SolarCity (SCTY)

[tslas]

Thank you very much for this post. This is exactly what I am trying to achieve with my discussion. I am not for or against SCTY, because I really do not know how to value this company. I have never seen anyone here build out a financial model for SCTY like dozens of people on this forum have done for TSLA.



This is exactly what forums are useful for. I am just playing devil's advocate with SCTY, because all I here is praise for the company. I am just trying to get you guys to think about these risks and how SCTY's business model will evolve over time. Someone pointed out that SCTY started initially by selling systems, and them moved to leasing. 5 years from now, they might have to change their business model again. There are a lot of unknowns with this business model. Whereas TSLA is a pretty straightforward business model and a lot easier to understand and project.

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I don't think that this is hijacking the thread, because this is paramount to understanding SCTY's lease model and whether it is sustainable.

You bring up some good points, but i don't agree with them. E.g.

1) I put a solar system on my roof two weeks ago for $9k out of pocket. I am fairly certain that I can sell my house tomorrow and get at least $15k higher asking price due to solar system
2) My payback period is about 5 years, and then I have 30+ years of free electricty. Whereas the $0 down lease option has a payback period of 15 years as you claim.
3) I agree that there will be better technology in the future, but SunPower guarantees that after 25 years your panels will still produce at least 87% of original amount. Electricity is a commodity, so if it still works then it will have plenty of value 20 years from now. It is not like a car that will be worthless 20 years from now.

IMO if you are going solar to save money, then it only makes sense to buy the system. I think that SCTY is going to have to lower their lease rates substantially in the future once the consumer gets educated on this topic and that is going to eat into their margins of leasing. Leasing is extremely profitable for them, and fat margins never last too long. Big risk IMO.

1) And I guarantee that you will not recover your $9k investment if you sell your house tomorrow, And I doubt if you will ever recover compared to prepay lease.
2) Same as Prepay lease, what did you gain by outright owning
3) But Are your needs going to be same.. Currently I have only enough room on my roof that I can produce electricity that just meets my regular usage. Now I am going to get my Tesla in May and my electricity consumption would double, I wish I could get higher capacity panels that will offset my extra usage. I certainly don't have extra roof to put more panels.

Personally, Whatever reason you have of getting solar panels.. There is not a single scenario I can think of where Owning is better.
I am open to listening if you provide me a scenario where owning will be better then Prepay leasing..

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That is your opinion, because I had a rebuttal to your debunking

:biggrin::biggrin:I replied to your rebuttals with examples and I am waiting for your rebuttal back with those 4 houses example.

 

[Curt Renz]

My personal analysis of SCTY revolves around the fact that I don't see their lease model as sustainable, because the economics of buying a solar system are significantly better to the end consumer than it is to lease a similar system from SCTY.

Originally, SolarCity only sold their installations. Later they added the option to lease. Now both options exist.

 

[tslafan123]

Sleepy, the two BIGGEST points you are missing

1) Economies of scale.

2) As you clearly see now, there are different "opinions" about Buy vs Lease. You can't speak for the whole market!

 

[futureproof]

Sleepyhead, sleepyhead, relax... these are repeated issues I believe many have had over the year or so of reading your comments on SolarCity... sadly, I became a member of this forum to openly give a voice to these issues, but also (more importantly) because I couldn't find truly genuine, organized daily discussion on Solarcity among investors out there. I hope this thread can be that place, and I think I'm not alone.

On the issue of risks investing in SolarCity, you could just point people to their 10-k. As a matter of fact, there are many more that you are unaware that might make you even more concerned then you are... and that's exactly why I think you need to do your research if you want to help Solarcity investors make wise decisions on this thread. It will also get us investors to really dig into where the future pitfalls (and mitigating factors) are and really ask tough questions of Solarcity. I have personally emailed Aaron Chew(his email is on the website) and discussed with him my various questions and he was very forthright with his answers. To me, it was helpful in making my decision to invest. You might do right by emailing him yourself in order to critique/praise Solarcity on this thread so that investors might make wise decisions. Just sayin, Sleepyhead... let's raise the bar in this specific thread about Solarcity if you're offering advice...

 

[sleepyhead]

Originally, SolarCity only sold their installations. Later they added the option to lease. Now both options exist.

