SolarCity (SCTY)

[DaveT]

Yes, that appears to be correct, Dave. I reiterate, though: he should own some outright. I have no truck with senior management or board members of any company that fail to show that simple show of support for and courtesy to the shareholding public. When such a person is hired and he is granted in-the-money options, as is the case here, it is even more distasteful to me. Long-term readers of my posts do know I am the cranky old-timer here, with old-time beliefs....

Hmmm, I'm not sure if I'm getting exactly what you're saying.

Brendon Merkley is not on the board of directors, but rather is a newly hired EVP of Process Engineering. If he was a board member, then yes I would agree that he ought to buy shares to show his support. But as a hired executive, I don't get the mandate for him to use his personal money to buy shares of the company. SolarCity granted him at-the-money options when he was hired back in Dec 2013. So that's part of his compensation and incentive package, and gives him a vested stake in the company and its future.

Overall, I like the board and the executive team to have a decent stake/ownership in the company since it aligns their interests with shareholders and allows them to have a longer-term view. However, in Brendon Merkley's case, we don't know his personal finances and I'd much rather have him join the executive team with at-the-money options as part of his incentive/compensation package (ie., 150k shares in this case), rather than him buying a few thousand shares when he was hired from his personal money because it'll look good to shareholders. In my view, him holding options that were at-the-money when issued (issued Dec 2103 but exercisable starting Dec 2014) is pretty much the same as him holding stock outright.

Maybe I'm missing your point, but I'm not seeing the mandate for a newly hired executive to own shares outright from the outset. Would love to hear more of your thoughts though.

 

[daniel Ox9EFD]

Have any of you heard of quality of service issues with SolarCity?
Looking them up on Yelp - SolarCity - San Mateo, CA | Yelp
There are many negative reviews, and I did come across a critique of SolarCity in this regard, but couldn't find it now.
I'd admit that for this reason I'm somewhat skeptical of SolarCity, plus the fact that the cost of entry is very low for new companies doing the same. i.e NRG is now competing with them directly.
This is the exact opposite of my impression of Tesla which I invested in, where the costumer satisfaction is considered astounding, and the barrier to entry even for established car companies into the EV market in a meaningful way is high. The leaf cost Nissan some imaginary figure of around 6 billion $ to bring to production.

If you got the same impression, wouldn't it be better for them to outsource the servicing? They seem to have enough on their plate and I'm not sure why it makes sense to be so vertically integrated in the home solar business to begin with.

I'd like to hear also if you think I got this wrong. Its a first impression and not based on substantial research.

Thanks,
Daniel

 

[daniel Ox9EFD]

Here is the mentioned critique - Tesla Motors And SolarCity: Moving Beyond Musk Obsession

...customers seem to be far less happy with the company’s products than they are with Tesla’s.

Thanks,
Daniel

 

[AudubonB]

First, Dave, I am aware that the world - and most fundamentally, the US corporate world of 2014 - mostly thinks quite differently from me. With that, MY perspective is:

* that a senior executive brought in last fall is no longer "newly hired" (H*ll, that makes him an old-timer by today's corporate standards of race-around).

* that all senior executives of a publicly held company - and board members too, of course - have a moral and even a fiduciary responsibility to the shareholding public of owning shares outright.

* that compensation packages these days are so bloated that no such person has the ability to claim personal finances as a reason for not fulfilling this duty.

* that a compensation package that included those 150k share option is that much more reason that he should cowboy up and purchase real shares. NOTHING an executive can do is more demonstrative that he has faith in the organization that he works for than this action.

Those are my reasons. They also should give you good insight as to why I have spent the past two decades ensconcing, entrenching, embedding myself in a remote part of this remote state. O tempora! O mores!

 

[DaveT]

First, Dave, I am aware that the world - and most fundamentally, the US corporate world of 2014 - mostly thinks quite differently from me. With that, MY perspective is:

* that a senior executive brought in last fall is no longer "newly hired" (H*ll, that makes him an old-timer by today's corporate standards of race-around).

* that all senior executives of a publicly held company - and board members too, of course - have a moral and even a fiduciary responsibility to the shareholding public of owning shares outright.

* that compensation packages these days are so bloated that no such person has the ability to claim personal finances as a reason for not fulfilling this duty.

