SolarCity (SCTY)

[Zzzz...]

Electracity, please tone down your condemnatory language. This is not a scam. This is a business that is business that is competing directly with the utilities. They build their business where utilities are charging over 16 cents/kWh. What SolarCity is a complete installation and financing package for no money down so that the customer pays only 13 cents/kWh. SolarCity is doing an excellent job at competing directly with these monopoly utilities and bringing customers relief. I would encourage you to take a closer look at their business model to see where improvements could be made. I would challenge you to come up with a business model that could offer power at 11 cents/kWh or less with no money down. If you can figure out how to do that, then fantastic. We need smart entrepreneurs to enter this space. For SolarCity's part, they see a path to reduce their total cost from $2.95/W to $2.50/W by 2017. If you see a way to achieve cost reductions fast, then by all means share that with us, or better yet go into business and show the utilities how it's done.

This.

 

[electracity]

.....I would encourage you to take a closer look at their business model to see where improvements could be made. I would challenge you to come up with a business model that could offer power at 11 cents/kWh or less with no money down. If you can figure out how to do that, then fantastic. We need smart entrepreneurs to enter this space.

You go to the bank, take out a small loan, and install a properly price system you then own. This will return far better than 11 cents. There is far less economic risk than a twenty year contract.

There no need for entrepreneurship in this space any more than is required to replace a home air conditioner. "Innovative solar financing" is a short term move to trick some customers, and apparently some investors. Existing lenders and regular electricians provide the same service at far lower cost to the consumer.

That leaves solarcity business as a modern day loan shark making high interest loans to people without adequate credit.

Solar will scale huge because it is a very low cost commodity business. Commodity equipment and commodity installers. Look at Germany. Look at Australia. When solar prices are far higher in the U.S. than in Germany, the important question is "why?".

 

[SBenson]

I'm sure their lead to sale ratio is falling fast. But they are in a strong up market. I'm evaluating their value proposition, which is horrible. No one should be signing a solarcity contract. Have you compared solarcity to alternatives in a particular market?

You can say "good for them" for finding naive customers. But how is that a long term business plan? Do an ROI calculation from a homeowners perspective. Look at mature solar markets in other countries. Solarcity has no IP, and no barriers to entry to their potential customers.

Is this investing, or did I stumble into a solarcity cult of some sorts? Tesla is a business with fantastic upside potential. Solarcity is not Tesla.

- - - Updated - - -

You go to the bank, take out a small loan, and install a properly price system you then own. This will return far better than 11 cents. There is far less economic risk than a twenty year contract.

There no need for entrepreneurship in this space any more than is required to replace a home air conditioner. "Innovative solar financing" is a short term move to trick some customers, and apparently some investors. Existing lenders and regular electricians provide the same service at far lower cost to the consumer.

That leaves solarcity business as a modern day loan shark making high interest loans to people without adequate credit.

Solar will scale huge because it is a very low cost commodity business. Commodity equipment and commodity installers. Look at Germany. Look at Australia. When solar prices are far higher in the U.S. than in Germany, the important question is "why?".

Because you don't know "why?" it must be SolarCity's bad business practices.

 

[jhm]

I'm sure their lead to sale ratio is falling fast. But they are in a strong up market. I'm evaluating their value proposition, which is horrible. No one should be signing a solarcity contract. Have you compared solarcity to alternatives in a particular market?

You can say "good for them" for finding naive customers. But how is that a long term business plan? Do an ROI calculation from a homeowners perspective. Look at mature solar markets in other countries. Solarcity has no IP, and no barriers to entry to their potential customers.

Is this investing, or did I stumble into a solarcity cult of some sorts? Tesla is a business with fantastic upside potential. Solarcity is not Tesla.

Electracity, your inflammatory language and unsupported accusations are out of place in the forum. If you persist in this disrespectful manner, you will be regarded as a troll. It's your choice.

I do encourage you to educate yourself of SolarCity by reading the investor presentations. For example, it you suspect that SolarCity might be having increased difficulties acquiring new customers, then you need to know that SolarCity actually publishes its sales expense as a ratio to Watts. If marketing were to lose traction, then investors would know about it by observing sales expense per Watt increasing over time. So go ahead and look it up and tell us if this cost component is on the rise. You will be much better received on this forum if you do your homework and bring meaningful facts and analyses into the discussion.

