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jhm
Well-Known Member
Another demographic dimension to consider is age. A young couple may prefer an aggressive escalator because they expect their income to increase over time, but do not have much savings at first. Conversely, an older couple nearing retirement may have substantial savings,but no longer expect their income to increase. So prepaying to reduce an escalator may make sense. Finally, a couple living off of savings in retirement does well to pay cash. Buying the system outright is like investing in an annuity that pays 6% or more per year in electricity, and it is immune to inflation and not subject to taxation (in most places). In fact when I think about retirement, I'd like to have my home paid for, two Teslas paid for and solar plus batteries paid for. The practical return on that is much better than most income investments. As good as that may sound, it important to understand that the issue confronting younger families are much different. So no money down on a lease might be a really smart mlve when you're starting out and have negative net worth, but as you accumulate wealth prepaying starts to make more sense. So it is that giving customers opportunities to prepay years into a lease makes sense.
Another angle on this for SolarCity is that prepayment programs may prove to be a good tool for combatting higher interest rates. As interest rates go upleverage for new value creation will become more expensive. However, repayment programs could generate cash comparable to 5% or 6% financing. So in the present low interest rate environment 4.5% ABS looks pretty good on a revenue stream with 6% discount. Indeed SolarCity is earning upto 1.5% net interest income on the spead, but if interest rates go up 2% so that the can only issue an ABS at 6.5%, then prepayments are going to look quite good to them. However, at just such a time customers will not be so enthusiatic about making prepayments. So it is not such a good idea to wait for higher interest rates before enouraging customers to prepay. Rather SolarCity should take those opportunities as the come to move the business to a positive cashflow basis as this will minimize the need for new debt when rates do rise. One wonders if part of the strategy pivot is motivated by concern for rising interest rates.
doggusfluffy
Closed
That link doesn't go to the article if I don't sign up for a subscription.
jhm, We were talking about EVC vs RV-growth. I think I may have uncovered another factor which is creating the discrepancy.
EVC does not necessarily account for all cash-flows but RV-growth does. For example take R&D expenses, these are outgoing cash-flows that need to be paid for somehow. In RV perspective either the cash that is generated from customer payments pays for this or greater debt raised against customer contracts pays for this. Given that RV is a snapshot of "everything" all cashflows get automatically accounted for. On the other hand, given that EVC is a theoretical number (based on forecasts), management chooses to include only cashflows that they deem relevant.
Does this make sense?
(This has some deep implications for the entire investment thesis actually, especially in post 30% ITC world. Will explain more once I have enough clarity)
EVC does not necessarily account for all cash-flows but RV-growth does. For example take R&D expenses, these are outgoing cash-flows that need to be paid for somehow. In RV perspective either the cash that is generated from customer payments pays for this or greater debt raised against customer contracts pays for this. Given that RV is a snapshot of "everything" all cashflows get automatically accounted for. On the other hand, given that EVC is a theoretical number (based on forecasts), management chooses to include only cashflows that they deem relevant.
Does this make sense?
(This has some deep implications for the entire investment thesis actually, especially in post 30% ITC world. Will explain more once I have enough clarity)
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jhm
Well-Known Member
Yes, that would make sense though it is hard to know exactly what is included in ECV. R&D I think should be included in G&A per Watt, and so flow into ECV. But NRV should do a better job tracking over longer periods of time. For example from Q1 to Q3, NRV increased $538M while ECV for Q2 and Q3 combined was $435M. So in Q2 the change in NRV was $339M while ECV was only $196M. So sometimes the ECV will exceed change in NRV and sometimes not. I don't think we have enough insight or experience with these metrics to understand why this flips around from quarter to quarter. Management prefers to show how ECV is growing progressively. I can tell if that is be cause it is a better metric or Management is just putting their best foot forward. In any case I think NRV is the one to watch for longterm value. It is essentially a valuation of the PowerCo, while ECV is just a pro forma of what the DevCo is queuing up.