Yes, someone pointed this out already and I referred to this in my last post.

I think that the financial models that analysts are building are assuming growth in the leasing business. I think that there is a risk that the leasing business will not be as profitable in the future or that they will have to change their business model to selling systems instead of leasing.

This can greatly affect expected growth rates and drastically change the financial models.

I really don't know what the future will hold for solar, but I do know that it is a moving target. I also think that the margins that leasing companies are seeing today will not be sustained in the future for many reasons: cheaper financing, easier to obtain loans, better educated consumer, more competition to get a piece of the fat margins.

@DaveT - You are always impressed with SCTY's ability to drive down costs. I am not sure how much you research the rest of the solar industry, but everyone else is driving down costs really quickly as well. E.g. SPWR drove down module costs by 20% and balance of system costs by 24% in 2013. Everyone is doing it, so I am curious if SCTY is doing it a lot better than competitors or just slightly better?

 

[joefee]

@Sleepyhead "My personal analysis of SCTY revolves around the fact that I don't see their lease model as sustainable, because the economics of buying a solar system are significantly better to the end consumer than it is to lease a similar system from SCTY."

I'm already on record as using technicals vs fundamentals for SCTY http://www.teslamotorsclub.com/showthread.php/29044-SolarCity-%28SCTY%29?p=613301#post613301 but I can see a large customer base that does not have the cashflow to buy and would do a low/no cost lease to lower their electric bill using SCTY.

 

[sleepyhead]

Sleepyhead, sleepyhead, relax... these are repeated issues I believe many have had over the year or so of reading your comments on SolarCity... sadly, I became a member of this forum to openly give a voice to these issues, but also (more importantly) because I couldn't find truly genuine, organized daily discussion on Solarcity among investors out there. I hope this thread can be that place, and I think I'm not alone.

On the issue of risks investing in SolarCity, you could just point people to their 10-k. As a matter of fact, there are many more that you are unaware that might make you even more concerned then you are... and that's exactly why I think you need to do your research if you want to help Solarcity investors make wise decisions on this thread. It will also get us investors to really dig into where the future pitfalls (and mitigating factors) are and really ask tough questions of Solarcity. I have personally emailed Aaron Chew(his email is on the website) and discussed with him my various questions and he was very forthright with his answers. To me, it was helpful in making my decision to invest. You might do right by emailing him yourself in order to critique/praise Solarcity on this thread so that investors might make wise decisions. Just sayin, Sleepyhead... let's raise the bar in this specific thread about Solarcity if you're offering advice...

Is this guy serious? I am trying to keep it civil, but you keep attacking me with your posts.

You are not listening to anything that I am saying.

As an investor, I do my own research regarding risks, and don't rely on a company to tell me what they are. So please stop telling me to ask SolarCity about risks. You are being ridiculous and if that is how you make investment decisions (by asking the company if it is a good stock to invest in) then good luck to you - you are going to need it.

I am doing you all a favor by pointing out risks with SCTY, and all I get is thankless comments and personal attacks. I have no real stake in this company so I am not the one who needs to be doing more research.

I do have a feeling that SCTY investors are going to get burned really hard during the next bear market, it is going to be extremely painful!

 

[futureproof]

On the subject of Solarcity evolution from mostly cash sales to mostly leases... I think Lyndon Rive said they decided to do move to more leasing because more and more prospective customers were turned off with buying, however they were open to just paying for cheaper electricity(lease/ppa) then they do today with traditional utilities. Lease/ppa allowed Solarcity to open the market and therefore install more MWs of PV that otherwise wouldn't have happened...

 

[ggies07]

I thought Lyndon Rive wanted to turn SolarCity into the next "big" utility or something like that so they wouldn't be a middle man in the future. Instead of people getting electricity from a utility company, you set up panels from Solarcity and get your electricity that way. Or maybe he meant something else, can't remember exactly.

 

[sleepyhead]

@Sleepyhead "My personal analysis of SCTY revolves around the fact that I don't see their lease model as sustainable, because the economics of buying a solar system are significantly better to the end consumer than it is to lease a similar system from SCTY."

