.
5 yrs is pushing it, as I am not sure, I will be in my house that long.�
1/1/2015
guest Sleepyhead,
I see you are from TX. Have you ever heard an oilman say that TX oil should be sold for 10-20% above the cost of getting it out of the ground or is it safe to assume they are selling it at the current market (demand) price?
The truth is, SCTY has a 90-120 waiting list to get the solar system installed and 60%+ is leased. You're trying to tell everyone you are right and they are wrong. You are also comparing apples to oranges because all these low-cost scenarios you keep on about are for purchasing panels from the right source and exactly the right time and put in place by the installer they have no knowledge of. You're assuming all your knowledge of solar is readily available to the public. Most people don't want to deal with the hassle of sourcing panels, researching installers, getting the loan and then finally having the system repaired when it's broken down the road.
It safe to assume when SCTY catches up on its' backlog it can do 2 things: Increase marketing to get more clients or lower pricing. Both will work to obtain more business. That's how it works in the banking field I'm in. When it's taking 60 days for us to close on a mortgage we do not cut our margins. When we are slow and closing loans in 15 days, we lower our margins. SCTY will do the same thing.
You could never convince most women to buy panels for their homes. If there is a woman reading this, please speak up and give us your opinion. Women are not huge risk takers and buying panels is a risk for those who have no interest in research solar.
SCTY is a SERVICER as well as a RETAILER. The premium placed on their panels is directly proportionate to the service value the client places on that lease. They see a 10-20% discount on energy and a servicer who eliminates the risk. It's a no-brainer for 60% of the public.
Try to put yourself in a very uneducated buyer's mind who doesn't like risk for a minute and it may change your tone against SCTY's model.�
1/1/2015
guest Just by reading the solar summit tweets, I can see inverter maintenance might be an issue in the future... I wonder if multiple maintenance calls will be an issue for owners. I know that labor costs of those warranty calls are not included, so this might an issue that could materialize in the next few years. If owners start to complain about this, will solarcity's model of lease /ppa be further validated? Secondly, lease/ppa was most voted by 400 pros at the summit to be most preferred financing method by consumers thru 2020...
To add, I wouldn't be surprised if tesla gets involved with Solarcity on inverter tech... Tesla CTO JB Straubel on two separate talks specifically outlined the importance of efficiencies of power electronics, specifically the inverter. I might be reading too much into this, but could be something to watch for on the horizon as well...
one more thing... I've read a few article comments and multiple tweets where ppa customers do not pay for any overproduction, and some of them have reported significant overproduction so I wonder if this word of mouth promotion will reflect in a growing preference for ppa in the future.... Now that I think of it, Lyndon said lease and ppa even out by the end of the year and this makes sense since I'm also reading comments from lease customers saying they are saving higher % on their utility bill then stated on the contract, so, this might just be a Solarcity lease/ppa wide thing. I guess we'll just have to wait and see what the q1 numbers and guidance show in terms of sales vs lease/ppa growth to really know if this is the trend.�
1/1/2015
guest /facepalm�
1/1/2015
guest
I am not playing any games, but using real numbers. You failed to qualify that the $0.03/kWh number is a quote that you claim to have received for a prepaid lease while the $0.08 is the number you gave for a normal lease. So, in fact the $0.08 number I was using came from your quote. And I don't believe your numbers anyway, because they are not representative of quotes that people are actually getting. I am not calling you a liar, but saying that even if you really did get such a quote, it is not representative of what others are getting in the same area; you might have received some special deal or something. Here is an example of a quote someone got from SCTY from Lewisville, TX which happens to be in the exact same Oncor delivery area that you live in (quote is 1-year old):
SolarLease quotes. Please advise.
This is for a 6.13kW system that will generate 155,290kWh over the 20 year period for a prepaid lease amount of $15,170 or $0.097/kWh, which is a far cry from your $0.03/kWh quote for the exact same Oncor delivery service area in Texas.
Apples to apples comparison: you say $0.03 while the other person got $0.097
Something doesn't add up.
BTW, in order for that person to get his 6.13kW system for $0.03/kWh it would cost them $4,658!!!
If SCTY charged people $4,658 for a 6.13kW system it would go bankrupt by the end of the year. That is $0.76/W installed. SCTY pays about that much for solar panels alone.
None of your numbers hold any water. I am glad that you were able to get such as great deal on your system, but you are making a huge mistake if you believe that others are getting similar deals.
