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Solar = good doesn't seem to me to be an investment argument that supports a particular stock price for solarcity.
The current stock price seems supported by the solarcity balance sheet at the end of 2016. A higher than $30 stock price seems to need the support of future profitable business. ITC renewal and/or the success of the panel factory would create future profitable growth. But as I have said many times, I don't believe solarcity will be able to be competitive in a mature residential solar market.
I don't believe that solarcity has problems today as per SBenson's analysis. Solarcity's new sales have a wide variety of individual profitability. As long as they manage towards sales with good real margins they won't have problems. Essentially the ITC pays for most of solarcity's direct solar install costs.
Solarcity can waste much of the accumulated retained earnings by not sizing the company properly post ITC.
The current stock price seems supported by the solarcity balance sheet at the end of 2016. A higher than $30 stock price seems to need the support of future profitable business. ITC renewal and/or the success of the panel factory would create future profitable growth. But as I have said many times, I don't believe solarcity will be able to be competitive in a mature residential solar market.
I don't believe that solarcity has problems today as per SBenson's analysis. Solarcity's new sales have a wide variety of individual profitability. As long as they manage towards sales with good real margins they won't have problems. Essentially the ITC pays for most of solarcity's direct solar install costs.
Solarcity can waste much of the accumulated retained earnings by not sizing the company properly post ITC.
They are growing so cash out > cash in. Assuming adequate liquidity, all that matters is that they have true positive margins after financing and the time value of money is considered.
Nope, I never contended that SolarCity has problems "today". All my analysis was to only show that they look woefully unprepared for ITC stepdown, especially in the context of nem phase outs.
I have stayed consistent with my conclusions since the ER.
1) They are doing ok now. But they are not as profitable (even accounting for future cashflows) as they lead you to believe with EVC and other metrics
2) They will be at the cusp of a breakdown just with ITC step down
3) Post NEM policies can assure the death of Business model, even while other normal residential market (finance and pay upfront) survives
I still stand by these conclusions. I haven't seen anything material to change this perspective (yet).
Edit: Adding more below
In fact (unfortunately) you and I think remarkably similarly.
Even though the current stock price seems like a "value" given the current book, if things were to go sour wrt ITC and NEM the book will evaporate while executing the wind downs.
So the current stock price is not necessarily a value. It is a bet.
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TheTalkingMule
Distributed Energy Enthusiast
How is there not a decent similar industry to model this revenue/profit? SCTY has hardware and soft cost outlays on the front end and huge contracts on the back end, that's not a groundbreaking model.
They say they want to be "cash flow positive", but as long of they're growing at this rate they never would be, correct? I mean until growth settles down to 20% or so, how can you possibly overcome the upfront costs of all these new contracts?
Obviously not saying this is a bad thing. Rather, why is it a concern when the revenue based on retained value should be easy to illustrate?
They say they want to be "cash flow positive", but as long of they're growing at this rate they never would be, correct? I mean until growth settles down to 20% or so, how can you possibly overcome the upfront costs of all these new contracts?
Obviously not saying this is a bad thing. Rather, why is it a concern when the revenue based on retained value should be easy to illustrate?
Im just going to be blunt. And this has nothing to do with the environment. The only reason we've done anything in the southwest Asia is because of fossil fuel access and extraction. That business is dirty both physically and politically. The long and well known history of bad actions on behalf of many have put global security threats exactly where they are today. Terrorism is directly linked to weak or failed states with high concentrations of fossil fuels or proximity/access to them.
Fossil fuel is a scarce resource few have control over that depletes over time... Of course what is happening to today geopolitically is directly linked to it. If you can't acknowledge that then there is something seriously wrong and you need to take a step back for a bit.
If you believe in global security, what can reverse this trend? This also is painfully obvious and it's what most of us here argue every freakin day.
distrubuted renewable energy changes the equation big time. Imagine competition between installers globally for something once only a few royal families, business, and governments had access to. Imagine concentrations of wealth being rebalanced among many entrepreneurs, business owners, and employees that would compete for it and establish greater efficiencies and global innovation unlike anything we've seen. How can terrorism thrive in a Middle East where access to jobs and access to political participation are common place? This is how significant renewable distributed energy is to our global security. Renewable technology, specifically solar, does not inflate because of scarcity, it actually costs less as innovations occur in the technology. This reduction in energy costs reduced costs of all goods and services across the board. It prices items far more efficiently.
how does terrorism happen when fossil fuels no longer the mainstream energy source in these countries?