We should give some good thought to what is going on with R&D. It has been accelerating. I think this is largely due to getting Silevo panels production ready. This spending hits G&A this quarter, but will reduced cost of goods for years down the road. It would be really nice for SolarCity to separate out their "FabCo" to put a spotlight into the value that Silevo and Zep are creating. It is perfectly reasonable to take on debt as an investment in creation of new products and capacity for their manufacture. SolarCity is really 3 companies in 1, not just DevCo and PowerCo.
Thanks for the perspective. I didn't notice that EVC and NRV-growth are flipping around.
AFAIK none of their slides on 'cost' include R&D. At one point, I guess when R&D started becoming significant, they said that is expense which will be paid off by future revenue and thus they will not include in their cost calculations. My suspicion is EVC doesn't include R&D. The biggest problem I have with EVC is, how are we supposed to correlate that with anything? In a way NRV is proxy for book value. Is EVC supposed to be a proxy for Net Income or Earnings? Ultimately the question is how are investors supposed to draw a relationship between EVC and market-cap (or enterprise value).
In any case, I think we both agree that NRV and trajectory of NRV is much more important to understand the valuation of the company.
I agree that SolarCity is three businesses in one. Nevertheless, I believe market's way of looking at it, the DevCo and FabCo are just means to get ever increasing assets (NRV) in the PowerCo. Increasing NRV is their sole purpose. So if we were to put a trajectory on NRV then come up with a valuation for the overall company based on that, it doesn't quite matter if it is 1 or 2 or 3 companies underneath.
So if I were to tell you that NRV will be flat for extended future, as far as we can see, will you give the company any more valuation than the NRV itself? Does DevCo and FabCo get any valuation. My sense is no, they get no valuation.
Does this line of thinking make sense?
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jhm
Well-Known Member
You might want to look at the Cost Calculation Supplement. It makes clear that R&D is not included in the cost per Watt. So it can't flow into ECV.
Clearly R&D competes for available cash, so it adds to debt in NRV.
Also Equity Awards are not counted in cost per Watt, but dilute equity.
I do agree that all the subdivisions of the company are driving growing NRV. So that's what tracks long-term value creation and what the company should be optimizing. Net Asset growth would also be a good value tracking metric. On that basis they are up 44.3% Q3 y/y or 9.3% sequentially. Meanwhile NRV is up 6.5% sequentially, and has not been around long enough for y/y.
Latest Thesis
Here is the thesis that will affect what I will do with 8,000 shares. I request people here to correct me if I am going wrong anywhere. I have no agenda but to figure out for myself what to do with the position that is painfully underwater.
A note on Net Relative Value (NRV)
By now it is very well established that NRV and the trajectory of NRV is the most important valuation tool wrt SCTY. Probably this is the only tool available.
None of the traditional financial metrics apply properly to SolarCity's Business model. This is widely established.
In addition, the newer Equity Value Creation (EVC) metric released by SolarCity looks too theoretical for me to trust too much. See past few pages in this thread to get a sense for it.
The few analyst reports I have read in the past directly referred to Retained Value for valuation and valuation projections.
Impact of ITC step down:
My understanding is that SolarCity prices their systems at around $5/W. As ITC goes down from 30% to 10%, that will have an impact of about $1/W.
Unfortunately SolarCity cannot merely pass it on to consumers as they are ultimately limited by utility rates on a Cents/kWh basis. If SolarCity prices higher, consumers will simply not choose to get a system.
So this $1/W needs to be overcome somewhere on the cost side or else it will run into lowering (or even creating a negative) incremental NRV.
Management discussion of ITC step down
In Q2 call ITC impact was discussed to some degree. Here are the snippets:
Brad Buss: "Applying the expected impact of a 10% ITC in 2017 with our 2017 cost goal, we would still maintain healthy unlevered IRRs of approximately 7.5% and an equity NPV of roughly $0.60 per watt."
