SolarCity (SCTY)

[30seconds]

I don't trust their 7.4% cost of capital figure. That might have many many many assumptions baked into it.

Here is a better way to look at it. They raised $305mln on 230megawatts. That's $1.33/W.

From the latest investor presentation from Q2 ER, they raise $1.65/W in Tax Equity.

Bringing the total receipts to $2.98/W

While the same investor presentation shows the cost to be $3.05/W.

To make matters worse SCTY is additionally on the hook for O&M, which management estimated at one point to be 2cents/watt/year on average over the life of the install.

Essentially this transaction proves once again that SCTY loses money on every install, this is not even including R&D, CAPEX and any other corporate level expenses.

Market is happy that SCTY still has some avenues of liquidity but truth of the matter is that it is a money loser (different from Tesla, where S and X would be profitable standalone).

SCTY has option to increase mgmt cost on the contracts and keeps residual value of the systems once the $305m is paid off.

 

[schonelucht]

Hmm. I really don't know enough of SCTY to argue with you there. But basically if that's true then Soros is just picking up debt in distress for 80 cts on the dollar? I just realise another thing : no word on the relative quality of the underlying contracts. Is Soros acquiring a representative portfolio or is he cherry picking the best customers?

 

[Turing]

Regardless, for people looking at cash flow rather than long-term earnings, this is going to make Q3 look much better than expected. They basically moved $305 million in cash flow into Q3 from, well, much of it was from 20 years down the road.

Could this combined with other cost reductions give them a chance at being positive FCF for Q3?

 

[TMSE]

In the press release today http://files.shareholder.com/downlo...144D/SCTY_News_2016_9_12_General_Releases.pdf

SolarCity monetizes its underlying cash flows in cash equity transactions, but retains ownership of the assets and continues to service the customers. SolarCity held $5.2 billion in solar energy system assets on its balance sheet at the end of its most recently reported quarter on June 30. Those assets are contracted to create $3.1 billion in future payments on a net present value (NPV) basis (NPV calculation assumes 6% discount rate) , and SolarCity expects to continue to execute additional transactions in the future with high quality investors to monetize its contracted cashflows.

Does the 6% discount rate denote debt servicing cost? Is this $3.1 billion cashflow after servicing the corresponding asset-backed debt on SolarCity books? Correct me if I am wrong, but I think it has to be after servicing the debt because original debt issuer must have covenants in place to ensure the servicing of these asset-backed debts from the cashflow before they are appropriated for any other purpose.

 

[Lessmog]

Alert just in:

http://investors.solarcity.com/comm...=AMDA-14LQRE&fid=1564590-16-25121&cik=1408356


SAN MATEO, Calif., Sept. 12, 2016 — SolarCity Corp. (Nasdaq: SCTY) today announced that it raised $305 million in its second cash equity transaction. A private investment fund affiliated with Quantum Strategic Partners Ltd. and advised by Soros Fund Management LLC provided the equity investment in a portfolio of residential, commercial and industrial solar projects. The transaction also included a fully amortizing, 18-year loan that was syndicated to five high-quality institutional investors.
By placing the equity investor and lender group separately, SolarCity was able to achieve a pre-tax, weighted average cost of capital for the transaction of 7.4%, a significant improvement over its first cash equity transaction. The transaction and terms demonstrate the exceptional quality of SolarCity’s distributed solar assets.
The syndication of a long-dated, fully-amortizing loan is believed to represent a ‘first of its kind’ for distributed solar assets, creating another valuable financing tool for SolarCity. The loan was rated investment grade by a leading credit rating agency, and the financing is nonrecourse to SolarCity. Bank of America Merrill Lynch acted as the sole syndication and structuring agent for the transaction.
SolarCity monetizes its underlying cash flows in cash equity transactions, but retains ownership of the assets and continues to service the customers. SolarCity held $5.2 billion in solar energy system assets on its balance sheet at the end of its most recently reported quarter on June 30. Those assets are contracted to create $3.1 billion in future payments on a net present value (NPV) basis 1 , and SolarCity expects to continue to execute additional transactions in the future with high quality investors to monetize its contracted cashflows.
The portfolio of projects in the transaction announced today collectively represents 230 megawatts of solar generation capacity spread across 15 states. The vast majority of the installations were completed in 2015 and 2016.