Sorry I had to use math to burst your bubble. SCTY is not going to sell electricity for $0.03 anywhere for an extended period of time.�
1/1/2015
guest What did SCTY's COO have to say today? Yahoo news isn't picking anything up on his speech.�
1/1/2015
guest Pot, kettle, black.
For the vast majority of PV systems folks are looking at a 5-figure purchase. I think that almost all are going to do some sort of research, get quotes (note: multiple), check references etc. Also, the history of PV systems has shown them to be pretty darn reliable, they're solid-state after all with no moving parts.
That's the point some other folks were making; just that SCTY may well be forced to become ever more price competitive.
Odd, we seem to have gone through a timewarp and found ourselves back in 1950.Really, there's plenty of female members on TMC and more than a few with PV systems.
Someone explain to me please what actually needs servicing on a residential solar PV system.
An oxymoronic argument IMO. An educated buyer who doesn't like risk is probably never going to even consider a solar PV system.�
1/1/2015
guest Ask 10 random women if they would buy or lease a solar panel system. Most would lease and most would say yes to leasing vs. staying with utility company.
I'm sure over the course of 20 years there will be issues with all solar systems. A squirrel chews on a wire, an inverter fails, something leaks water, etc, etc.
I have 2 static hard drives for my computer and 1 failed within 60 days of buying it. Just cause it has no moving parts doesn't mean it won't break. These things are made in china and SCTY uses panels which are not necessarily top quality. Of course something is bound to break.
Quicken Loans is by far the biggest online lender in the country and their margins are bigger than most. Competition doesn't squeeze them out as badly as you think just cause there are 1000s of other mortgage companies. They have the best name, great service, average pricing and they have a reputation most cannot argue with. SCTY will be the biggest and best in the residential market cause they are starting off on the right foot. So far it doesn't appear they have made too many mistakes. They do not need to lower their margins just cause a few companies are doing it slightly cheaper. Those companies may not have the expertise or reputation to steal business from SCTY in an outright war for the client's business. I think you are focused too much on just pricing and not enough on the total package of what SCTY has to offer a client. Being the biggest company on the block with a 10yr reputation goes a long ways. You deserve bigger margins when you're the best.�
1/1/2015
guest I don't understand your point. You think you would get different answers if you asked 10 men??
Sheesh....haven't heard anyone say that before.
Firstly, SCTY isn't even in many states; it's not that anyone needs to steal business from SCTY, it's that SCTY comes in as an unknown against established local companies. They better have a substantial point of difference and not come in with poor quality product (your suggestion, not mine) trying to ride on reputation established elsewhere. FWIW, I don't think any company "deserves" bigger margins; they either earn it or they don't.�
1/1/2015
guest As to your understanding of who makes purchasing decisions for things like solar panels I'm not sure if you have that totally correct.
What are static hard drives?�
1/1/2015
guest China rarely produces the highest quality product in the categories, especially electronics. SCTY can get away with using an average quality panel if they are also servicing it. I never referred to their panels as even remotely poor quality.
Of course you are going to get different opinions from men and women when it comes to buying just about anything. Men think "How hard can it be to fix a solar panel? and women are thinking, "Heck no, I'm not getting up on the roof when it breaks". Women are more likely to lease cars than men as well.
I believe you mentioned that since all systems cost $10k or greater than most people will do the research. I'm betting SCTY can enter it's 15th state and easily beat the local installers. Anyone can google SCTY and see all their reputation and experience in the industry easily. That is going to allow for higher margins, deserved or not. I'm certainly not going to choose the local installer who has been working the area for 3 years when I can choose SCTY's longer track record in multiple states.
As much as I like tinkering with things, I do not see myself buying a SCTY system unless they have a maintenance package to sell me as well. I am not going to call someone local to fix a SCTY system and I don't want to give $10k to a local installer who may not be around 20 years from now. The likelihood of SCTY going out of business in 20 years is very small. A local installer hurts his back on a roof and he's easily out of commission.
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A solid-state hard drive has no moving parts. It's basically flash memory in a very large capacity drive. They do break regardless of how fast and cool they are!�
1/1/2015
guest You lost me now. If I had more time to spend here I'd try to figure out how folks who do no research actually do research.�
1/1/2015
guest I would think most people spending $30+k on a system would at least use Google and do basic research.�
1/1/2015
guest Here:
Sorry if I mis-understood but 'made in China', 'not necessarily top quality' and 'bound to break' implied for me that we should steer clear of them. As I said earlier, I've never heard anyone say that about SCTY panels before.