Lyndon Rive: "We believe that our cost structure will allow us to thrive post-ITC reduction and generate $0.60 per watt for equity value"
Lyndon Rive: "for most of the projects that we were deploying, we will continue to just install and have a $0.60 per watt economic value creation instead of over $1 but, yes, we'll just continue."
Lyndon Rive: "It's a combination of cost reduction and less cash going to the (01:00:58) investors. That gets us to the $0.60 a watt."
Now here is the real kicker. All of the above snippets relate to EVC and NOT NRV. To know that for sure you would have to read the whole of Bard Buss comment. Here it is:
"Economic value creation is a key metric we introduced last quarter, and it captures the total value creation to equity using our actual Q2 installs and cost for the forecast for debt. Our EVC increased 33% from Q1, driven mostly by deployment growth and lower cost. The Q2 unlevered IRR was 12%, up nicely from 11% in Q1. The NPV on a per-watt basis was approximately $1.14 per watt, suggesting a range of approximately $1 billion-plus of annualized equity value creation in 2015 based on our megawatt guidance.
If we run this very same model applying the expected impact of a 10% ITC in 2017 with our 2017 cost goal, we would still maintain healthy unlevered IRRs of approximately 7.5% and an equity NPV of roughly $0.60 per watt."
In a nutshell if you are looking to put valuation on SCTY through NRV and trajectory of NRV, unfortunately, all of this commentary is not relevant.
That leaves the problem of figuring out NRV trajectory to ourselves.
Current state of incremental NRV
NRV is based on bookings. We only have NRV data from Q1 2015. So we can assess the incremental NRV for only two quarters.
Q2
Bookings: 395 MW
Incremental NRV: 3057 - 2718 = $339 mln
Incremental NRV/W: 339/395 = $0.86/W
Q3
Bookings: 345 MW
Incremental NRV: 3256 - 3057 = $199 mln
Incremental NRV/W: 199/345 = $0.58/W
Q2 + Q3
Bookings: 395 + 345 = 740 MW
Incremental NRV: 3256 - 2718 = $538 mln
Incremental NRV/W: 538/740 = $0.73/W
Impact of ITC stepdown on Incremental NRV
As discussed earlier, ITC step down causes a reduction of about $1/W revenues. On the other hand shareholders are currently only getting $0.73/W.
So as you see now, IF costs were to remain the same, with ITC step down, incremental NRV will be NEGATIVE $0.27/W.
In other words, for every new install, shareholders will be losing additional money off of existing NRV!
Cost Savings in preperation of ITC step down
Obviously the team is working very hard to lower costs. Let’s take 'their' guidance on cost reductions.
As per the latest deck, the targeted savings are $0.34/W. See page 5.
It doesn't appear that Silevo panels are included in these savings. Guidance on Silevo panel savings is $0.25/W. This is from the latest CC: Tanguy Serra: "The number that I have been using is relative to today's costs and it's about a $0.25 [a watt of panel]"
Note though these panel savings will not affect all installations. Because production is going to be 1GW in 2017 but installs are going to be more than 1.25GW. So just prorating a bit, let’s call the savings to be $0.20/W.
These are projected/targeted savings. Nobody has a crystal ball. But lets be optimistic and use the number as it is.
So we seem to have potential aggregate savings of about $0.54/W (0.34 + 0.20).
Now lets look at the potential Incremental NRV
ITC step down impact: $1/W
Potential savings: $0.54/W
Impact on Inc NRV:0.54 - 1 = -$0.46/W
Current Inc NRV: $0.73/W
Inc NRV after ITC step down: 0.73 - 0.46 = $0.27/W.
Conclusion
Incremental NRV will be $0.27/W if all goes as planned.
This is so razor thin, that if you discount away some of the renewal RV, you might as well hit 0.
Keep in mind we didn't even touch net-metering dilutions here. Any dilution will effectively cause SolarCity to pull back from the state or operate on losses. Then what's the point. The more they install, the bigger the losses will be.