What at is the most significant long term security strategy for the United States in this light?
It is painfully clear and obvious as a nation we must support and not impead renewable market growth and acceleration. Our domestic policies do impact our national security. And we don't need to senselessly deplete our blood and treasure either. And if we do it with conviction, much of the global community's blood and treasure as well.
Fossil fuel is a scarce resource few have control over that depletes over time... Of course what is happening to today geopolitically is directly linked to it. If you can't acknowledge that then there is something seriously wrong and you need to take a step back for a bit.
If you believe in global security, what can reverse this trend? This also is painfully obvious and it's what most of us here argue every freakin day.
distrubuted renewable energy changes the equation big time. Imagine competition between installers globally for something once only a few royal families, business, and governments had access to. Imagine concentrations of wealth being rebalanced among many entrepreneurs, business owners, and employees that would compete for it and establish greater efficiencies and global innovation unlike anything we've seen. How can terrorism thrive in a Middle East where access to jobs and access to political participation are common place? This is how significant renewable distributed energy is to our global security. Renewable technology, specifically solar, does not inflate because of scarcity, it actually costs less as innovations occur in the technology. This reduction in energy costs reduced costs of all goods and services across the board. It prices items far more efficiently.
how does terrorism happen when fossil fuels no longer the mainstream energy source in these countries?
What at is the most significant long term security strategy for the United States in this light?
It is painfully clear and obvious as a nation we must support and not impead renewable market growth and acceleration. Our domestic policies do impact our national security. And we don't need to senselessly deplete our blood and treasure either. And if we do it with conviction, much of the global community's blood and treasure as well.
TheTalkingMule
Distributed Energy Enthusiast
The level of disinformation with your posting has escalated beyond the point of being a useful exercise.
You want this poor fellow to believe that not only will the ITC step down to 10%, but also net metering will be phased out across the nation? Essentially you're implying not only that federal and state support for solar renewable energy will disappear after 2016, but grid operators will be allowed to steal residential solar energy production and sell it to their retail customers. You've gone from posting great numbers to painting pictures that no logical casual follower of solar would truly believe.
As I mentioned in a previous post, the stakes are going way up and the dollars to be gained and lost in both the solar industry and in those industries potentially neutered by the spread of solar is in the hundreds of billions. When a gamechanger appears on the scene and is given a large value, it's very easy to spread disinformation and make a few bucks in the ensuing panic.
I would ask which is the more likely scenario:
1) The ITC is stepped down to 10%, net metering in all it's forms is slowly eliminated and the billions of dollars in existing SCTY energy contracts are "wound down" improperly leaving all the remaining revenue uncollected. Or...
2) The ITC does whatever it does, net metering remains and is expanded in the short term as the grid slowly moves toward treating all kWh produced as wholesale energy and SCTY continues to sell and collect on these convenient contracts that are below grid cost.
2) The ITC does whatever it does, net metering remains and is expanded in the short term as the grid slowly moves toward treating all kWh produced as wholesale energy and SCTY continues to sell and collect on these convenient contracts that are below grid cost.
The scenarios illustrated by SBenson over the last 3 weeks since he supposedly changed his position on SCTY would lead to the end of grid-tied solar in the US. If that's what you feel is likely to happen, then by all means base your investment decisions on that. I just don't see that as a very valid or sincerely developed argument.
Solar is the future and is still in it's infancy in the US. SCTY is out at the forefront and also happens to be the #1 installer in the US. What's the problem?
I think it's best to understand what growth means for Solarcity. They are still compounding growth at 40%. That means if they install 10 this year they will install 14 next year.
The other critical part is that this is additive. That 14 from this year is added to the 10 from last year, so now 24 people are paying monthly payments for 20 -30 years.
solarcity compounded growth could drop to 0% and they are still adding massively to the bottom line at these scales.
so if Solarcity does 1.25gws or 0% compounded growth in 2017 that would put them at 4.5gws going into 2018. Even at 0% compounded growth in 2018, they would still be around 1million customers goal. Also around $15bln gross retained value. $30bln in contracts. That if they drop 40% compounded growth to 0% too.
