SolarCity (SCTY)

[gene]

Canaccord Genuity Reiterates Buy Rating for SolarCity Corp (SCTY) - MidSouth Newz

SolarCity Corp (NASDAQ:SCTY)‘s stock had its “buy” rating reissued by investment analysts at Canaccord Genuity in a research report issued to clients and investors on Thursday, MarketBeat.Com reports. They presently have a $48.00 target price on the renewable energy company’s stock, down from their prior target price of $76.00. Canaccord Genuity’s price target indicates a potential upside of 72.10% from the company’s current price.

 

[jhm]

SunEdison is down 21% today. They posted mixed result with downward guidance.

So this seems to fuel negative sentiment today. I would point out that SunEdison mostly is on the utility side of solar and other renewables. So this is not direct commentary on the future of rooftop solar.

My own outlook is that utility solar will largely suffer with the fate of grid generators. Gold plated networks will disconnect the wholesale market from the retail market. But at this point the stock market is having a hard time differentiating behind-the-meter from front-of-the-meter, and viewing all solar just as distressed as coal, natural gas and the utilities.

 

[SBenson]

Mind if you share? I looked through your old posts and couldn't find how you backtracked the installation figure being non- sense.

The simple answer is that $2.84/W cost figure is NOT all inclusive. It selectively picks the costs. It is so called EVC style number.

In the same EVC style model SolarCity claims shareholders got $2.45/W (slide 1). But looking at the incremental NRV/W, we see that shareholders in actuality got only $0.58/W.

So the missing $1.87/W is unaccounted costs.

Here are the details:

	NRV	Inc NRV	Bookings	Inc NRV/W	EVC/W	Leak
2015 Q1	2718
2015 Q2	3057	339	395	0.86	2.02	1.16
2015 Q3	3256	199	345	0.58	2.45	1.87

Some of the leak we know like R&D which is $0.05/W but there are many others. We don't know if these costs are recurring or one time in nature (like capex) but there is a leak in both quarters that we can verify. We need to pour ourselves all over the financials to get to the bottom of this.

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There are one other puzzling thing. In their slide 1, they claim the cost was $2.84/W and shareholders are getting $2.45/W. So they priced the system at $5.29? Lets say that is true, what about paying all the financiers (tax-equity, and debt sponsors)? So they were able to sell the system for well beyond $5.29/W. That doesn't smell right.

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$1.92 in straight up install costs is about where I'd expect an installer at scale to be(edit: nationwide installer in the US). Add on the tons of sales commissions they currently pay plus overhead and you get $2.84.

That's not even remotely impressive. Why the disbelief?

Why is NRV not growing faster then?

There is a massive gap in between what the company is actually making vs what it says it is making. That gap is the hidden costs or unaccounted costs. See my post above.

 

[doggusfluffy]

I must be a contrarian investor, as well as a complete idiot too I guess. If you view the future of energy with any objectivity at all you can understand how solar and wind...when paired with those batteries they are already packaging at Gigafactory 1 will completely flip this entire equation. The grid is no longer the only game in town and rather than being an asset is now a rapidly aging albatross in terms of cost to features in the same way cell phones leapfrogged traditional Telco land lines or Netflix ousted Blockbuster. If you include in any fashion the related costs associated with fossil fuels be it in carbon, industrial waste, public health, earthquakes related to fracking or even the fresh water resources diverted from agriculture or increased cost passed along to the human customers...when presented with a viable alternative at scale...it seems to me at least pretty obvious which technologies will win and lose.
If you dared to make the wild assumption that government was in the business of solving problems...:wink: then the ITC debate would be solely between people desperately trying to protect their financial interests and pretty much everyone else. It seems at least from a policy perspective the results of their actions are mostly proven out in examples from either side. Just my $.01...I'm down from my previous costly contributions.

 

[aznt1217]

The simple answer is that $2.84/W cost figure is NOT all inclusive. It selectively picks the costs. It is so called EVC style number.

In the same EVC style model SolarCity claims shareholders got $2.45/W (slide 1). But looking at the incremental NRV/W, we see that shareholders in actuality got only $0.58/W.