Anyway, I've got some Tesla posts to pursue. Good luck!�
1/1/2015
guest Where exactly are you getting your information about women? So cute. So so cute.
I'm a woman reading this. I bought panels for my home. A LOT of panels. All by myself! What exactly do you want to know? (btw, my initial opinion is that it is 2014 and not 1950.) I'm probably more of a risk-taker than 90% of the people on this forum. I've owned fast cars a large part of my life, worked as a jump master and was part of setting a few new world skydiving records, have a Roadster (just buying one was a risk
Here's one woman saying she bought her solar panel system. I took one look at the leasing model and said 'no thanks'.
I've never leased a car in my life. And I own multiple ladders, have a well-stocked tool chest, and also own many pairs of high heels.
I went with a local installer. I believe in supporting the local economy. I did pick someone who had been in business for a number of years, who had grown up here and was not likely to move, who had great references, and was price competitive. And I'm glad I did.�
1/1/2015
guest Bonnie 2016!�
1/1/2015
guest I think the greater argument is buying vs. lease within the context of the bigger mass market... Right now, the mass market, including governments, utilities, residential, etc... are preferring to do lease/ppa. Most in the solar industry see lease/ppa being the majority of consumers thru 2020. Individuals posting here seem to be people that have purchased their systems which is also a good number of consumers out there. However, regardless of educational level, more people are choosing lease right now. We have to look at the numbers if we really want to view Solarcity as a good investment or not. Divorce yourself from your personal choice(either lease or ownership) if you can. This debate just shows how critical examining their q1 numbers (as well as the rest of 2014) will be. If we see more growth in lease/ppa, then Solarcity is doing it right and will continue to dominate market share... If not, then we should see the new leaders emerge very soon.�
1/1/2015
guest Public invited to solar array ceremonies May 6 - Queen Anne's County News - myeasternshoremd.com
Approximately 2.3MW Solarcity lease comes on line in Centreville, MD. Ribbon cutting May 6th.�
1/1/2015
guest For solar panels there is not much non-chinese choice, especially for the residential customer. When I bought my system a month ago (lease/ppa not a choice here in Virginia, PPA is not even legal), I got several quotes from installers and the choices for non-chinese panels were SolarWorld (USA made panels but this company could go out of business any day), LG (crazy expensive - $1/W more), Panasonic/Sharp (also crazy expensive - $1/W more). So Chinese is the only viable choice and as far as I can tell their panels are equal in quality to anyone else. Sunpower only sells through sunpower dealers and there isn't one locally and they are expensive. I ended up getting JA Solar panels. I paid $2.50/W before rebate. 10 year payoff.�
1/1/2015
guest NigelM, that's a damn good deal on your system, congrats on the lottery win... Please keep us updated on the inverters or any warranty call results... The solar summit had a heated debate about inverter reliability and if someone were to be a test of reliability, your system would probably be as good a candidate as any...
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10 year payback period... Would you have entertained a lease/ppa financing option from Solarcity if it were available (or legal) in Virginia?�
1/1/2015
guest I would have entertained it and it would have depended on how much exactly they are cheaper than what I pay - ~11c/kWh. I plan on staying here for a while but I'm wary of solar leases because
they are extremely long term and the value of the lease upon resale is iffy. I'm not sure I'd add any value when buying a house with a leased system unless I have the power to renegotiate/buyout the lease. Free power from an owned system, that is something I'd give value to.
But leasing does have the convenience factor. 5 years from now something might break in the system and I'd have to pay labor to fix it even though the components are under warranty. And that would lengthen the payoff period.
P.S. If you feel net metering might go away, leasing is the way to go.�
1/1/2015
guest I am in NJ not in TX. The other person in this thread from TX got $0.03/KWH.
Me and other 12 families that I have referred and got installed will say otherwise.
The only states where It is advantageous to buy system vs Prepay Leasing is NJ (Where I live), MD and PA - because of SREC. I don't think any other states have similar incentives where we get paid for producing electricity by Solar panels (Correct me if I am wrong). However, many people don't stay in the same house (ex. job changes) for no. of years (More than 5 years) for it to pay itself off and start enjoying the benefits..�
1/1/2015
guest From my understanding, home value is not based on PV system ownership, but rather on the home's ability to reduce operational costs compared to other homes in the area. If you sell your home, your production capability is what buyers will find valuable. If on year 18 you sell, Solarcity lease/ppa will produce exactly the same contracted production guarantee as it did on day one. Ownership might not provide that same production level so it might actually provide less value. Also, I've read that property tax burden ultimately stays the same for ownership as it does for lease. Solarcity itself has said that the problem is not new owners rejecting taking on their PV lease/ppa, but rather the home being vacant between ownership, so current buyers are seeing value in the lease/ppa apparently.