Tesla batteries are of no help. Infact they hurt. Because SolarCity will now have to bear the costs of the batteries while still keeping the price per kWh the same. So no revenue, only cost.
In summary NRV will remain flat or worse start trending down starting 2017.
As per my previous post here, the projected NRV/Share at end of 2017 is $41. Effectively $41 is the max the share price will go for foreseeable future (several more years).
Unless SolarCity's business model fundamentally changes, I really see no solution here. The business model is broken. It will not work.
To me it feels like management is using all sorts of accounting gimmickry to come up with brand new metrics like EVC to hide the facts. Come 2017 Q1 ER, there is a good chance that NRV will reverse trend (say if the Buffalo factory doesn’t start on time, or is not as cost effective as hoped). Management might cleverly try to hide the slide and say we no longer publish NRV because we don't internally track the Business that way. In that case investment community will be left with 'nothing' to put a value on the shares. The stock will plummet either ways.
P.S
How come I haven't done this analysis before. How did I go so wrong as to the extent of buying a whopping 8000 shares?? I have been thinking about this myself. Will post a post-mortem here once I have final thoughts. But of course, I need to make sure, my latest thinking is in fact correct before I pull the trigger and sell at losses.
P.P.S
I'm happy to send a screenshot of my account statement to any doubters.
- - - Updated - - -
Based on above you can easily conclude that current price around $30 is actually a very valid price. Scary to say.
Here is the thesis that will affect what I will do with 8,000 shares. I request people here to correct me if I am going wrong anywhere. I have no agenda but to figure out for myself what to do with the position that is painfully underwater.
A note on Net Relative Value (NRV)
By now it is very well established that NRV and the trajectory of NRV is the most important valuation tool wrt SCTY. Probably this is the only tool available.
None of the traditional financial metrics apply properly to SolarCity's Business model. This is widely established.
In addition, the newer Equity Value Creation (EVC) metric released by SolarCity looks too theoretical for me to trust too much. See past few pages in this thread to get a sense for it.
The few analyst reports I have read in the past directly referred to Retained Value for valuation and valuation projections.
Impact of ITC step down:
My understanding is that SolarCity prices their systems at around $5/W. As ITC goes down from 30% to 10%, that will have an impact of about $1/W.
Unfortunately SolarCity cannot merely pass it on to consumers as they are ultimately limited by utility rates on a Cents/kWh basis. If SolarCity prices higher, consumers will simply not choose to get a system.
So this $1/W needs to be overcome somewhere on the cost side or else it will run into lowering (or even creating a negative) incremental NRV.
Management discussion of ITC step down
In Q2 call ITC impact was discussed to some degree. Here are the snippets:
Brad Buss: "Applying the expected impact of a 10% ITC in 2017 with our 2017 cost goal, we would still maintain healthy unlevered IRRs of approximately 7.5% and an equity NPV of roughly $0.60 per watt."
Lyndon Rive: "We believe that our cost structure will allow us to thrive post-ITC reduction and generate $0.60 per watt for equity value"
Lyndon Rive: "for most of the projects that we were deploying, we will continue to just install and have a $0.60 per watt economic value creation instead of over $1 but, yes, we'll just continue."
Lyndon Rive: "It's a combination of cost reduction and less cash going to the (01:00:58) investors. That gets us to the $0.60 a watt."
Now here is the real kicker. All of the above snippets relate to EVC and NOT NRV. To know that for sure you would have to read the whole of Bard Buss comment. Here it is:
"Economic value creation is a key metric we introduced last quarter, and it captures the total value creation to equity using our actual Q2 installs and cost for the forecast for debt. Our EVC increased 33% from Q1, driven mostly by deployment growth and lower cost. The Q2 unlevered IRR was 12%, up nicely from 11% in Q1. The NPV on a per-watt basis was approximately $1.14 per watt, suggesting a range of approximately $1 billion-plus of annualized equity value creation in 2015 based on our megawatt guidance.