So the missing $1.87/W is unaccounted costs.

Here are the details:

	NRV	Inc NRV	Bookings	Inc NRV/W	EVC/W	Leak
2015 Q1	2718
2015 Q2	3057	339	395	0.86	2.02	1.16
2015 Q3	3256	199	345	0.58	2.45	1.87

Some of the leak we know like R&D which is $0.05/W but there are many others. We don't know if these costs are recurring or one time in nature (like capex) but there is a leak in both quarters that we can verify. We need to pour ourselves all over the financials to get to the bottom of this.

- - - Updated - - -

There are one other puzzling thing. In their slide 1, they claim the cost was $2.84/W and shareholders are getting $2.45/W. So they priced the system at $5.29? Lets say that is true, what about paying all the financiers (tax-equity, and debt sponsors)? So they were able to sell the system for well beyond $5.29/W. That doesn't smell right.

- - - Updated - - -



Why is NRV not growing faster then?

There is a massive gap in between what the company is actually making vs what it says it is making. That gap is the hidden costs or unaccounted costs. See my post above.

Oy. I was kind of afraid this would be the response I would get (and for good reason though). I appreciate the work you did, but silly question did you e-mail investor relations about the figures and what drives it for an estimated breakdown. I think the unaccounted for cost are very much the high volume of capex one time charges which is not publicized enough.

 

[ItsNotAboutTheMoney]

I must be a contrarian investor, as well as a complete idiot too I guess. If you view the future of energy with any objectivity at all you can understand how solar and wind...when paired with those batteries they are already packaging at Gigafactory 1 will completely flip this entire equation. The grid is no longer the only game in town and rather than being an asset is now a rapidly aging albatross in terms of cost to features in the same way cell phones leapfrogged traditional Telco land lines or Netflix ousted Blockbuster. If you include in any fashion the related costs associated with fossil fuels be it in carbon, industrial waste, public health, earthquakes related to fracking or even the fresh water resources diverted from agriculture or increased cost passed along to the human customers...when presented with a viable alternative at scale...it seems to me at least pretty obvious which technologies will win and lose.
If you dared to make the wild assumption that government was in the business of solving problems...:wink: then the ITC debate would be solely between people desperately trying to protect their financial interests and pretty much everyone else. It seems at least from a policy perspective the results of their actions are mostly proven out in examples from either side. Just my $.01...I'm down from my previous costly contributions.

Whoa, that's a bit over the top:
- Pick a battery price
- Pick an average usable percentage
- Pick a battery life
- Pick a cycle efficiency (efficiency of electricity converted, stored, discharged and converted).
Calculate cost per usable kWh of electricity.
Compare to the current cost per kWh of electricity delivery.
Now consider that cheap batteries deployed strategically at large scale by utilities and I don't see how the grid would be an albatross, especially since at the same time cheap batteries would be adding significant household demand by being used to power cars.

 

[doggusfluffy]

Whoa, that's a bit over the top:
- Pick a battery price
- Pick an average usable percentage
- Pick a battery life
- Pick a cycle efficiency (efficiency of electricity converted, stored, discharged and converted).
Calculate cost per usable kWh of electricity.
Compare to the current cost per kWh of electricity delivery.
Now consider that cheap batteries deployed strategically at large scale by utilities and I don't see how the grid would be an albatross, especially since at the same time cheap batteries would be adding significant household demand by being used to power cars.

I'm narrowly looking at this from the energy policy perspective and how this debate might shake out. I was thinking about whether all or nothing is likely...or some sort of deal or concessions. I'm staying out of the financing conversations.

I think the albatross aspect is that in many cases it isn't adding value if your cheap batteries and cheap panels replace any grid connection at all.

 

[SBenson]

Oy. I was kind of afraid this would be the response I would get (and for good reason though). I appreciate the work you did, but silly question did you e-mail investor relations about the figures and what drives it for an estimated breakdown. I think the unaccounted for cost are very much the high volume of capex one time charges which is not publicized enough.