Net metering will change. How much is anyone's guess, but future consumers will face a different really soon. This will affect the entire solar industry. The only hedge against drastic downshifts in net metering is stationary storage. The only company positioned to continue compounding mass market growth in this emerging environment is Solarcity(and Tesla)... If someone can provide another company equally ready, please post here... Remember, Solarcity only makes money on daytime use, with storage, they will monetize the entire day of energy use cycle... An entirely new economic model from what we see today.�
1/1/2015
guest Yes, it was someone else who allegedly got the $0.03/KWh for prepaid lease or $0.08 for 20-year lease payments.
I still don't believe those numbers, because like I said the math for a 20-year pre-paid lease at $0.03/KWh adds up to $0.76/W installed. There is no way that SCTY can offer these rates for an extended period without going bankrupt. Maybe that one person did got a very special deal, but it is in no way representative of what SCTY is offering to other people. Case in point: the quote I posted from a solar panel forum for the exact same geographic area at $0.097/KWh for a prepaid lease (which is more than triple the $0.03/KWh fantasy number that you guys are trying to sell).
The difference in this thread is that I am quoting real numbers, and others are using "fantasy" numbers. And then people like you have the audicity to call me out for "playing games", while quoting someone else's fantasy numbers.
I am going to quote NigelM here; "Good luck!"�
1/1/2015
guest So you are saying that other person and me are lying and Only you are saying truth.. Got it.. That makes sense.
BTW, I helped get same/similar deals for 12 other families, Look at the picture of my community (Not all of them got $0.03/KWH bTW, Some got $0.045/KWH), I posted in previous page.�
1/1/2015
guest So the lease is then a lot less valuable than ownership because it would reduce your operational costs a lot less than an owned system. For example if a system offsets usage by 70%, then the owned system would offset 70% of energy costs. Same system leased lets say you pay 30% less than the utility for that power. In that case, your monthly operating costs would be 0.3+0.7*0.7 = 0.8 = 20% reduction in energy costs. How much would I pay for 20% reduction in energy costs? Would it really affect the price of a house I was going to buy or would I balk at taking over a long term lease?
You own an identical system, I'm not sure why you think that.
This is why I bought a few shares of SolarCity - first dibs at Tesla's energy storage batteries. California storage mandates will soon get rid of the bottlenecks that SolarCity is facing in getting approval for their battery systems. And if utilities keep complaining and dilly-dallying or lobbying against net metering, they are obsoleting themselves faster. By my back of the napkin calculations at current prices for solar and some estimated pricing for Tesla batteries, 33c/kWh is a sweet spot for going off grid. SCTY can then be a real utility. Longer term, if they get neighborhoods to sign on, they could just have everybody's systems linked together for production/storage, use common areas for more production/storage.�
1/1/2015
guest Taking on a long term lease is less scary as it appears actually. Without a solar system, you are effectively in a PPA with your utility for perpetuity!
It's actually worse than a PPA as you don't get to lock-in any kind of prices.�
1/1/2015
guest I do live in Virginia but no matter where I lived would not lease or borrow except in crisis. You are working for someone else. I see many people working income going for interest payments. I realize many are not in a position to do this but by delaying some purchases will accumulate worth a lot faster. I paid off my mortgages and have never bought the largest home I could which has resulted in my being able to afford more ultimately. Sorry to preach. Buying solar system was the best option for me�
1/1/2015
guest I said most women and you replied by stating you take more risks than 90% of the people reading this so you're clearly not covered by the statement I made about most women not wanting to take risks on solar panels. You're also reading posts about solar panels so it's clear there's a high chance you already have them. I was mainly asking if you believed most women would prefer to lease vs. buy the panels for the reasons I've already mentioned.�
1/1/2015
guest You asked for an opinion from a woman reading this. So I'm a little confused as to why you're now saying that because I'm reading posts in this forum, I'm clearly not in the group you were referring to. (Note that my reply about risk-taking was in direct response to your assertion that women are not risk-takers.)
I have no idea why you've broken this out into a gender issue. When I think about all the people I know with solar panels, purchased/leased, I don't see a clear gender-bias. Why is that so important in your mind?�
1/1/2015
guest I am a SCTY ultra-bull. But I have to admit that sleepyhead has a point here which needs careful assessment.