If we run this very same model applying the expected impact of a 10% ITC in 2017 with our 2017 cost goal, we would still maintain healthy unlevered IRRs of approximately 7.5% and an equity NPV of roughly $0.60 per watt."
In a nutshell if you are looking to put valuation on SCTY through NRV and trajectory of NRV, unfortunately, all of this commentary is not relevant.
That leaves the problem of figuring out NRV trajectory to ourselves.
Current state of incremental NRV
NRV is based on bookings. We only have NRV data from Q1 2015. So we can assess the incremental NRV for only two quarters.
Q2
Bookings: 395 MW
Incremental NRV: 3057 - 2718 = $339 mln
Incremental NRV/W: 339/395 = $0.86/W
Q3
Bookings: 345 MW
Incremental NRV: 3256 - 3057 = $199 mln
Incremental NRV/W: 199/345 = $0.58/W
Q2 + Q3
Bookings: 395 + 345 = 740 MW
Incremental NRV: 3256 - 2718 = $538 mln
Incremental NRV/W: 538/740 = $0.73/W
Impact of ITC stepdown on Incremental NRV
As discussed earlier, ITC step down causes a reduction of about $1/W revenues. On the other hand shareholders are currently only getting $0.73/W.
So as you see now, IF costs were to remain the same, with ITC step down, incremental NRV will be NEGATIVE $0.27/W.
In other words, for every new install, shareholders will be losing additional money off of existing NRV!
Cost Savings in preperation of ITC step down
Obviously the team is working very hard to lower costs. Let’s take 'their' guidance on cost reductions.
As per the latest deck, the targeted savings are $0.34/W. See page 5.
It doesn't appear that Silevo panels are included in these savings. Guidance on Silevo panel savings is $0.25/W. This is from the latest CC: Tanguy Serra: "The number that I have been using is relative to today's costs and it's about a $0.25 [a watt of panel]"
Note though these panel savings will not affect all installations. Because production is going to be 1GW in 2017 but installs are going to be more than 1.25GW. So just prorating a bit, let’s call the savings to be $0.20/W.
These are projected/targeted savings. Nobody has a crystal ball. But lets be optimistic and use the number as it is.
So we seem to have potential aggregate savings of about $0.54/W (0.34 + 0.20).
Now lets look at the potential Incremental NRV
ITC step down impact: $1/W
Potential savings: $0.54/W
Impact on Inc NRV:0.54 - 1 = -$0.46/W
Current Inc NRV: $0.73/W
Inc NRV after ITC step down: 0.73 - 0.46 = $0.27/W.
Conclusion
Incremental NRV will be $0.27/W if all goes as planned.
This is so razor thin, that if you discount away some of the renewal RV, you might as well hit 0.
Keep in mind we didn't even touch net-metering dilutions here. Any dilution will effectively cause SolarCity to pull back from the state or operate on losses. Then what's the point. The more they install, the bigger the losses will be.
Tesla batteries are of no help. Infact they hurt. Because SolarCity will now have to bear the costs of the batteries while still keeping the price per kWh the same. So no revenue, only cost.
In summary NRV will remain flat or worse start trending down starting 2017.
As per my previous post here, the projected NRV/Share at end of 2017 is $41. Effectively $41 is the max the share price will go for foreseeable future (several more years).
Unless SolarCity's business model fundamentally changes, I really see no solution here. The business model is broken. It will not work.
To me it feels like management is using all sorts of accounting gimmickry to come up with brand new metrics like EVC to hide the facts. Come 2017 Q1 ER, there is a good chance that NRV will reverse trend (say if the Buffalo factory doesn’t start on time, or is not as cost effective as hoped). Management might cleverly try to hide the slide and say we no longer publish NRV because we don't internally track the Business that way. In that case investment community will be left with 'nothing' to put a value on the shares. The stock will plummet either ways.