TheTalkingMule
Distributed Energy Enthusiast
Exactly, there's almost nothing they could do to keep their 2018 NRV below $15B even if they stopped all door-to-door sales today and just put up a one page website. Hell, that might even be the better way to go now that costs are so low. I just don't see how people are missing this.
And they are not compounding at 40%, they are compounding at 80-90% and PLANNING to drop down to 40% based on them not buying as many "warm leads". I think this is a California company underestimating the demand for cheap hassle-free solar on the east coast. The value proposition is just not being articulated properly.
And thus, we come to the one glaring problem all investors and non investors should see: public relations/investor relations are weak.
This, to me, is all on Lyndon and Peter. They need to really hone the sales pitch themselves. The really need to invest in messaging to the average investors what exactly they are doing and how they see the future of Solarcity.
I think Lyndon needs to be more prepared on the media circuit. He needs to promote not defend. Don't let bags of douche Cory Johnson take over the narrative in interviews. Control your story/message. Come on tv to announce more things. He needs to do talks that give the future of distributed solar. He needs to get on hgtv and do remodeling shows. If he doesn't do it, have Solarcity reps do it. The power of hgtv is profound in the home market.
He needs to take the responsibility of being the face of Solarcity or hire someone to do it. I don't think conference call by committee is the most effective either. He needs to lead the conversation. If he can't answer a question, direct the CFO to fill in the blanks. I'm sorry, Lyndon, you're not just one of the gang, you are the CEO, at least give investors the perception you are the one leading the ship on these calls. Allowing the annoying investor relations guy to step in at will and take over the coversation is distracting. You direct him to speak, not the other way around. Start a Twitter account of your own. Starting commenting on big ideas for solar energy. Get every day people excited about its promise. Drop some hints for future announcements. Also, dispel rumors and myths about the business health.
Communication soothes the soul. Solarcity needs to be more on top of it here. Lyndon needs to lead more from the front in public. If that means delegating others tasks so be it. Your public participation pays dividends, especially during times of confusion and uncertainty.
if I had a persistent compliant as a long term investor, this would be it.
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TheTalkingMule
Distributed Energy Enthusiast
In solarcity's own words: increasing customer acquisition costs. If scale really works, in the best solar market that will ever exist, why are customer acquisition costs rising?
Just to fully paint the picture.
I also said that IF the business model is not sustainable on a post-itc, post-nem basis, then financing will dry up even before reality comes into play.
My "speculation" is that once financiers see that the business model is not sustainable, they will balk at providing financing even for the worthy portion of the book, as they will now have to pricein the administrative costs/risks of executing these contracts if SolarCity were to go belly up. If financiers were to be not willing to take/price this risk, it creates an unfortunate self fulfilling prophecy. Thus it is extremely important that SolarCity gets it's act together and shows some solid progress on an all-in cost basis (not on the BS basis that the slide decks are presented).
The model needs to be sustainable and SolarCity needs to prove that it is.
Oh btw, in case you folks missed, the model is already called into question by the market:
- Bonds are trading at "distressed" levels, defined as 1000 basis points more than benchmark bonds. Effectively bond market is saying that there is a good chance the business will go belly up.
- Stock price is trading below the published NRV, close to NNRV. In other words, market is saying it's likely that the company will produce NO shareholder value henceforth.
If you don't think that the business model failure is even a remote possibility, you are delusional. The entire market priced it the other way.
The bond market is probably the biggest warning. The near junk current price is based solely on SC ability to repay in about two years. That alone makes SBenson's sale of a significant position at a loss the only prudent choice.
Presumably bond traders understand the financials and the NRV concept.
Presumably bond traders understand the financials and the NRV concept.
TheTalkingMule
Distributed Energy Enthusiast
The expense they've poured into getting up to scale isn't a major concern to me as they're mostly a thing of the past. Paying these third party vendors for warm leads and knocking on single doors will seem silly in a couple years time, that's just how SCTY felt it was best to get their message across in an immature industry. I obviously disagree, but I'm not losing my mind over paying sales people in the very near term.
But the facts remain, solar has finally arrived at cheap in the US. If you want panels on your roof you probably have some decent local options that will install whatever you like and let you manage your power and deal with the utility as you see fit. If you don't want to do all that, SCTY has top of the line panels, a mostly scaled install operation, and a great model that takes the job and risk out of going solar and saves you money.
Nothing has changed except the cost to SCTY for installs. So what's the problem?
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