* that a compensation package that included those 150k share option is that much more reason that he should cowboy up and purchase real shares. NOTHING an executive can do is more demonstrative that he has faith in the organization that he works for than this action.

Those are my reasons. They also should give you good insight as to why I have spent the past two decades ensconcing, entrenching, embedding myself in a remote part of this remote state. O tempora! O mores!

Thanks for the explanation. So, is there a minimum number of shares you want executives to own outright from the outset? For example, if Brendon Merkley purchased 1,000 shares would that be satisfactory? Just curious, since rather than him purchasing a trivial amount of shares outright from the outset I'd rather have him take a comparatively lower salary than the industry and take on a significant stock incentive plan that will align his interests with the long-term future of the company (which SolarCity did by giving him ATM options when they brought him on).

 

[ItsNotAboutTheMoney]

Have any of you heard of quality of service issues with SolarCity?
Looking them up on Yelp - SolarCity - San Mateo, CA | Yelp
There are many negative reviews, and I did come across a critique of SolarCity in this regard, but couldn't find it now.
I'd admit that for this reason I'm somewhat skeptical of SolarCity, plus the fact that the cost of entry is very low for new companies doing the same. i.e NRG is now competing with them directly.
This is the exact opposite of my impression of Tesla which I invested in, where the costumer satisfaction is considered astounding, and the barrier to entry even for established car companies into the EV market in a meaningful way is high. The leaf cost Nissan some imaginary figure of around 6 billion $ to bring to production.

If you got the same impression, wouldn't it be better for them to outsource the servicing? They seem to have enough on their plate and I'm not sure why it makes sense to be so vertically integrated in the home solar business to begin with.

I'd like to hear also if you think I got this wrong. Its a first impression and not based on substantial research.

Thanks,
Daniel

Large scale.
Soft costs are primary cost driver.
Subsidies will be cut significantly.
Cheap backup on the horizon.

Vertical integration provides the opportunity to gain competitive advantage in an increasingly tough, but rapidly growing market. There are potentially huge amounts of money to be made. Imagine panels+battery in every building.

 

[gene]

Have any of you heard of quality of service issues with SolarCity?
Looking them up on Yelp - SolarCity - San Mateo, CA | Yelp
There are many negative reviews, and I did come across a critique of SolarCity in this regard, but couldn't find it now.
I'd admit that for this reason I'm somewhat skeptical of SolarCity, plus the fact that the cost of entry is very low for new companies doing the same. i.e NRG is now competing with them directly.
This is the exact opposite of my impression of Tesla which I invested in, where the costumer satisfaction is considered astounding, and the barrier to entry even for established car companies into the EV market in a meaningful way is high. The leaf cost Nissan some imaginary figure of around 6 billion $ to bring to production.

If you got the same impression, wouldn't it be better for them to outsource the servicing? They seem to have enough on their plate and I'm not sure why it makes sense to be so vertically integrated in the home solar business to begin with.

I'd like to hear also if you think I got this wrong. Its a first impression and not based on substantial research.

Thanks,
Daniel

As usual, people with negative experiences are very much more vocal. I had Solar City install a system on my house. The process went very well and I haven't required any service as solar systems pretty much never need service. I am satisfied.

Another point, after the installation, the city inspector who does only solar systems as they are coming online so rapidly, told me "Solar City always does the installation to code just the way we like it, I never have to call them back out to fix anything. Other guys have to come back sometimes several times." I did not ask him who the "other guys" are.

 

[SBenson]

Have any of you heard of quality of service issues with SolarCity?
Looking them up on Yelp - SolarCity - San Mateo, CA | Yelp
There are many negative reviews, and I did come across a critique of SolarCity in this regard, but couldn't find it now.
I'd admit that for this reason I'm somewhat skeptical of SolarCity, plus the fact that the cost of entry is very low for new companies doing the same. i.e NRG is now competing with them directly.
This is the exact opposite of my impression of Tesla which I invested in, where the costumer satisfaction is considered astounding, and the barrier to entry even for established car companies into the EV market in a meaningful way is high. The leaf cost Nissan some imaginary figure of around 6 billion $ to bring to production.

If you got the same impression, wouldn't it be better for them to outsource the servicing? They seem to have enough on their plate and I'm not sure why it makes sense to be so vertically integrated in the home solar business to begin with.