 

[jhm]

You go to the bank, take out a small loan, and install a properly price system you then own. This will return far better than 11 cents. There is far less economic risk than a twenty year contract.

There no need for entrepreneurship in this space any more than is required to replace a home air conditioner. "Innovative solar financing" is a short term move to trick some customers, and apparently some investors. Existing lenders and regular electricians provide the same service at far lower cost to the consumer.

That leaves solarcity business as a modern day loan shark making high interest loans to people without adequate credit.

Solar will scale huge because it is a very low cost commodity business. Commodity equipment and commodity installers. Look at Germany. Look at Australia. When solar prices are far higher in the U.S. than in Germany, the important question is "why?".

I would like to see your math on this bank financing scheme. I work in banking and am very familiar with the mathematics of financing, but I do not see how can get financing good enough to get to 11 c/kWh. The median system that SolarCity installs generates 1412 kWh per kW installed. At 11 c/kWh, this is annual loan payment of $155.32. This size payment per year on a 20 year loan at 5% interest would get you a loan of $1969.41 per kW, about $1.97/W. Plus, the borrower has to pay back the full loan whether the system actually produces 1412 hours per year or not and cover all maintenance and repair. I'm not aware of any bank where you can borrow money with the mere promise to repay 11 cents per kWh used from the solar system you elected to install. But even if you use a more traditional home improvement loan, I do not see how you get enough financing to fully install your system.

Moreover, is this do it yourself financing business model is taking off in this country? Do you have any data to support the contention that self financed rooftop solar is growing as fast as leased solar?

 

[Cosmacelf]

Leasing a car rather than buying one is usually a bad financial investment, yet there is s huge market for it. Solarcity obviously also fills a need.

 

[SBenson]

SolarCity does provide loans for those who don't like PPAs/Leases. I believe they do outright sales too for those interested in paying full cash (wether the cash is borrowed or otherwise).

If competitors provide better prices or better terms, their market share won't be growing the way it is growing.

 

[dalalsid]

SolarCity does provide loans for those who don't like PPAs/Leases. I believe they do outright sales too for those interested in paying full cash (wether the cash is borrowed or otherwise).

If competitors provide better prices or better terms, their market share won't be growing the way it is growing.

There is a common misconception that mom and pop shops are solarcity competitors. I have a solar system installed for $2.50/W but I would not consider that competition for SCTY because I have no peace of mind for 20 years, no online monitoring, nobody pays me if the system performs less than expected, I still have to replace the inverter in the 20 year period. Even though the panels have a 25 year warranty, that only applies to electricity production, the rest of the warranty is only 10 years (which is wierd - if the panel breaks because of a defect and stops producing, is it covered after 10 years? I have no idea, probably not). If my roof leaks from the panel mounts after 5 years, who is responsible - Me. I have a string inverter as opposed to SolarEdge which solarcity uses. If I added all that to my system (solaredge, online monitoring, inverter extended warranty, 25 yr warranty panels = sunpower is the only option that I know), I would be pretty close to what SolarCity quotes.

 

[electracity]

There is a common misconception that mom and pop shops are solarcity competitors.

Are you leasing your HVAC from a hot and cold air provider? No? What if it breaks? What if it leaks?
Has the market just not appreciated the huge opportunity in HVAC leasing?

Within ten years panels will be $.20/watt and inverter will be $500. The main hardware components of a typical residential system with be $2K at most. Yet solarcity customers will be half way through a twenty year lease.

 

[ItsNotAboutTheMoney]

Are you leasing your HVAC from a hot and cold air provider? No? What if it breaks? What if it leaks?
Has the market just not appreciated the huge opportunity in HVAC leasing?

Within ten years panels will be $.20/watt and inverter will be $500. The main hardware components of a typical residential system with be $2K at most. Yet solarcity customers will be half way through a twenty year lease.

And the effect on SCTY is?

(Can a mod please move electracity's posts to a different thread about the merits of the model itself?)

