SolarCity (SCTY)

[sleepyhead]

Is anyone expecting a capital raise soon with this surge in share price? If they are expecting to produce 1GW within two years, how much will that cost?

I am. I think that in the presentation it even says that they are in talks to raise capital.

I don't know how much it will cost, because it all depends on what kind of technology they are going to use. SPWR just spent $200m to build a fab for cell only production of up to 350MW/year. The Chinese on the other hand could probably build out close to 1GW of cell capacity with $200m.

I think that SCTY will need to spend about $500m - $1b in order to build out this manufacturing facility. But if they can acquire empty buildings on the cheap then it might be a little less.

 

[Johan]

I think that SCTY will need to spend about $500m - $1b in order to build out this manufacturing facility. But if they can acquire empty buildings on the cheap then it might be a little less.

That would be a page from the Elon-Tesla playbook...

 

[Johan]

Elon on CNBC: Answering questions about why did SCTY buy Silevo: "trying to think a few years ahead" - i.e. when solar really takes off ("booms") it's important to secure production capability (disregarding the current situation of oversupply). "Important to have high efficiency panels, more generation per surface area, lower installation cost because of less cables, less surface to cover".

 

[tigerade]

Replay of the Solarcity Conference with Elon Musk, Lyndon Rive and Peter Rive:

http://www.media-server.com/m/p/sfwejz2i

 

[Ocelot]

I had a bunch of SCTY July 19 55 dollar, options which I sold yesterday for 50% loss. If i sold today I would have had 200% gain.

 

[Rarity]

Wait a minute, where are all those people arguing with me that panel manufacturing is a bad business to be in?

It's a bad business to be in right now. About a year ago, Elon Musk equated solar panel manufacturing with drywall manufacturing.

 

[DaveH]

It's a bad business to be in right now. About a year ago, Elon Musk equated solar panel manufacturing with drywall manufacturing.

it is a bad business, labor intensive, capital intensive, low margin, high pollution. well .. just as bad as a battery business..

btw, below is what Musk said about solarcity

"Everybody thought that the panel was the problem but actually - it's a problem, but it's not the most important problem. The panel is somewhat commoditized at this point. "Making standard efficiency solar panels is about as hard as making dry wall. It's really easy. In fact, I'd say dry wall's probably harder." What is a thorny problem is trying to figure out how to get solar on tens of thousands, eventually hundreds of thousands, of rooftops. It's kind of like you've got to re-roof millions of buildings and then figure out how the grid interconnects work and then manage all those systems. If you've got hundreds of thousands or maybe millions of systems, eventually, you've got to manage all these distributed systems. You've got this really complex distributed utility, essentially. Which I think actually plays to their prior strength in creating really scalable software for managing hundreds of thousands of computers in a distributed fashion. That's kinda what they did and an awesome job"

 

[DaveT]

I am. I think that in the presentation it even says that they are in talks to raise capital.

I don't know how much it will cost, because it all depends on what kind of technology they are going to use. SPWR just spent $200m to build a fab for cell only production of up to 350MW/year. The Chinese on the other hand could probably build out close to 1GW of cell capacity with $200m.

I think that SCTY will need to spend about $500m - $1b in order to build out this manufacturing facility. But if they can acquire empty buildings on the cheap then it might be a little less.

I'd expect a raise as well. As for the cost of the plant, in the conference call Lyndon Rive mentioned a capex cost of $0.35-0.40 per watt excluding building cost. That's about $350-400m plus building costs. So, sleepy's $500-$1b estimate is spot on.

 

[DaveT]

Replay of the Solarcity Conference with Elon Musk, Lyndon Rive and Peter Rive:
http://www.media-server.com/m/p/sfwejz2i

1. Great conference call. I highly recommend listening to it.

2. It’s interesting that Elon was very active in the conference call. Seems like he had a lot of input into this decision.

3. Elon is super bullish on SolarCity’s future installations. He said, "We ultimately expect to be installing tens of GWs a year."

Let's take a deeper look at what it means to be "installing tens of GWs a year."

Let's say an average solar system is 7 kW (you can change this number based on your assumptions).

So, with 1 GW of panels/modules a year, SolarCity can install 142k houses per year.

With 10 GW of panels/modules a year, SolarCity can install 1.42m houses per year.

Yet, Elon said they expect to be "installing tens of GWs a year."