I'd like to hear also if you think I got this wrong. Its a first impression and not based on substantial research.

Thanks,
Daniel

Yelp review issue came up many times before on this thread. Several commentators, with first hand experience, said Yelp skews ratings based on if businesses pay Yelp or not. I actually started investing in SCTY after hearing/reading a number of *very* positive reviews. I believed, and still believe, customer satisfaction is their biggest strength.

'Low barriers to entry' topic comes up here a lot. Let me give a good answer on this one:

1] Even a high school grad can create a website with a shopping cart. So how come Amazon grew to be so big?

How hard is it to sell random stuff in a box store? Then how come Walmart became so big?

How hard is it to make and sell hamburgers? Well, how did McDonald's become so big?

What about coffee? Any idiot can make coffee and sell it. What made Starbucks so big?

The answer to all these questions is
a) Being at the forefront of an emerging trend -and/or-
b) Business acumen + execution efficiency, typically translating into economies of scale

2] It's not that easy for someone, even with a lot of capital, to sort of become as big as SolarCity in one shot. It takes time to create a network/hierarchy of competent people, (software) systems, business processes etc. Just because NRG can or will dump a bunch of capital, doesn't mean they will automatically race ahead of solar city.

3] The size of the market is HUMONGOUS. Will write a detailed post, with data, in a followup. There is enough for everyone who wants to succeed.

4] GE is a 250+ Billion dollar company. It makes more money in Energy industry, one way or another, than in any other industry. The head guy has this to say about SolarCity:

At the World Energy Innovation Forum at the Tesla factory in Fremont, Calif. this week, the CEO of GE, Jeff Immelt, said during an onstage interview that GE had focused so intently on how bad the solar panel business was that they “missed SolarCity.” “My God I wish I had thought of that,” said Immelt.

Reference: Immelt: I Wish I Had Thought Of SolarCity - Business Insider

- - - Updated - - -

More significant insider selling going on with SCTY. Peter Rive sold 135,000 shares of the stock on July 30th at $74.00, for a total value of $9,990,000.
I said it before, I'm saying it again, this really doesn't sit right with me. They are making so much money selling their shares. Presumably significant dilution is coming to fund their solar panel factory. If it were not Elon being Chairman and JB being a Board Member I think this stock would be valued at a fraction of what it is today.

Care to show your valuation model?

 

[AudubonB]

Dave -
Certainly buying 1,000 shares is infinitely superior to owning none. 2,000 shares would be twice as good as 1K...and so on. But as to answering the important question of what is the appropriate amount, I confess I do not know. Now, this gentleman came to Solar City with a bit of baggage....and a "poaching" lawsuit. That has brought upon a countersuit, so, in this one case, we might surmise a bye is in order until the jumping-ship mess is resolved.

 

[DaveT]

Dave -
Certainly buying 1,000 shares is infinitely superior to owning none. 2,000 shares would be twice as good as 1K...and so on. But as to answering the important question of what is the appropriate amount, I confess I do not know. Now, this gentleman came to Solar City with a bit of baggage....and a "poaching" lawsuit. That has brought upon a countersuit, so, in this one case, we might surmise a bye is in order until the jumping-ship mess is resolved.

I think what I'm getting at is that Brendon Merkley effectively owns shares outright via his ATM option signing bonus. Let me explain a bit further.

When he signed on with SolarCity, as compensation they could have given him a high salary, cash signing bonus, a stock/option plan, etc. In Brendon's case, he and SolarCity opted for the option/stock package as part of (or all of) the signing bonus, which implies to me that they probably didn't give him a large cash signing bonus and his salary probably isn't exorbitant either. So, in this case Brendon is choosing to opt for equity in SCTY as a large part (or all) of his signing compensation package.

His option/stock package was given to him in Dec 2013 when he joined SCTY and gives him the option to purchase 150k shares at $52.xx anytime between Dec 2014 and Dec 2023. So, in effect SolarCity gave (and Brendon choose to receive) $52 strike Dec 2023 LEAPS. Market value for these options back when he joined SCTY would be at least $25 (probably more since they expire in 2023. I for one would love to buy $52 strike SCTY LEAPS that expire in 2023 for $25.). So, at $25 market value the option to buy 150k shares is worth approximately $3.75 million. Note from what I can tell this isn't an incentive plan with milestones but it like a signing bonus where he's able to exercise the options starting Dec 2014.