 

[Jonathan Hewitt]

I would like to see your math on this bank financing scheme. I work in banking and am very familiar with the mathematics of financing, but I do not see how can get financing good enough to get to 11 c/kWh. The median system that SolarCity installs generates 1412 kWh per kW installed. At 11 c/kWh, this is annual loan payment of $155.32. This size payment per year on a 20 year loan at 5% interest would get you a loan of $1969.41 per kW, about $1.97/W. Plus, the borrower has to pay back the full loan whether the system actually produces 1412 hours per year or not and cover all maintenance and repair. I'm not aware of any bank where you can borrow money with the mere promise to repay 11 cents per kWh used from the solar system you elected to install. But even if you use a more traditional home improvement loan, I do not see how you get enough financing to fully install your system.

Moreover, is this do it yourself financing business model is taking off in this country? Do you have any data to support the contention that self financed rooftop solar is growing as fast as leased solar?

For disclosure, I sold out SCTY in 2013 at $55 after having bought in the low $30 range as I had trouble with the risk/reward at the time. Now that it's $55 again and it's a year and a half later it's starting to look attractive to me again, especially with exciting developments like the NY factory they are building.

In trying to understand your example, are you trying to state that the financing would cost you $1.97 over the life of the loan? I'm not sure what you are trying to show here.

Lets look at it another way. The system I had installed from a non-SCTY installer cost me $13,203 after tax credits for a 5.886 kWh system. If I used a loan instead of cash (since most people need loans or lease arrangement) and plugging this value into a loan calculator for 20 years and 5% (your numbers) gives me a payment of $87.13 a month. It's supposed to make 8502 kWh a year, which averages 708.5 kWh a month. My utility charges $0.135/kWh so that would have been a $95.65 payment to the utility each month for this amount of energy. In this example I would still save $7 a month right now (and more when the utility raises rates each year) and at the end of 20 years I would own the system and pay practically $0 per kWh for the rest of the life of the system, which I expect to be a while because I went with Sunpower panels. It will last at least 5 more years as SPWR has a 25 yr warranty. If I could get 0.11/kWh with a SCTY lease that would be $78/month payment for now, which is 9 dollars cheaper than the loan scenario at the start but with the escalator will quickly match and pass the loan scenario and the kicker is that at 20 years I do not own the system, so I have to sign a new lease and I know it won't be 0 cents a kWh.

I think the biggest rebuttal here is you can't get 20 year loans for solar panels, at least not that I could find, so if you can't afford huge loan payments and or the cash then SCTY is your only option (and not a bad one!). I did cash for mine but got a loan just for the tax credit portion until tax season came. Am I missing something else? Even if it's better for people to get loans and do their own I agree with the value that SCTY provides. Obviously the SCTY business model is working and I think it's great but I would like to know what I'm getting back into.

 

[dalalsid]

Are you leasing your HVAC from a hot and cold air provider? No? What if it breaks? What if it leaks?
Has the market just not appreciated the huge opportunity in HVAC leasing?

Within ten years panels will be $.20/watt and inverter will be $500. The main hardware components of a typical residential system with be $2K at most. Yet solarcity customers will be half way through a twenty year lease.

Within 10 years SCTY "will" sell systems standard with storage, they "will" share the revenues from providing peak shaving services with you.

You must not have heard of these guys:
The Home Warranty Leader – American Home Shield

Think of Solarcity as the solar "applicance" provider with that bundled in.

There are so many things that a network of solar + storage "will" do that not being on the network cannot provide.

 

[electracity]

The Home Warranty Leader – American Home Shield

Yes! A terrible financial decision, but some people do buy this sort of thing.
Insurance always has a negative expected value.

There are so many things that a network of solar + storage "will" do that not being on the network cannot provide.

That doesn't require solarcity. Just install a solaredge inverter to be powerwall compatible in the future. Tesla Energy will likely sell wholesale service, not solarcity.

 

[tlo]

Question:

I live in Canada and there's no SolarCity here. The thing that's keeping me from installing solar is if I pay for my installation upfront and decide to move in a few years, I'm not sure if I'll breakeven on my initial investment. Potential home buyers would have to be aware of the value of my solar installation and include the premium in the home value.