P.S
How come I haven't done this analysis before. How did I go so wrong as to the extent of buying a whopping 8000 shares?? I have been thinking about this myself. Will post a post-mortem here once I have final thoughts. But of course, I need to make sure, my latest thinking is in fact correct before I pull the trigger and sell at losses.
P.P.S
I'm happy to send a screenshot of my account statement to any doubters.
- - - Updated - - -
Based on above you can easily conclude that current price around $30 is actually a very valid price. Scary to say.
jhm
Well-Known Member
Bensen, wow, I had no idea your position was so large. No wonder you're so concerned. For the record my position is around 1200 shares.
I'll add comments here as they occur to me, not all at onece.
First, I do not believe that $5/W is representive of SolarCity's retail pricing. There average system is equivalent to a PPA with 13 c/kWh, 1380 hours/year and 2.3% escalator. The present value of customer payments over 30 years is just $3.17/W. Now this is an after ITC figure. The pre-ITC equivalent would be $4.53/W. By 2017, SolarCity aims at a cost of $2.50/W, but the conference call hinted that the may be looking at $2.30/W. But let's be conservative ant say they get their cost to $2.50/W. They can continue to offer the above PPA terms, worth $3.17/W. So the value they retain including 10% ITC is now $3.17 - 2.50 + 0.45 = $1.12/W. This is equivalent to the current net retained value. So essentially, SolarCity needs to get to cash flow positive to avoid leverage and their target cost of $2.50/W to sustain the same unit profitability they presently enjoy. I think they can trim an extra $0.20/W off the target which will give them a little wiggle room for some leverage.
I think this lends insight into their change in strategy. The are positioning themselves to have the same NRV/W in 2017 as present if ITC stepdown happens. Many have criticized SolarCity for not being the low cost leader in the industry, but in the context of ITC stepdown, survival tomorrow is more important than offering the lowest price today. So they should not lower prices before the stepdown. They should cut out wasteful market expenses. They should their target cost. And they should cut the use of leverage. If the do that, they will transition into 2017 nicely. It's all quite necessary.
I think your ChgNRV/W of $0.73 is pretty good. The gap of to EVC/W of $1.14 is about $0.40/W. We have determined that this includes things like R&D and Capex. Such things compete for cashflow and so added to leverage. I suspect an awful lot of this is Riverbend and expansion related. If so, they can continue somewhat down this path in 2016. But post-ITC steodown, they will be very tight on money for expansion. Let's suppose they've got Riverbend in hand an halt expansion of their footprint. Perhaps they can install 1750 MW.
Additionally, I think MW installed is probably a better driver of growth in NRV since I suspect shrinkage in backlog. Over time backlog that cancels drops out of change in NRV. So in the last two quarters, 431 MW were installed. This implies, ChgNRV/W (installed) is $1.24. This is a bit surprising since it is so close to ECV/W deployed.
So I think the cost savings opportunities are good. Silevo panels are a big win. The big problem is just not being able to produce much more than 1 GW in 2017. So one of the advantages of limiting MW growth is keeping the average cost per Watt down as you point out. So your aggregate savings per Watt, gets in range of the targeted $2.50/W. I'd also point out that the stepdown will be hard on suppliers and solar workers as well. So there may be a little more slack for cost cutting.
I do think that management was sandbagging to suggest only $0.60/W EVC. I think it will be more than $1/W whether looking at EVC/W or ChgNRV / W installed. Moreover, I think 2016 will be a little higher than 2017. So I'll just go with $1/W. Thus, I am looking at
2015 Q4 NRV Growth $290M, NRV $3546M, 99M shares, $35.82/sh
2016 NRV Growth $1250M, NRV $4796, 104M shares, $46.12/sh
2017 NRV Growth $1500M, NRV $6296, 110M shares, $57.24/sh
Additionally, I do not expect market sentiment to always be this negative. In a bearish market I would expect the price to be around 1 to 1.5 times NRV, in a neutral market 1.5 to 2.0 times NRV, and anything over 2 times NRV is bullish. So I think $70/sh is a pretty good PT for end of 2016, and that is close to analysts consensus. By that time I think we'll have a much better feel for how the new strategy is playing out, how prepared the company is for 2017.