I'm already on record as using technicals vs fundamentals for SCTY http://www.teslamotorsclub.com/showthread.php/29044-SolarCity-(SCTY)?p=613301#post613301 but I can see a large customer base that does not have the cashflow to buy and would do a low/no cost lease to lower their electric bill using SCTY.

And I can agree with you, but right now their margins are way too fat. More competition will lead to lower margins and lower profitability in the future.

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1) And I guarantee that you will not recover your $9k investment if you sell your house tomorrow, And I doubt if you will ever recover compared to prepay lease.
2) Same as Prepay lease, what did you gain by outright owning
3) But Are your needs going to be same.. Currently I have only enough room on my roof that I can produce electricity that just meets my regular usage. Now I am going to get my Tesla in May and my electricity consumption would double, I wish I could get higher capacity panels that will offset my extra usage. I certainly don't have extra roof to put more panels.

Personally, Whatever reason you have of getting solar panels.. There is not a single scenario I can think of where Owning is better.
I am open to listening if you provide me a scenario where owning will be better then Prepay leasing..

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:biggrin::biggrin:I replied to your rebuttals with examples and I am waiting for your rebuttal back with those 4 houses example.

This discussion with you is pointless, because you are making false statements as facts! Here it goes anyway

1. My $9k solar system saves me $1600+ per year in electricity costs, so I will without a doubt get a $9k higher asking price on my home. More likely to be double that. Please stop with this nonsense that I will not get my money back, especially after arguing that a leased system is an asset and will make it easier to sell your home. You are being extremely hypocritical.
2. Your Prepay lease is good for 20 years, but my system will probably work 40 - 50 years, so that is what I gain. And at a minimum I have a 25 year product warranty. So I gain 20 years of free electricity.
3. Looks like you need SPWR panels, but SCTY only offers cheap panels that aren't efficient. So you need 30% more panels on your roof when you go with SCTY vs. SPWR.

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Sleepy, the two BIGGEST points you are missing

1) Economies of scale.

2) As you clearly see now, there are different "opinions" about Buy vs Lease. You can't speak for the whole market!

1. The little guy, aka local installer, can do it a lot cheaper than the big guy, aka SCTY.

2. People can have their opinions, I am talking economics. A lot of people here are arguing that they prefer lease just to argue with me, even though most of their comments don't make any logical sense. When you talk to people with genuine opinions the overwhelming majority would have preferred to buy a system, but they "didn't have the cash up front to pay for it". You can get loans people!

I think that a lot of SCTY shareholders are getting defensive, because they don't want to believe that SCTY's business model has risks.

 

[futureproof]

Sleepyhead, the simple point is if you, specifically, a person that commands respect from others on your researched investing prowess, offers advice on an equity you yourself have not researched, you shouldn't be alarmed when someone finds this a bit odd and out of place. I don't think you need to pound the sand in anger because that advice appears to fall on def ears... you, of all people, should celebrate debate and opposition. I almost get the feeling you see what you're saying as the end-all-be-all and that we are insulting your gift to all of us investors by questioning you.

Again, lets just raise the bar a little(keep it civil now...) so we investors can make wise decisions. If you don't want to do that, you don't have to comment on this thread, I guess. I'm sure you have plenty on your plate on other threads, and I'm sure, like always, we all will find your extensive research in those equities very useful:smile:

 

[clmason]

April marks 12 months since SCTY started to really take off. Investors who purchased SCTY Q1'13 are now able to sell their shares at Long Term Tax rates. I hypothesize this will cause downward pressure on the share price as early investor lock in gains. Especially as the share price drops, early investors will exit. Those reading this thread may be left with doubts as well. I know it is causing me to consider selling now that I am at a long term gain and double down the profits in a lower valued Solar company.

For example, if you purchased SCTY March of last year you would have a 300% gain right now and we are $22 or 35% off the all time high.

 

[sleepyhead]

Sleepyhead, the simple point is if you, specifically, a person that commands respect from others on your researched investing prowess, offers advice on an equity you yourself have not researched, you shouldn't be alarmed when someone finds this a bit odd and out of place. I don't think you need to pound the sand in anger because that advice appears to fall on def ears... you, of all people, should celebrate debate and opposition. I almost get the feeling you see what you're saying as the end-all-be-all and that we are insulting your gift to all of us investors by questioning you.