Actually scratch that. I honestly can not make anything add up to anything.

All I know is that Cost sheet selectively picks items. They have an entire deck for it. Cross check it with their real financials. You will see missing items. For example R&D, and then 'Other Expense - net'.

 

[jhm]

Actually scratch that. I honestly can not make anything add up to anything.

All I know is that Cost sheet selectively picks items. They have an entire deck for it. Cross check it with their real financials. You will see missing items. For example R&D, and then 'Other Expense - net'.

Interested investors may want to study the Supplement on Cost Calculation that SolarCity publishes each quarter. In it you will see exactly which numbers from financials are included. Specifically not included are R&D and stock based compensation. The intent I belive is to cover the cost of installation and an allocation overhead that varies with that. R&D really has very little to do with what it costs to be a solar installer. It mostly support development of products and alternative revenue streams like aggregated grid service.

For example, SolarCity has spent a lot to figure out how to produce high efficiency panels, the benefit of which will be realized over the span of ten to 20 years. This represents longterm value creation which is not captured in either EVC or RV. Indeed, none of the value that Riverbend will create over the next 12 years currently registers in value creation metrics. My back of the envelope calculations suggest that the incremental value of Riverbend over its first ten years of operation is worth $2B or more. This value only begins to impact DevCo and PowerCo metrics in a positive way in 2017. Until then Silevo and Riverbend compete for cashflow and add to leverage used to finance installed watts. Essentially, SolarCity is leveraging it's currently book of business to finance Riverbend and other developments. So this counts against NRV for now, but the value Riverbend creates is not included in NRV. Other installers are not making this kind of long-term investment and so enjoy nicer financials in the shortrun. It think this is the pothole Elon advised Lyndon to avoid. It sucks going into 2017, but when Riverbend starts to deliver, it will be a whole new game.

Events & Presentations - SolarCity

 

[TheTalkingMule]

I'm narrowly looking at this from the energy policy perspective and how this debate might shake out. I was thinking about whether all or nothing is likely...or some sort of deal or concessions. I'm staying out of the financing conversations.

I think the albatross aspect is that in many cases it isn't adding value if your cheap batteries and cheap panels replace any grid connection at all.

The reason the grid cannot(really 'will not') deploy batteries in such a fashion is that it completely destroys the profit model of current forms of production. Everyone keeps saying that utility solar plus grid batteries is cheap(which it is), but when you add it as a component of the overall existing system it then cannibalizes itself. You can't claim the benefit of that 10% of the total production which comes from solar without accounting for the fact that those very same panels and batteries make the other 90% of production completely infeasible.

Our gird is a very delicate flower built to optimize profits at our expense and hold us hostage to midday needs. If we remove those midday needs, the effect on the traditional pricing/profit model should be obvious(and apparently is not).

- - - Updated - - -

I must be a contrarian investor, as well as a complete idiot too I guess. If you view the future of energy with any objectivity at all you can understand how solar and wind...when paired with those batteries they are already packaging at Gigafactory 1 will completely flip this entire equation. The grid is no longer the only game in town and rather than being an asset is now a rapidly aging albatross in terms of cost to features in the same way cell phones leapfrogged traditional Telco land lines or Netflix ousted Blockbuster. If you include in any fashion the related costs associated with fossil fuels be it in carbon, industrial waste, public health, earthquakes related to fracking or even the fresh water resources diverted from agriculture or increased cost passed along to the human customers...when presented with a viable alternative at scale...it seems to me at least pretty obvious which technologies will win and lose.
If you dared to make the wild assumption that government was in the business of solving problems...:wink: then the ITC debate would be solely between people desperately trying to protect their financial interests and pretty much everyone else. It seems at least from a policy perspective the results of their actions are mostly proven out in examples from either side. Just my $.01...I'm down from my previous costly contributions.

You'd be 100% correct with all your assertions above, but this thread is for the investment side and there is a very rational argument to be made here that profits won't be there. I obviously disagree with that notion, but I'm more on your side of the argument.