Moreover, with any luck we may just see some extention of ITC, Just stepping it down gradually like 2% per year would make a huge difference in impact. In fact, I think in the shortrun, the stock may be mostly just this political bet. Even though we're looking closely at the stepdown scenario, if legislative effort fails, I'm sure the stock will take another big hit. With that in mind it's not a bad idea just to lighten ones position and hold cash. If the political outcome is bad, you should be able to buy back pretty cheap. Even if we have a full extension, the market is so bearish it probably would response pretty slowly, slow enough to buy back in before the high growth strategy is turned back on.
I'll add comments here as they occur to me, not all at onece.
First, I do not believe that $5/W is representive of SolarCity's retail pricing. There average system is equivalent to a PPA with 13 c/kWh, 1380 hours/year and 2.3% escalator. The present value of customer payments over 30 years is just $3.17/W. Now this is an after ITC figure. The pre-ITC equivalent would be $4.53/W. By 2017, SolarCity aims at a cost of $2.50/W, but the conference call hinted that the may be looking at $2.30/W. But let's be conservative ant say they get their cost to $2.50/W. They can continue to offer the above PPA terms, worth $3.17/W. So the value they retain including 10% ITC is now $3.17 - 2.50 + 0.45 = $1.12/W. This is equivalent to the current net retained value. So essentially, SolarCity needs to get to cash flow positive to avoid leverage and their target cost of $2.50/W to sustain the same unit profitability they presently enjoy. I think they can trim an extra $0.20/W off the target which will give them a little wiggle room for some leverage.
I think this lends insight into their change in strategy. The are positioning themselves to have the same NRV/W in 2017 as present if ITC stepdown happens. Many have criticized SolarCity for not being the low cost leader in the industry, but in the context of ITC stepdown, survival tomorrow is more important than offering the lowest price today. So they should not lower prices before the stepdown. They should cut out wasteful market expenses. They should their target cost. And they should cut the use of leverage. If the do that, they will transition into 2017 nicely. It's all quite necessary.
I think your ChgNRV/W of $0.73 is pretty good. The gap of to EVC/W of $1.14 is about $0.40/W. We have determined that this includes things like R&D and Capex. Such things compete for cashflow and so added to leverage. I suspect an awful lot of this is Riverbend and expansion related. If so, they can continue somewhat down this path in 2016. But post-ITC steodown, they will be very tight on money for expansion. Let's suppose they've got Riverbend in hand an halt expansion of their footprint. Perhaps they can install 1750 MW.
Additionally, I think MW installed is probably a better driver of growth in NRV since I suspect shrinkage in backlog. Over time backlog that cancels drops out of change in NRV. So in the last two quarters, 431 MW were installed. This implies, ChgNRV/W (installed) is $1.24. This is a bit surprising since it is so close to ECV/W deployed.
So I think the cost savings opportunities are good. Silevo panels are a big win. The big problem is just not being able to produce much more than 1 GW in 2017. So one of the advantages of limiting MW growth is keeping the average cost per Watt down as you point out. So your aggregate savings per Watt, gets in range of the targeted $2.50/W. I'd also point out that the stepdown will be hard on suppliers and solar workers as well. So there may be a little more slack for cost cutting.
I do think that management was sandbagging to suggest only $0.60/W EVC. I think it will be more than $1/W whether looking at EVC/W or ChgNRV / W installed. Moreover, I think 2016 will be a little higher than 2017. So I'll just go with $1/W. Thus, I am looking at
2015 Q4 NRV Growth $290M, NRV $3546M, 99M shares, $35.82/sh
2016 NRV Growth $1250M, NRV $4796, 104M shares, $46.12/sh
2017 NRV Growth $1500M, NRV $6296, 110M shares, $57.24/sh
Additionally, I do not expect market sentiment to always be this negative. In a bearish market I would expect the price to be around 1 to 1.5 times NRV, in a neutral market 1.5 to 2.0 times NRV, and anything over 2 times NRV is bullish. So I think $70/sh is a pretty good PT for end of 2016, and that is close to analysts consensus. By that time I think we'll have a much better feel for how the new strategy is playing out, how prepared the company is for 2017.