For states that have SolarCity as an option, how does SCTY installations compare with non-SCTY installations in terms of the hassle/value of transferring the solar installation to the new homeowner? Would it be accurate to say that a SCTY installation is more advantageous and attractive in this regard for homeowners who are likely to move in ~5 years because the SCTY contract would just need to be passed off to the new owner like any plain old electricity bill?

 

[jhm]

For disclosure, I sold out SCTY in 2013 at $55 after having bought in the low $30 range as I had trouble with the risk/reward at the time. Now that it's $55 again and it's a year and a half later it's starting to look attractive to me again, especially with exciting developments like the NY factory they are building.

In trying to understand your example, are you trying to state that the financing would cost you $1.97 over the life of the loan? I'm not sure what you are trying to show here.

Lets look at it another way. The system I had installed from a non-SCTY installer cost me $13,203 after tax credits for a 5.886 kWh system. If I used a loan instead of cash (since most people need loans or lease arrangement) and plugging this value into a loan calculator for 20 years and 5% (your numbers) gives me a payment of $87.13 a month. It's supposed to make 8502 kWh a year, which averages 708.5 kWh a month. My utility charges $0.135/kWh so that would have been a $95.65 payment to the utility each month for this amount of energy. In this example I would still save $7 a month right now (and more when the utility raises rates each year) and at the end of 20 years I would own the system and pay practically $0 per kWh for the rest of the life of the system, which I expect to be a while because I went with Sunpower panels. It will last at least 5 more years as SPWR has a 25 yr warranty. If I could get 0.11/kWh with a SCTY lease that would be $78/month payment for now, which is 9 dollars cheaper than the loan scenario at the start but with the escalator will quickly match and pass the loan scenario and the kicker is that at 20 years I do not own the system, so I have to sign a new lease and I know it won't be 0 cents a kWh.

I think the biggest rebuttal here is you can't get 20 year loans for solar panels, at least not that I could find, so if you can't afford huge loan payments and or the cash then SCTY is your only option (and not a bad one!). I did cash for mine but got a loan just for the tax credit portion until tax season came. Am I missing something else? Even if it's better for people to get loans and do their own I agree with the value that SCTY provides. Obviously the SCTY business model is working and I think it's great but I would like to know what I'm getting back into.

SolarCity does not offer a PPA at 11 c/kWh. Electracity made the claim that financing from a bank would suffice to make 11c/kWh possible. I challenged her/him to show how this is possible. One W can only pay back about $1.97 in financing under very generous terms, if even possible to get a twenty year loan. There is no viable business model Electracity can point to here.

 

[hcsharp]

Are you leasing your HVAC from a hot and cold air provider? No? What if it breaks? What if it leaks?
Has the market just not appreciated the huge opportunity in HVAC leasing?

Within ten years panels will be $.20/watt and inverter will be $500. The main hardware components of a typical residential system with be $2K at most. Yet solarcity customers will be half way through a twenty year lease.

First I'd like to welcome you to this thread. It's badly in need of a SCTY bear. I say that despite (or should I say because of) the fact that I'm a SCTY investor.

I agree with Cosmacelf that the lease model has proven to be useful to a lot of buyers. Many people are capital or credit constrained and a Solar City lease is better for them than no solar system at all. Many homeowners are simply unable to borrow against a new solar system, or at a rate that competes with Solar City's equivalent cost of financing.

You have, however, brought up a point that's almost never discussed among this thread full of SCTY bulls. What worries me most about SCTY is its ability to maintain its high margins. Like you said, these are boom years for solar. You have pointed out a lot of similarities between the HVAC and solar markets. SCTY's cost of acquiring a new customer is very high compared to their cost of installing the system, although they've made substantial improvements in this area. In the HVAC industry you see most large mechanical contractors focusing on the commercial market. The reason for this is that there are greater margins than in residential. Why? because there are far more barriers to entry in the the large commercial HVAC business. I think you may be correct in some of your comparisons between the two industries.

Having said that, Solar City has some things going for it that local installers and other competitors don't have. One is their access to better technology. The factory they're building will produce more efficient panels giving them at least a temporary advantage. They also appear to have really good management that is quick to take advantage of new opportunities and laser focused on efficiency. Perhaps the biggest thing they have in their favor over smaller competitors is access to capital. They have already demonstrated the power of this by owning almost the entire lease market, and buying the startup that is the foundation for their new panels. These are some of the reasons I'm holding my long position in SCTY.