 

[TheTalkingMule]

Here is a better way to look at it. They raised $305mln on 230megawatts. That's $1.33/W.

From the latest investor presentation from Q2 ER, they raise $1.65/W in Tax Equity.

Bringing the total receipts to $2.98/W

While the same investor presentation shows the cost to be $3.05/W.

To make matters worse SCTY is additionally on the hook for O&M, which management estimated at one point to be 2cents/watt/year on average over the life of the install.

Essentially this transaction proves once again that SCTY loses money on every install, this is not even including R&D, CAPEX and any other corporate level expenses.

Market is happy that SCTY still has some avenues of liquidity but truth of the matter is that it is a money loser (different from Tesla, where S and X would be profitable standalone).

How is this any different than Model S&X? Are both entities not attempting to expand exponentially? Is one Gigafactory different than the other?

Sales costs were last reported at $.91/W after the Nevada pullout. Prior to that it was $.57ish on its way downward. If SCTY just sat and churned in their established and most profitable markets they would be simply printing money right now. That's not the plan.

They make money in mature markets and lose boatloads in all new ones while consolidating share and scaling efficiencies.

 

[trentxintong]

How is this any different than Model S&X? Are both entities not attempting to expand exponentially? Is one Gigafactory different than the other?

Sales costs were last reported at $.91/W after the Nevada pullout. Prior to that it was $.57ish on its way downward. If SCTY just sat and churned in their established and most profitable markets they would be simply printing money right now. That's not the plan.

They make money in mature markets and lose boatloads in all new ones while consolidating share and scaling efficiencies.

Also, keep in mind, SCTY has yet to expand to markets which electricity is much more expensive than the US, e.g. Germany, Australia, etc. I think they will be able to make more $ per installation there.

 

[renim]

Also, keep in mind, SCTY has yet to expand to markets which electricity is much more expensive than the US, e.g. Germany, Australia, etc. I think they will be able to make more $ per installation there.

thats funny

one of the core reasons why Germany and Australia have such high rooftop PV is exactly because SCTY is not here.

yes solarcity has some office somewhere is Australia for talking to governments, but humans don't deal with Solarcity, we prefer value.

 

[trentxintong]

thats funny

one of the core reasons why Germany and Australia have such high rooftop PV is exactly because SCTY is not here.

yes solarcity has some office somewhere is Australia for talking to governments, but humans don't deal with Solarcity, we prefer value.

what sort of value do you think solarcity can not offer there ?

 

[trils0n]

Also, keep in mind, SCTY has yet to expand to markets which electricity is much more expensive than the US, e.g. Germany, Australia, etc. I think they will be able to make more $ per installation there.

Solar City's installation costs are dramatically higher than the local installation costs in Germany and Australia, so they wouldn't be able to compete. Unless the merger with Tesla cuts costs in a huge way, they won't have any presence in markets with low installation costs.

 

[trentxintong]

Solar City's installation costs are dramatically higher than the local installation costs in Germany and Australia, so they wouldn't be able to compete. Unless the merger with Tesla cuts costs in a huge way, they won't have any presence in markets with low installation costs.

OK. Are their panels cheaper or they spend less on customer acquistion ? what results in this price difference.

 

[TheTalkingMule]

OK. Are their panels cheaper or they spend less on customer acquistion ? what results in this price difference.

It's entirely sales cost and combating regulatory corruption. Germans do not(and never did) pay for sales costs, once the legislation making solar financially advantageous went into effect they just jumped on it. Call your lifelong electrician, fill out a one page permit and you're done. You can have rooftop solar in a week in Germany.

People act as if SCTY enjoys paying for all this sales effort, it's universal in the US. Ask the local installers in your market how much their sales cost is, the ones in my area were perfectly happy to share the info and it's absurd.

 

[renim]

what sort of value do you think solarcity can not offer there ?

Costs,
Solarcity has unnecessary advertising and marketing costs.
Solarcity has unnecessary sales costs.
Solarcity has zero scale advantage in choice of buying solar cells.
Solarcity probably has slight scale advantage in buying invertors, but with a corresponding disadvantage in choice.
Solarcity has significant financing burden compared to owner occupiers.
Solarcity has the margin problem that a further intermediary between the installer and the owner creates.