In my mind:

Solar is the future.
SolarCity has the "best" differentiated model.
SolarCity has the lead and is nearly to scale nationwide.
SolarCity has Musk and some of the best minds in the business.

When that dynamic changes, I will get worried. In the mean time, Arizona net metering discussions don't concern me, that just means demand will build up there. They're not going to be able to keep all the thumbs in all the dams for very long.

Ironically, I would never consider SolarCity for my install. I'll just buy the panels and put them up myself, but that's me. I don't have an iPhone, but a lot of people do.

 

[doggusfluffy]

The reason the grid cannot(really 'will not') deploy batteries in such a fashion is that it completely destroys the profit model of current forms of production. Everyone keeps saying that utility solar plus grid batteries is cheap(which it is), but when you add it as a component of the overall existing system it then cannibalizes itself. You can't claim the benefit of that 10% of the total production which comes from solar without accounting for the fact that those very same panels and batteries make the other 90% of production completely infeasible.

Our gird is a very delicate flower built to optimize profits at our expense and hold us hostage to midday needs. If we remove those midday needs, the effect on the traditional pricing/profit model should be obvious(and apparently is not).

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You'd be 100% correct with all your assertions above, but this thread is for the investment side and there is a very rational argument to be made here that profits won't be there. I obviously disagree with that notion, but I'm more on your side of the argument.

In my mind:

Solar is the future.
SolarCity has the "best" differentiated model.
SolarCity has the lead and is nearly to scale nationwide.
SolarCity has Musk and some of the best minds in the business.

When that dynamic changes, I will get worried. In the mean time, Arizona net metering discussions don't concern me, that just means demand will build up there. They're not going to be able to keep all the thumbs in all the dams for very long.

Ironically, I would never consider SolarCity for my install. I'll just buy the panels and put them up myself, but that's me. I don't have an iPhone, but a lot of people do.

Let me go all in and add my last $.01 then...just like my SCTY position. :biggrin: I have completely tuned out politics, presidential debates and I don't even have to suffer through the ads. I've been trying to get up to speed on the issue...and I'm only beginning now. I've followed Moniz at least some of his public speaking appearances, but only read a few articles about Obama's solar initiative as well as how the military was also utilizing solar and projecting the cost savings. I have read many opinions that the ITC debate is Republican vs. Democrats...and perhaps it really is at the end of the day. But, I was thinking about who the power players are at the table for this negotiation. Obama is still president and doesn't need to win another election. Sure, you have Texas and the coal or big oil states that you have always had before. So you've always had green states like California but now Hawaii has an interest in cheap renewable energy for their own problems for example. Also consider the state of NY is directly invested in SolarCity via Riverbend and Tesla made a huge economic splash in Nevada. So while I'm not even sure that would ensure any votes from either state it seems like the balance of political power is shifting from the entrenched interests...or at least might pivot on a different axis than red vs. blue or R vs. D.

To bring it back to the investor side of the discussion, it seems the ITC is the single biggest issue currently effecting Solarcity and their recent focus shift. For me today it was more interesting thinking about energy from a sort of above the fray perspective rather than drilling into the accounting of SCTY or regional squabbles.

I live in gray and overcast Western Washington which isn't solar country naturally. Still, if I was presented with a choice of electricity solar+batteries vs. grid power I would lean heavily toward islanding. I do think the utilities will have to compete for business in the near future instead of being the default or only option they are now.

 

[electracity]

.......... I would lean heavily toward islanding.......

Until you investigated the reality. Then you would appreciate your sweet, sweet grid connection. Imagine having all the power you need arriving on a thin wire.

Microgrid is the best of both worlds. The home mostly self consumes, and can island if necessary. But backup and the ability to sell excess electricity is available from the microgrid. The community mostly generates it own power, but has lightweight connections to neighboring areas.

Originally towns were on a microgrid, but without connections to neighbors. I think most of the desire to island is to regain control from massive utilities.

 

[doggusfluffy]

Until you investigated the reality. Then you would appreciate your sweet, sweet grid connection. Imagine having all the power you need arriving on a thin wire.