I think my point is Brendon Merkley decided to choose equity in SCTY for his signing bonus, and that equity (basically $52 strike 2023 LEAPs) is in all practically the same as holding 150,000 SCTY shares. While he could have taken a large cash signing bonus, he probably didn't and by taking the equity grant he choose to become a vested stakeholder in SCTY's future.

I, for one, who much prefer him taking the 150k option grant than him purchasing 10k shares on his own when he was hired. The 150k option grant gives him a much bigger stake in the future of SCTY (practically the same as him holding 150k shares) and aligns his interest much more with the long-term future of company.

 

[SBenson]

These are some data points that highlight the growth potential for SCTY:

****

Snippets from Bloomberg New Energy Finance (BNEF)'s 2030 Market Outlook report

By 2030, the world’s power mix will have transformed: from today’s system with two-thirds fossil fuels to one with over half from zero-emission energy sources. Renewables will command over 60% of the 5,579GW of new capacity and 65% of the $7.7 trillion of power investment.

Rooftop solar PV will dominate, taking up a fifth of the capacity additions and investment to 2020.

A small-scale (meaning, rooftop) solar revolution will take place over the next 16 years thanks to increasingly attractive economics in both developed and developing countries, attracting the largest single share of cumulative investment over 2013-26.

The Americas region will invest $1.3 trillion in 557GW of new power generating capacity through 2026. Renewable energy technologies will account for two-thirds of the new capacity over that period.

Small-scale solar will be the most important form of renewable energy, accounting for 18% ($231bn) of all investment in power-generating capacity in the region over 2013-26. In the US alone, a 27-fold growth of rooftop PV installations will give it a 10% share of the US capacity mix.

About the report:
Published annually, the analysis pulls together the expertise of over 65 technology and country-level experts from 11 Bloomberg New Energy Finance offices worldwide, taking nine months to complete.

About Bloomberg New Energy Finance:
With unrivalled depth and breadth, we help clients stay on top of developments across the energy spectrum from our comprehensive web-based platform. BNEF has 200 staff based in London, New York, Beijing, Cape Town, Hong Kong, Munich, New Delhi, San Francisco, São Paulo, Singapore, Sydney, Tokyo, Washington D.C., and Zurich.

Reference:
http://bnef.folioshack.com/document/v71ve0nkrs8e0

***

From Green Tech Media (GTM) research report: U.S. Residential Solar Financing, 2014-2018

The share of third-party ownership (TPO) of residential solar, which has grown from 42 percent of the market in 2011 to 66 percent in 2013, will peak in 2014 at 68 percent. Beginning in 2015, the expansion of residential solar loan programs and alternate financing mechanisms such as property-assessed clean energy programs will drive the trend line back toward direct ownership, while the share of TPO will fall to 63 percent by 2018.

(63% market share for third party ownership is still a LOT by the way)

All portions of the residential market will experience rapid overall growth.

About the report:
The report provides a comprehensive update on the vendor landscape as well as innovation in both both consumer finance and project finance. In addition, the report provides an outlook on the total addressable U.S. residential market, the share of third-party ownership versus direct ownership, and the market size by ownership type with forecasts to 2018.

About GTM:
GTM Research, a division of Greentech Media, provides critical and timely market analysis in the form of research reports, data services, advisory services and strategic consulting. GTM Research’s analysis also underpins Greentech Media’s webinars and live events. Our coverage spans the clean energy industry including the solar power, smart grid, energy storage, energy efficiency and wind power sectors. Our analyst team combines diverse backgrounds in investment banking, engineering, information technology, strategic consulting and regulatory sectors. Our analysts are widely known across the industry and speak regularly at industry events all over the world. GTM Research is based in Boston with offices in New York and San Francisco.

Reference:
Market Share for Leasing Residential Solar to Peak in 2014 : Greentech Media

****

What about SolarCity's Market Share?

"Our U.S. Residential Solar Market Share Was the Equivalent of the Next 14 Competitors Combined in the Most Recent Data Available for Q3 2013"

Data from GTM Research - U.S PV Leaderboard.