Understand this, my state is around 30% of dwellings have PV. Up and down my street, PV is clear indicator of home ownership vs home rental. The few exceptions tend to be those who self selected a house with unsuitable tree shading.

Everyone who is interested in having PV will ask their neighbour or a friend who already has it. There is no uniformed market left here for Solarcity to take advantage of. Perhaps 5-8 years ago there was. But not any longer. That opportunity is closed.

Tesla energy has a bright future in Australia (batteries) but not Solarcity.

 

[renim]

OK. Are their panels cheaper or they spend less on customer acquisition ? what results in this price difference.

Ok, we don't have a subsidy on cost, we have a 'bounty' on solar adjusted capacity. Its called RECS or something like that

Approximately speaking, the federal bounty for PV equals of cost of a panel. So we have local deals here where additional PV is perhaps $200 per kW installed (for using the same invertor)

Once the cost of a panel is zeroed out, what left?
the cost of the invertor
the cost of installation
the cost of marketing
all of which is influenced by the cost of financing.

since installation is now such a massive percentage of the cost, why add a further overhead to it? that would be stupid.

The USA subsidy for solar hides solarcity's model's uncompetitievnes
vs
The Australia subsidy for solar magnifies solarcity's model uncompetitievnes

 

[schonelucht]

Also, keep in mind, SCTY has yet to expand to markets which electricity is much more expensive than the US, e.g. Germany, Australia, etc. I think they will be able to make more $ per installation there.

Really? I live in the Netherlands and my solar installation (end user cost, no incentives) was a lot cheaper in dollar per Watt than the numbers I hear for SolarCity's cost basis. And I didn't even go for the cheapest offer.

 

[kenliles]

Really? I live in the Netherlands and my solar installation (end user cost, no incentives) was a lot cheaper in dollar per Watt than the numbers I hear for SolarCity's cost basis. And I didn't even go for the cheapest offer.

I think the real issue is here in US we barely believe in climate change as a whole country
(i.e. associated policies - funding mechanisms - counters to existing interests - etc).

That's why Elon has to resort to explaining it with references like these (tweet today)
@elonmusk: Climate change explained in comic book form by xkcd
xkcd: Earth Temperature Timeline


- there's Dumb, there's Dumber, and there's massive eco-political interests - we have to deal with all three here unfortunately -
It's changing; but slower than the glacial ice is melting;
as a USAer I sincerely apologize to the rest of the world...
[On the other side of that apology, we have Elon Musk and many more leading the way out with gusto and bravado]

 

[30seconds]

Cost of installation between US and EU countries is not a very good comparison. EU regulations in this area are significantly more streamlined than US, as this is handled at city/ country level in the US. See page 23
https://emp.lbl.gov/sites/all/files/lbnl-188238_2.pdf

 

[schonelucht]

Cost of installation between US and EU countries is not a very good comparison. EU regulations in this area are significantly more streamlined than US, as this is handled at city/ country level in the US. See page 23
https://emp.lbl.gov/sites/all/files/lbnl-188238_2.pdf

Thanks for the link. Interestingly, one of the other differing factors the study mentions is solar industry business models.

 

[TheTalkingMule]

I think the real issue is here in US we barely believe in climate change as a whole country
(i.e. associated policies - funding mechanisms - counters to existing interests - etc).

In the US fossil interests have the ability to dictate policy state-by-state, that is certainly not the case in Germany and I assume is much less of an issue in Australia. In Germany you know exactly how much you'll get paid for excess energy pushed to the grid for 20 years, in some of these southwestern US states solar fees and payback can change at a moment's notice. Hence the absurd sales cost becomes necessary.

If residential solar juice were given nationwide grid priority and a stable locked-in payback as they have in Germany, we would be buying super cheap PPAs from SCTY in the majority of states right now.

 

[neroden]

I look at the "monetization" transactions as SolarCity getting out of a bad business model (PPAs/leases). I don't really care whether they get out of it at a profit or a loss, as long as it's a small loss. Once all the PPAs/leases are monetized, SolarCity will no longer have banking (duration mismatch) risk.

Then SolarCity becomes a bet on the Buffalo factory. Make your own decisions on that; I personally am quite optimistic, because right now nobody else is competing in the SunPower "premium" space. The Buffalo factory looks to me like they can compete directly with SunPower at a lower cost.