The core point he is making is, leases provide very high margins for scty. We can't disagree with that. In addition his point is that margins will come down as:
a) more people will progressively choose to buy outright - and/or -
b) competition will catchup and offer same product for cheaper
Point-a is highly debatable as we see over many pages in this thread. I personally find it hard to speculate a trend for such a large market. My take at this point is 'lets see when it happens'. So far there is no evidence of such consumer shift it seems. But we do have to admit if this comes into full play there will be significant repricing of scty. It's a genuine risk and it's in our best interests to keep an eye out for such a trend.
Point-b I'm not worried about so much. Even if SCTY lowers it's prices, it could still be making comparable profits as it's costs come down too (due to scale). SCTY is amassing a significant scale which competition won't be able to compete with. There is already evidence that SCTY is putting competition ever behind each passing quarter.
PS: Someone mentioned 60% of scty business is leases/ppas. I don't think that's entirely accurate, I believe they said it's 90%+ in the latest presentations. You may get 60% if you look at Income Statement, but there the lease/ppa's are prorated over 120 quarters and its accumulative from quarter to quarter, so it's not apples-to-apples comparison.�
1/1/2015
guest It is an important riskt to keep an eye out for irregardless of whether they do leasing or selling systems.
Solar panel manufacturers were selling panels for $1.70/W just 3 years ago at 30% gross margins, which means they got $0.50/W of gross profit for every watt they sold.
Fast forward 3 years and solar panels are selling for $0.65/W at 20% gross margins. So they are now getting $0.13/W gross profit just 3 years later, since panel costs have come down 60% - 70%.
Residential solar was installed at $5/W a year ago.
Residential solar will be installed at $2/W 3 years from now.
I am afraid that SCTY and other solar installers will see similar struggles that the solar panel manufacturing business suffered over the last 3 years.
But this is just my completely independent and unbiased personal opinion on the subject that has not been influenced by anyone. I have never heard anyone else come to a similar conclusion before, so I may turn out very wrong on this "risk".
But I have a feeling that I will be correct, so that is why I don't invest in SCTY. I still think that the company will definitely prosper and grow installations, but I just don't see a potential for great returns under this business model as some others do.
I am very bullish on SCTY's business model and its ability to scale and grow installations calculated in MW's. But I am also very skeptical that they will be able to grow revenues and profits fast enough to yield a great return on investment to shareholders from these elevated valuations.
SCTY is in a business where its product will sell for 60% cheaper just ~5 years from now, while TSLA has a product that will sell for ~10% more 5 years from now. It will be a lot easier for TSLA to grow into its valuation than SCTY. TSLA to me is a buy, while SCTY is a hold. I am actually long SCTY via a deep ITM bull call spread, and have no short positions at all.�
1/1/2015
guest Would the same risk assessment then apply to cell and panel makers, or are you thinking they have already suffered the brunt of that challenge moving forward?�
1/1/2015
guest They already suffered the brunt of that challenge due to the oversupply situation that existed: it forced panel manufacturers to cut costs a lot quicker than anyone expected. Solar panels are down 99% over the past 30 years, and they are at a point where they can't get much cheaper, since all of the low hanging fruit has already been picked.
That said, panels will get cheaper since companies are still cutting costs; but the rate is more like $0.04/W per year rather than $0.40/W per year like it was two years ago.
Solar panels can come down in price about 10% per year or less going forward. Companies are making them at ~$0.50 - $0.55/W and selling at ~$0.60 - $0.65/W. Next year they might make them at $0.45 - $0.50, but even as costs come down 5% - 10% per year, eventually they will hit a bottom as will residential installation costs.
The reason why I am excited about panel manufacturers in the short run, is because demand is going to outstrip supply this year and could lead to higher ASP's. Here is GTM saying that panel prices in US will exceed $0.80/W this year, when they were selling under $0.70 recently:
http://www.greentechmedia.com/articles/read/chinese-module-price-to-increase-20-percent-in-2014
So even if ASP's stabilize and do not grow, then solar panel makers will see margins go up a lot as they continue to cut costs. I can see long term gross margins around 20% - 30%, since anything under 20% and you are losing money but anything over 30% and you are inviting competition. In the future though ASP's will be coming down as well, but roughly 5%-10% per year and not 20% - 30% like in the past or what I expect in the future for residential system installation costs.