Microgrid is the best of both worlds. The home mostly self consumes, and can island if necessary. But backup and the ability to sell excess electricity is available from the microgrid. The community mostly generates it own power, but has lightweight connections to neighboring areas.

Originally towns were on a microgrid, but without connections to neighbors. I think most of the desire to island is to regain control from massive utilities.

If it's such a sweet, sweet grid connection why does the desire to regain control from the massive utilities exist? Not picking a fight actually, but I think most people remember the California gouging and also don't trust the utilities in general to provide cost control.

Nothing can compete with renewable energy, says top climate scientist | Environment | The Guardian

“The avalanche will start because ultimately nothing can compete with renewables,” he told the Guardian. “If you invest at [large] scale, inevitably we will end up with much cheaper, much more reliable, much safer technologies in the energy system: wind, solar, biomass, tidal, hydropower. It is really a no-brainer, if you take away all the ideological debris and lobbying.”

 

[electracity]

If it's such a sweet, sweet grid connection why does the desire to regain control from the massive utilities exist?

I think self sufficiency, as well as the desire to remove ourselves from large, distant corporate entities when possible.

Same reason not to sign a twenty year Solarcity contract.

 

[TheTalkingMule]

The only thing you NEED to focus on politically is if Bernie continues to have a 10% shot. That's a 10% chance of 2018(or even 2017) SCTY $90 calls being worth a ****-ton and they're basically free now. Other than that it's anybody's guess which event causes the squeeze, but it's certainly coming. This recent setback does not change my opinion that by late 2017 SCTY will be too obvious to counter with disinformation.

 

[doggusfluffy]

I think self sufficiency, as well as the desire to remove ourselves from large, distant corporate entities when possible.

Same reason not to sign a twenty year Solarcity contract.

Or have something really crazy like a 30 year fixed rate mortgage on their house. :biggrin: I don't follow your logic.

 

[electracity]

Or have something really crazy like a 30 year fixed rate mortgage on their house. :biggrin: I don't follow your logic.

I wrote "when possible".

 

[blakegallagher]

Thanks for the kind words blake.

Just for the record I sold everything yesterday morning at average price of $29.15

I did some intense research over the last week to cover every corner. I still have a lot of self-doubt. A lot of times I put information here in the hopes that it actually gets challenged, then I can be more sure either ways. I will post two more mega-posts, so to speak. One related to CA and the other drilling more into SolarCity's reported numbers. Hopefully that will create some discussion and help people make more informed decisions.

Take no offense, but the central problem with a lot of us bulls has been
- We have been too trusting of what management has been saying
- We fell for a lot of deceptive math (EVC, EVC style cost are prime examples)
- We have generally been *very* positively biased. I hate to use words delusional/wishful but I feel compelled to

Maybe I will regret taking these losses and selling into a low. But I honestly couldn't help it. I saw no silver lining.

I know this post is a couple pages ago but I Needed to respond, been on my to do list. I have been very trusting of management because I feel they have proven themselves very trustworthy. For years now they have executed as planned and Lyndon/peter/elon have never been caught in a lie, at least not with me.

The metrics are very confusing because it is a different business model with a lot of variables which is why they keep introducting new metrics to try and clear up the waters. ( not sure if that is working )

I have wondered how they would be able to finance this insane growth rate post ITC since that seems to be the primary method to use. I am still wrestling with wandering if the slow down was the best thing for the company or not.

The silver lining is you can rebuy now at lower levels , For a company with such a low valuation the nearly free 1 billion dollar factory is a silver lining enough for me. I currently dont have the time to dig into SCTY number that much but I had less to invest then SBenson did in SCTY. The future is unpredictable though so who is to say if your sell was the right move.

I am in a heavy capex moment myself right now but if Solar City remains at these levels through the end of the year I hope to start scooping up the longest term leaps I can.

 

[jhm]

Incremental Value of Riverbend

I would like to lay out my thoughts on the incremental value that the Riverbend facility presents. What is important to understand is that many of the costs of Riverbend are impacting the current financial performance of SolarCity, but none of the benefits. So the emphasis here will be sorting out incremental value not yet impacting current financials.