So, let's say SolarCity is able to eventually 50 GWs a year (ie., in 15-20 years). That would be 7.14m houses per year. This sounds kind of crazy, but this is what it means to install 50 GW per year of residential solar (of course, SolarCity could install commercial and utility scale as well).

I’ve stated in a previous post that I think SolarCity can reach 50-100 million customers by 2040 (SolarCity (SCTY) - Page 23).

If SolarCity reaches 50 million customers (would be quite likely if they eventually install “tens of GWs a year”), then let’s take a look at revenue.

If each customer pays SolarCity $150/month for electricity, then that’s $1800/year. Times that by 50 million customers. That’s $90 billion in annual revenue. Let’s say $10b in earnings. 15x p/e multiple. $150b market cap.

4. Interesting quotes:
Peter Rive - “We looked at every promising technology company we could find.”
Elon Musk - The key was finding “an advanced technology that was ready to scale”.
Lyndon Rive - “We can hit the point of providing energy at a lower cost than fossil fuels without incentives. If we do that the market is essentially infinite for the next 30-40 years.”

 

[30seconds]

You need to account for larger corporate installs. SCTY also own bid for HP's campus

 

[DaveH]

interesting comment from VP of YGE,

"Darren Thompson - Vice President, Sales and Managing Director, Yingli EuropeMaybe I will give some comments and I can ask Robert Petrina to give some supplement. So basically in post Q1 and Q2, our shipment to U.S. is very strong and even during the -- before and after the announcement of the CVD -- preliminary CVD in early June, we still see a very strong demand from U.S. customers in the second half of this year.
Our customers are very actively talking with us about different solutions how to reason, fairly solve the issues through commercial solutions and also based on our current assessment and understanding of the background scope and even the potential anti-dumping duty which may announce by the end of July, we believe that such kind of announcement or additional cost that arising from kind of potential tariff will not significantly impair the second half of our U.S. market demand."

 

[EV2BFREE]

I'd expect a raise as well. As for the cost of the plant, in the conference call Lyndon Rive mentioned a capex cost of $0.35-0.40 per watt excluding building cost. That's about $350-400m plus building costs. So, sleepy's $500-$1b estimate is spot on.

DaveT,
Have you looked into what Silevo is planning on spending in the Buffalo Riverbend site? According to what I have read, "Silevo, also based in Silicon Valley, has also pledged to invest $750 million and create 475 jobs." I don't know if there are any details about how Silveo is planning to raise this money or if it is up to Solar City to raise the capital now.

Also in that article it mentions:
"Cammarata said he expects all the necessary legal work will be completed in the next few weeks.
and
“Needless to say, there’s a lot of interest in closing this deal as quickly as possible,” Cammarata said."

It seems to me that a capital raise is imminent if they plan to close this deal ASAP

link to article: Riverbend details still coming together - Buffalo - Business First

 

[DaveT]

link to article: Riverbend details still coming together - Buffalo - Business First

Thanks for the article link. Here's another from the same website: Silevo sale may place Elon Musk in heart of Buffalo development - Business First

 

[DaveT]

Excellent video interview from 2012 with Silevo's VP. He gives a good summary of their tech. PV America - Silevo - Chris Beitel VP Solar Energy Technology - YouTube

 

[marvinat0rz]

A question right out of the blue: I am considering to buy a considerable long-term position in SolarCity. Is there a place, post or other source where I can get a reasonably comprehensive overview of the company's finances and future plans? I get the vibes that this is a company which is really well positioned for big growth in the renewable energy sector, but it's a bit hard to find a comprehensive summary of what is going on.

 

[sleepyhead]

1. Great conference call. I highly recommend listening to it.

2. It’s interesting that Elon was very active in the conference call. Seems like he had a lot of input into this decision.

3. Elon is super bullish on SolarCity’s future installations. He said, "We ultimately expect to be installing tens of GWs a year."

Let's take a deeper look at what it means to be "installing tens of GWs a year."

Let's say an average solar system is 7 kW (you can change this number based on your assumptions).

So, with 1 GW of panels/modules a year, SolarCity can install 142k houses per year.

With 10 GW of panels/modules a year, SolarCity can install 1.42m houses per year.

Yet, Elon said they expect to be "installing tens of GWs a year."

So, let's say SolarCity is able to eventually 50 GWs a year (ie., in 15-20 years). That would be 7.14m houses per year. This sounds kind of crazy, but this is what it means to install 50 GW per year of residential solar (of course, SolarCity could install commercial and utility scale as well).