There will be a few big winners in solar manufacturing and it will become an oligopoly IMO as barriers to entry become a lot bigger in the future (mostly due to poly shortages and economies of scale).
So the same applies to panel manufacturers in that as ASP's go down, they have to grow in size just to keep revenues flat. But a 5% annual decline in ASP's is manageable, while a 20% - 30% decline can be catastrophic (as it was in the 2011-2012 period).�
1/1/2015
guest Question Sleepyhead - if you buy your system, then do you have to install a slightly bigger system than what you need right now for the future to still be able to offset the electricity bill? Because solarcity locks in a price for the term of the contract, but if you buy then you have to deal with rising cost from the utility company every year, correct?
Also, since we both live in Texas, have you heard of this company? - Electrical Repairs, Roofing, heating, air conditioning - All Pro - Keller, Tx
My neighbor went with them and got a 7kwh system for $12.5 with a $7,400 tax deductible. I'm thinking about using them, good deal?�
1/1/2015
guest right thanks for that. cell-panel suppliers can more effectively grow in both volume and return commensurate with the coming market demand- where the lease margin has not yet been squeezed down to a market level for the future demand (against it's competition of loan-buy). That's a reasonable argument imo and one that could and likely will play out. As a buffer compared to panel mfg, the elasticity of SCTY model in the lease v. buy scenario is much greater because the cost curve squeeze remaining in the 'system' cost is no longer in the panel (as you point out), but in 1) cost of scale to the customer 2) cost of value proposition sale to the customer. These are the focus of SCTY even if lease migrates to buy-lease hybrid (ala Tesla offering both). If DG does succeed (as many of us believe), the flexibility and scale of SCTY's model may well prove to be the oligopoly of DG, as they have already positioned themselves correctly forecasting that panels will be commodities, of which they will have the largest single sourcing ability (US). Bottom line for me currently is, I agree with your risk assessment and will monitor it closely. I also believe there is a risk of under investment in the eventual DG market if not positioned in SCTY (especially perhaps with the recent pull back in valuation going forward). thanks as always sleepy�
1/1/2015
guest Your numbers make sense in theory but the actual numbers are showing the exact opposite trend.
I'm pulling these numbers from respective quarterly slideshows.
Total Retained Value $/watt
Q1 2013: $1.25/watt
Q2 2013: $1.27/watt
Q3 2013: $1.37/watt
Q4 2013: $1.51/watt
Note these numbers are cumulative at each period, including all contracts done throughout company's history. So in reality the Retained Value/watt is actually growing substantially faster for the contracts done in the specific quarters than these numbers imply.
In fact I remember seeing $2/w retained value for contracts done in Q4 specifically. But I can't locate that now, don't remember where I saw it.
- - - Updated - - -
Complement that with Market Share growth info:
Q1 2012: 12%
Q2 2012: 16%
Q3 2012: 19%
Q4 2012: 20%
Q1 2013: 20%
Q2 2013: 26%
Q3 2013: 32%
So while scty is grabbing ever more more money on a per watt basis, it is increasing it's market share!!�
1/1/2015
guest I agree that the solar panel sector will consolidate and will be left with probably a few to several big players, but I question who will be the big winners. The reason being is margins will be quite low. On the other hand, solar as an overall industry will continue to grow, so these low-margin panel manufacturers can match growth of the solar industry but not with high margins. I see panel manufacturers as more like component suppliers (ie., think of component suppliers to smartphones). These players will reap some profit and grow, but they won't be the "big winners" like Apple, Samsung, etc since Apple/Samsung take the retail segment where the real high margins are. Same thing applies to solar... big margins won't be had in the component supply sector (ie., panels, etc) but will be had in the retail sector (the companies that pull everything together and provide a simple/easy experience).
For solar panel manufacturers, I think their main hope for decently high margin is to go into building utility-scale plants. This is what they're starting to do and it's smart. They won't be making high margin off of panels and they know it. If you listen to the conference calls for these companies, not many are super excited about expanding panel capacity. Rather, they're more excited about expanding into higher margin businesses like utility-scale plants. The reason why utility-scale plants give high margin is because it's not just supplying components but it's building/servicing as well. Meaning, they're adding a service component to their business and that's where the margins expand.
So, companies that only produce panels - as an investment long-term, I think they're so, so. Sure the good ones will grow but it's not a sexy sector to be in. Low multiples with valuation.
But companies that produce panels and install utility plants - now this is an interesting place. Higher margin, and as an investor I can give higher multiples for valuation.�
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