Again, lets just raise the bar a little(keep it civil now...) so we investors can make wise decisions. If you don't want to do that, you don't have to comment on this thread, I guess. I'm sure you have plenty on your plate on other threads, and I'm sure, like always, we all will find your extensive research in those equities very useful:smile:

You have repeated this same false message with at least half of your post made to date as a member or TMC. Can we ban this guy already?

I have done plenty of research on SCTY; more so than 99% of the people who own shares of SCTY. I just can't be bothered to a very deep analysis on the company; and my definition of deep means getting down to the granular level.

I am fairly certain that DaveT knows a heck of a lot more on SCTY than I do, but other than that I would be surprised to find out if another member here on TMC has actually done more research on SCTY than I have.

So please stop with your nonsense posts.

 

[futureproof]

Robert, I came to this forum because I didn't think Sleepyhead was advancing the SCTY discussion. I feel the "former SCTY" thread was useful until someone deemed it appropriate to rename something else as opposed to just making a new thread. I don't want that "thread creep" to happen with this thread since I find Solarcity an important topic of discussion to isolate as specific topic. I feel Sleepyhead simply keeps stating the same thing over and over again to get his "advice" across to people without actually having done the work. I think it is only fair to point this issue out as someone who enjoys learning about Tesla from this site and wants to preserve the high content value. The high content value comes from arguments advancing, and that's not the case with Sleepyhead's comments, especially as he is a trusted, valued contributor on this site. As a moderator, I hope you can see this the same way. I appreciate you stepping in, and hope you continue to keep this discussion on topic as you have just done regardless of the stature of those that comment...

 

[tslafan123]

1. The little guy, aka local installer, can do it a lot cheaper than the big guy, aka SCTY.

Reasoning by analogy: I can say the same thing about the burger joint around the corner. Regardless, McDonalds - who knows, that started with one store, grew into a $95Bil company. Similarly we can look at WalMart, CVS, HomeDepot, StarBucks, pretty much any other successful brand. There are local alternatives to all of these entities all along.

Reasoning from first principles: If the local guy can do better, why did SolarCity's market share grow from 12% in Q1 2012 to 33% as of Q3 2013?? As I said earlier, they are now bigger than the next 14 companies "combined"!!

2. People can have their opinions, I am talking economics. A lot of people here are arguing that they prefer lease just to argue with me, even though most of their comments don't make any logical sense. When you talk to people with genuine opinions the overwhelming majority would have preferred to buy a system, but they "didn't have the cash up front to pay for it". You can get loans people!

I lived in rental apartments all my life. You can harp in my ears all you want that buying a home is better. I couldn't care less. Yes, I know there are loans for buying homes - they are called mortgages. Likewise I can tell you all about the conveniences of renting the apartment, you will still buy a place if that's what you want. You still didn't get the point of 'preference'. In any case this whole discussion of Lease vs Buy is entirely mute.
- Different people want different things.
- SolarCity provides both.

 

[tslas]

This discussion with you is pointless, because you are making false statements as facts! Here it goes anyway

1. My $9k solar system saves me $1600+ per year in electricity costs, so I will without a doubt get a $9k higher asking price on my home. More likely to be double that. Please stop with this nonsense that I will not get my money back, especially after arguing that a leased system is an asset and will make it easier to sell your home. You are being extremely hypocritical.
2. Your Prepay lease is good for 20 years, but my system will probably work 40 - 50 years, so that is what I gain. And at a minimum I have a 25 year product warranty. So I gain 20 years of free electricity.
3. Looks like you need SPWR panels, but SCTY only offers cheap panels that aren't efficient. So you need 30% more panels on your roof when you go with SCTY vs. SPWR.

1) Nope, that is fact.. It is not hypocritical that, it will help sell your house faster and it will increase the price but no where near $9000.. It might have in NJ, where we get SREC if we own the system and each SREC is currently selling for $155, so essentially you are getting paid. But not in TX, where there is no SREC.
2) And I can renew after 20 years with better panels.. Don't think that is an advantage to you, probably disadvantage if you are using old tech after 20 years.
3) Probably, but can't change the panels now and It wouldn't have mattered when I signed up..But you can't say that your old 20 year SPWR panels will still be better than new cheapo panels.