I’ve stated in a previous post that I think SolarCity can reach 50-100 million customers by 2040 (SolarCity (SCTY) - Page 23).

If SolarCity reaches 50 million customers (would be quite likely if they eventually install “tens of GWs a year”), then let’s take a look at revenue.

If each customer pays SolarCity $150/month for electricity, then that’s $1800/year. Times that by 50 million customers. That’s $90 billion in annual revenue. Let’s say $10b in earnings. 15x p/e multiple. $150b market cap.

4. Interesting quotes:
Peter Rive - “We looked at every promising technology company we could find.”
Elon Musk - The key was finding “an advanced technology that was ready to scale”.
Lyndon Rive - “We can hit the point of providing energy at a lower cost than fossil fuels without incentives. If we do that the market is essentially infinite for the next 30-40 years.”

Thanks for this post, but I am going to modify your numbers a little bit:

A 7kW system should produce roughly 800kWh per month give or take depending in large part on geography. I am currently producing electricity at about $0.025/kWh wil my solar system. So to get $150/month SCTY would have to sell electricity at close to $0.20/kWH and that is never going to happen. I think that a more reasonable rate in the future will be about $0.05/kWh. So each customer should be paying around $40/month. Then you will need some battery storage since net metering will be going away (remember we are talking several years in the future), so this might be an extra $20/month.

So I would use something like $60/month pre customer instead of $150, which brings the market cap down to $60b (how ever many years down the road you expect this to happen). But such huge growth will lead to huge dilution, so at $60b market cap we might only see a $300 stock price 10-20 years down the road with 20m shares outstanding.

500% return in 10-20 years would be a great return still.

Just want to caution you guys on extrapolating earnings deep into the future in the solar sector. You have to really be cognisant of the fact that the cost of solar drops 50% every 3-5 years and this means that a lot less revenue will be earned per watt,whether you are an installer or manufacturer. You cannot say SCTY is doing $X per Y watts today, so when it does 10Y watts in the future it will be doing $10x of revenue. It will be more like $3-4x revenue for 10Y watts of installations. Same goes for panel manufacturers, but they already suffered the 1x/1y to 3x/10y in the 2011-2013 time frame. So for them going forward, it will be more like $6-7x revenue for 10Y watts...

 

[sleepyhead]

Also, in 5-10 years time IMO the leasing model will be dead. Residential systems will be very cheap to buy and there will be mortgage like products out there with low interest rates for those who can't afford to pay up front. There will be no reason to lease a system anymore.

7kW @ $1.50/W = $10k of revenue per system.
10GW per year = $15b in revenue for 1.42m customers.

DaveT on the other hand used $150/month or $1,800 per year per customer over 20 years. If you use these numbers then you are getting $51b in revenue from that same 1.42m customers.

$51b for 1.42m customers vs. $15b (according to my estimate) is a huge difference. So with these numbers you are looking at a $50b market cap and not $150b market cap.

I haven't read many research reports on SCTY, so I don't know how these analysts model out SCTY's earnings 5+ years down the road. But I would bet that they are doing it wrong and using extremely generous $/W assumptions. On the other hand, I would also bet that they are using a lot lower growth levels than SCTY will achieve in terms of watts installed per year. So those two errors will offset each other. I am just speculating here, but I know how analysts do research for other solar stocks and they have been way off over the past two years. Not even close to reality. Which explains the outsized returns that I have been enjoying in the solar sector.

 

[bonnie]

SCTY is in my portfolio, not because I think they'll experience growth in the leasing part of the business, but because I believe they will become more and more integrated with the larger gigafactory vision. They have a large group of R&D battery engineers (100+) in the local area (some will be at the bbq here at my place next month), are looking way past the future we talk about for SCTY. I'm betting on them the same way I bet on TSLA.

I don't believe the standard way of analysis will work, just like it doesn't work with TSLA. Using that approach is valid ... but if I had, I would have missed out on the TSLA story. And I believe SCTY will have a similar, albeit smaller, story to tell, too.

 

[DaveT]

They have a large group of R&D battery engineers (100+) in the local area (some will be at the bbq here at my place next month)

Is "They" referring to Solarcity or to Tesla?

 

[bonnie]

Is "They" referring to Solarcity or to Tesla?

Sorry for the vagueness. Solar City.