I don't have all the details worked out, so this is just a rough sketch. Please help me fill in the details for a more robust analysis.

Capital. SolarCity has purchased Silevo. They have two plants. The Riverbend facility will be leased from Buffalo and so is financed. SolarCity will need to pay for equipment. Can someone confirm that the capital for equipment is in hand? I'm not aware that SolarCity will need to raise any incremental capital to bring Riverbend on line. So my tentative assumption is no incremental capital required.

R&D. Much of SolarCity's research money is presently directed to Silevo and how to manufacture 22% efficiency panels. While R&D will continue to be an expense over the life of the Riverbend facility, the essential spending is being done right now in the years leading up to production at the facility. In any case, all this research is incurred just to run the to smaller Silevo plants. What Riverbend adds is scale to leverage R&D. My tentative assumption is that Riverbend adds a negligible amount of R&D spending beyond current commitments.

General & Administrative. Senior management for Silevo and business support (HR, IT, legal, etc.) are already in place. Certainly running Riverbend will require more middle management and salary staff. My tentative assumption is that Riverbend will add a modest amount to G&A.

Sales. Solarcity plans to consume all panels produced at Riverbend. SolarCity is already committed to selling installed solar systems. My assumptions is that there is no incremental sales cost for the output of Riverbend.

Gross Margin. Lyndon expects that the high efficiency panels to be made at Riverbend will generate a savings of 25c/W in total cost. This net improvement to GM will change over time. Riverbend plant will accelerate progress down the experience curve. As SolarCity doubles its cumulative production experience, the per unit cost of production should fall 15% or so. This includes both manufacturing and supply chain efficiencies. Moreover, technology advancements that continue to improve panel efficiency and other performance and cost metrics will increase the output volume and value to SolarCity. These factors suggest that the 25c/W improvement in GM will continue and may even improve over time. My assumption is that Riverbend will improve GM by 25c/W or better for the first ten years of operation.

Volume. Riverbend has a nominal capacity of 1GW/year. The actual capacity of the plant will depend on the efficiency of the panel. I will assume that the nominal capacity is based on panels in the 18% to 20% range. We now know that Silevo is capable of 22% efficiency. This implies a capacity in the 1.1 to 1.22 GW range. Moreover, Silevo should be able to increase efficiency each year, perhaps by as much as 0.5% each year. Over ten years this would add as much as 5% to efficiency for an average efficiency of 24.5%. Now I have already assumed that such efficiency gains would support the incremental GM overtime and waved my hands over R&D costs. So I will assume that the gains are already embedded in the assumption of no incremental R&D net cost and 25c/W incremental GM. Thus my volume assumption is that Riverbend adds 1.2 GW of incremental capacity.

Rough Impact. From 2017 thru 2027, Riverbend should add about $300M ($0.25/W×1.2GW) in incremental Gross Profit and add $50M in incremental overhead. This is a net impact of $250M/year on earnings. Over ten years plus the option to renew the Riverbend lease for another ten years, the Riverbend facility is easily worth an incremental $2.5B to shareholders.

To put this into perspective, PowerCo is worth about $3.3B in NRV, DevCo will add about $1.5B in EVC through 2016, and incremental to this Riverbend is worth about $2.5B 2017 and beyond. I would add that the start up cost of Riverbend is presently weighing on the PowerCo and DevCo. This burden will lift in 2017 and beyond. Thus, the combined value of SolarCity is at least $7.3B or $75/share.

 

[SBenson]

"New York State will invest a total of $750 million through the Buffalo Billion and other state resources to establish infrastructure, construct the 1.2 million square foot facility and purchase required equipment." From here.

Do we know if SolarCity is spending ANY money right now? My understanding was they are not until the factory is up and ready. When SolarCity is ready to operate and make use of it, that is when SolarCity will start actually spending some money there.

There is no mention of any spending in Riverbend in the 3Q 10Q.