Moreover, with any luck we may just see some extention of ITC, Just stepping it down gradually like 2% per year would make a huge difference in impact. In fact, I think in the shortrun, the stock may be mostly just this political bet. Even though we're looking closely at the stepdown scenario, if legislative effort fails, I'm sure the stock will take another big hit. With that in mind it's not a bad idea just to lighten ones position and hold cash. If the political outcome is bad, you should be able to buy back pretty cheap. Even if we have a full extension, the market is so bearish it probably would response pretty slowly, slow enough to buy back in before the high growth strategy is turned back on.
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doggusfluffy
Closed
jhm
Well-Known Member
I like how the author speaks of NEM as selling power to your neighors. I wonder if she has been reading my comments.
TheTalkingMule
Distributed Energy Enthusiast
Thanks for adding another layer of phenomenal analysis. This short induced crash has been a great chance for everyone to think about this company and industry from every angle imaginable, not just the rosy idealist's perspective.
As for your concerns above.....remain calm and buy low, sell high. Solar is the future and you can buy stock in the US industry leader for pennies on the dollar right now. That is a GOOD thing.
The profits will sort themselves out, solar is undeniably cheap and I have faith that a Musk organization will have no problem making billions selling the next-big-thing with their unique value proposition and newly implemented scale. Install costs are down to $1.92 for god's sake, you should be leaping with joy!
Perfectlogic
Member
Thanks for adding another layer of phenomenal analysis. This short induced crash has been a great chance for everyone to think about this company and industry from every angle imaginable, not just the rosy idealist's perspective.
As for your concerns above.....remain calm and buy low, sell high. Solar is the future and you can buy stock in the US industry leader for pennies on the dollar right now. That is a GOOD thing.
The profits will sort themselves out, solar is undeniably cheap and I have faith that a Musk organization will have no problem making billions selling the next-big-thing with their unique value proposition and newly implemented scale. Install costs are down to $1.92 for god's sake, you should be leaping with joy!
Pretty sure there are 3 US companies with higher GW deployment rate (FSLR, SPWR, SUNE) with FSLR and SPWR leaps ahead as a panel producer.
jhm
Well-Known Member
If panel producers had been bringing high efficiency panels to market at a low enough cost, SolarCity would have never bought Silevo. SolarCity remains a net buyer of panels, and seriously needs panel makers to step up their game. SunPower pretty much had high efficiency panels to itself. With Silevo's 22% efficiency announcement, Panasonic is now aiming to bring a high efficiency product to market and I expect others to follow. Hopefully this competition will drive down the high efficiency price to the point that it is cheaper for SolarCity to buy them in lieu of building out a second panel factory. The value to SolarCity is in driving down the cost of installations, not in being a big panel producer.
Perfectlogic
Member
Panasonic had a press release literally 1 day, or a few days after SCTY with a finished product, didn't have anything to do with SCTY. I don't agree with the idea that the industry was stagnant until SCTY came in and saved the day at all. Solar modules have been improving as a product much faster than any other means of producing electricity. Efficiency gains have been around .5%points/y for a while, that is a 3% efficiency gain with cost/w also coming down insanely fast.
TheTalkingMule
Distributed Energy Enthusiast
Panels are done. They're efficient, reliable and cheap enough that they're no longer nearly the most important factor in geting our domestic solar industry to scale. Anyone can make panels, it's going to take vision and execution to get solar integrated expeditiously.
Perfectlogic
Member
I would rather say that anyone can do what SCTY is doing but I guess we will just have to disagree about that.
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