Regarding your little guy.. That just flies in the face of economics of scale.. If that was the case, Walmart wouldn't have killed local guys. and so on and on and on.. Big retailers/manufacturers always win unless there significant advantage in tech or in something with local guy that Big guys don't have ala Tesla

And after getting loans, you pay interest people, without recovering your original investment to own the system. You are just don't seeing economics behind this.

BTW, I don't have any skin in the game. I am out SCTY and TSLA.

 

[sleepyhead]

2) And I can renew after 20 years with better panels.. Don't think that is an advantage to you, probably disadvantage if you are using old tech after 20 years.
3) Probably, but can't change the panels now and It wouldn't have mattered when I signed up..But you can't say that your old 20 year SPWR panels will still be better than new cheapo panels.

My 20 year old panels will be better because they will produce electricity for free, while you will be paying a new PPA or lease or whatever for the newest technology that delivers the exact same commodity electrons to your outlets.

Regarding your little guy.. That just flies in the face of economics of scale.. If that was the case, Walmart wouldn't have killed local guys. and so on and on and on.. Big retailers/manufacturers always win unless there significant advantage in tech or in something with local guy that Big guys don't have ala Tesla

Ask Theshadows for a quote on a solar system and then call SolarCity. I will bet you that Theshadows will be 25% cheaper than SCTY.

Economies of scale are not needed in this industry at all. All they do is force you to hire accountants and other back office jobs that add absolutely no value to the customer but are required from publicly traded companies.

It is a very simple industry, where you buy the panels, inverter, and roof racks, and you mount the equipment. Economies of scale may actually be detrimental because the little guy does not have the overhead that SCTY does.

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Economies of scale do not work for service providers such as SCTY. They work for manufacturers such as SPWR.

I can do your taxes a lot better and a lot cheaper than H&R block can, because of their bloated "economies of scale."

 

[tslafan123]

I can do your taxes a lot better and a lot cheaper than H&R block can, because of their bloated "economies of scale."

Lets see, on a split adjusted basis HRB grew from $0.91 to $29 over time. Lack of education among people must be the reason they are successful.

 

[tslas]

My 20 year old panels will be better because they will produce electricity for free, while you will be paying a new PPA or lease or whatever for the newest technology that delivers the exact same commodity electrons to your outlets.


Ask Theshadows for a quote on a solar system and then call SolarCity. I will bet you that Theshadows will be 25% cheaper than SCTY.

Economies of scale are not needed in this industry at all. All they do is force you to hire accountants and other back office jobs that add absolutely no value to the customer but are required from publicly traded companies.

It is a very simple industry, where you buy the panels, inverter, and roof racks, and you mount the equipment. Economies of scale may actually be detrimental because the little guy does not have the overhead that SCTY does.

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Economies of scale do not work for service providers such as SCTY. They work for manufacturers such as SPWR.

I can do your taxes a lot better and a lot cheaper than H&R block can, because of their bloated "economies of scale."

Oh so local guy and Solarcity get same price for Panels and Inverters and there is no advantage in buying in bulk.
I don't know how tesla improved their margin then?

 

[dalalsid]

Ask Theshadows for a quote on a solar system and then call SolarCity. I will bet you that Theshadows will be 25% cheaper than SCTY.
It is a very simple industry, where you buy the panels, inverter, and roof racks, and you mount the equipment. Economies of scale may actually be detrimental because the little guy does not have the overhead that SCTY does.
Economies of scale do not work for service providers such as SCTY. They work for manufacturers such as SPWR.
I can do your taxes a lot better and a lot cheaper than H&R block can, because of their bloated "economies of scale."

Not true. You can buy large quantities of panels at <50c/W. Small quantities cost >=75c/W. That's already $1250 on a 5kW system. Not sure about Inverters but I'm sure if you are buying 1000 of them, they are probably cheaper than buying 10 by a significant amount. Same with whatever other equipment is required.

Also Solarcity probably has lower overhead than the small guy because they probably do mass permit applications, probably have it figured out for most of the areas serviced, getting more work done per man hour. Also they have more expertise in dealing with complex roof lines and varied layouts making system design faster etc.

The only reason you can do taxes cheaper is because there is only human capital involved. No equipment.