 

[electracity]

Many people are capital or credit constrained and a Solar City lease is better for them than no solar system at all.

1) Solarcity can take the credit risk on those customers due to high margins.
2) Few if any of these customer will benefit financially from the contract. In just a few years these customers will be more informed and disgruntled with the inability to take advantage of low cost solar. Unbelievably, many of these people will have escalators in their solarcity contract.

It's a clever company strategy. I guess people have bad credit because they make poor financial decisions. Monetize that ignorance while it lasts!

 

[dalalsid]

First I'd like to welcome you to this thread. It's badly in need of a SCTY bear. I say that despite (or should I say because of) the fact that I'm a SCTY investor.

I agree with Cosmacelf that the lease model has proven to be useful to a lot of buyers. Many people are capital or credit constrained and a Solar City lease is better for them than no solar system at all. Many homeowners are simply unable to borrow against a new solar system, or at a rate that competes with Solar City's equivalent cost of financing.

You have, however, brought up a point that's almost never discussed among this thread full of SCTY bulls. What worries me most about SCTY is its ability to maintain its high margins. Like you said, these are boom years for solar. You have pointed out a lot of similarities between the HVAC and solar markets. SCTY's cost of acquiring a new customer is very high compared to their cost of installing the system, although they've made substantial improvements in this area. In the HVAC industry you see most large mechanical contractors focusing on the commercial market. The reason for this is that there are greater margins than in residential. Why? because there are far more barriers to entry in the the large commercial HVAC business. I think you may be correct in some of your comparisons between the two industries.

Having said that, Solar City has some things going for it that local installers and other competitors don't have. One is their access to better technology. The factory they're building will produce more efficient panels giving them at least a temporary advantage. They also appear to have really good management that is quick to take advantage of new opportunities and laser focused on efficiency. Perhaps the biggest thing they have in their favor over smaller competitors is access to capital. They have already demonstrated the power of this by owning almost the entire lease market, and buying the startup that is the foundation for their new panels. These are some of the reasons I'm holding my long position in SCTY.

I'm not so sure about price reductions in panels going forward. I see them going to at the most half of now and then staying there. Pricing has already been stabilizing and future price drops are more likely form efficiency than cheaper materials. And at some point (I say double of current efficiency), there will be a limit. Also as pricing drops, storage will become more and more popular effectively maintaining or increasing total system price.

The bear arguments for SCTY
1. Competition: There is none. Most of the competition is like saying my local convenience store competes with Walmart
2. Leasing vs Buying: That is the biggest bear argument and people seem to like the leasing model. Start saving from day 1 as opposed to 8-15 year payoff of investment.

I was kind of ambivalent about SCTY as an investment until I did some analysis for an article on SA. When you look at SCTY as a future utility, their contracted payments and growth in those, it is difficult to bet against them. I think I made some calculation errors in the article but overall it is not difficult to see that their massive borrowings will produce outsized returns and $6B is a decent valuation for the current state.

 

[electracity]

.......

The bear arguments for SCTY
1. Competition: There is none. Most of the competition is like saying my local convenience store competes with Walmart

Walmart sells huge volume on tiny margin.

2014 is the year solar became a lock for becoming a huge business. Yet solarcity stock has declined. I would think that individual investors holding the stock for long term gain would wonder why. Do you understand something about solarcity that industry specialists don't?

The interest I have in solarcity is buying on the bad news of the federal tax credit expiring. And then selling when the stock recovers.

 

[ggies07]

Walmart sells huge volume on tiny margin.

2014 is the year solar became a lock for becoming a huge business. Yet solarcity stock has declined. I would think that individual investors holding the stock for long term gain would wonder why. Do you understand something about solarcity that industry specialists don't?

The interest I have in solarcity is buying on the bad news of the federal tax credit expiring. And then selling when the stock recovers.

Really? It's declined? From what perspective, yours? I bought in at $10......I'm doing just fine and the stock continues to edge up month by month, year over year.

The tax credit expiring won't affect this company and you would know that if you read and listen to their plans.