Reference: SolarCity - Events Presentations -> 26th Annual ROTH Conference Presentation -> Page 8

****

So putting it all together:
Globally renewable sources will continue to grow phenomenally. In US, rooftop solar will dominate the growth. Within, the rooftop solar business, third party ownership will continue to dominate. Within this space SolarCity happens to be the biggest player by far.

As you can see this data is from two leading authorities in market research in this space.

****

Now lets see some management guidance into the long term:

"Even if the solar industry were only to generate 40 percent of the world’s electricity with photovoltaics by 2040, that would mean installing more than 400 GW of solar capacity per year for the next 25 years. We absolutely believe that solar power can and will become the world’s predominant source of energy within our lifetimes"

> Written by Elon Musk, Peter Rive and Lyndon Rive

Reference: Solar at Scale

**

"we expect in the future to build solar panel plants that are an order of magnitude bigger than any plants that exist in the world today to assure we're taking maximum advantage of scale, and then we intend to put a lot of effort into R&D on the panel side as well as into the mounting hardware, which we already own and into inverter technology in partnership with Tesla, as well as battery pack technology to provide an overall solution that gives someone electric power at a price that is less than if they were drawing it from fossil fuels burned over the grid; that's really the key threshold. And obviously the demand grows exponentially as the price drops and you can imagine that it really grows at an enormous pace if we're able to compete with grid-powered electricity with no government incentives and that's really the goal, and that has to be the goal in order for the world to have sustainable energy future."

> Musk's introductory remarks in the Silevo conference call.

Reference: SolarCity - Events Presentations -> Silevo conference call webcast

**

"Yeah, so absolutely one day we want to go international. But just in the markets that we service today, it’s about half the U.S. population. If you look at the adoption that we’ve had, we have 45,000 customers. 45,000 customers, you can see just with your eye. So we could expand almost infinitely for the next 10 years just in the market that we are in without having saturation. So we’re absolutely interested in international expansion, but the markets that we’re in, it’s a massive market to expand in."

> Lyndon Rive, Mar 2013

Reference: SolarCity CEO talks the future of solar power - Fortune

This whole interview is very insightful by the way. A must read for SolarCity investors.

**

"The market is insanely huge and sometimes the biggest challenge is to remain focused on what we are doing here because it is exciting to move into new markets. However, I have to finish this job before I can do that job. The market expansion is essentially going to be infinite in our lifetimes with distributed solar. Countries are starting to realize the benefit of this. For now, we are focused solely on the US."

> Lyndon Rive, Sep 2012

Reference: Distributed Solar: Unalloyed Growth Story? Discussion on the rooftop solar market at the Chadbourne global energy and finance conference in June - Chadbourne & Parke LLP - Publications

- - - Updated - - -

I'll post some comprehensive stuff on two other widely discussed/confused topics in subsequent weeks.

1) Profitability (or lack there of)

2) When there is Tesla, why invest in SolarCity

 

[Chickenlittle]

Here is the mentioned critique - Tesla Motors And SolarCity: Moving Beyond Musk Obsession


Thanks,
Daniel

As usual, people with negative experiences are very much more vocal. I had Solar City install a system on my house. The process went very well and I haven't required any service as solar systems pretty much never need service. I am satisfied.

Another point, after the installation, the city inspector who does only solar systems as they are coming online so rapidly, told me "Solar City always does the installation to code just the way we like it, I never have to call them back out to fix anything. Other guys have to come back sometimes several times." I did not ask him who the "other guys" are.

I remember a CEO once quoting a study that indicated on average a happy customer will tell 3 people their positive experience with a company but an unhappy one will tell 14 others their negative experience

 

[TSLA Pilot]

Not sure of the content of all of the previous 81 pages, but the economics of our SolarCity PV system were a complete no-brainer.

Early in 2013 we leased a 7.5 kW system for 20-years with one, repeat: ONE, up-front payment of $8k. Even with our 85-kWh Model S charging every night, and some pretty absurd net-metering here in Texas (Green Mountain Energy's plan: the first 500 kWh is paid back at 100%; all power pushed back onto the grid after that 500 kWh is paid back to us at 50%, YES 50%. I WANT A RESIDENTIAL TESLA BATTERY YESTERDAY!), we end up with a credit bill or a small token payment (i.e. less than $20) every month, for a 3,500 square foot house with 4 bedrooms and 3 bathrooms.

So let's see:

1. No more gasoline $ given to those that want us dead; our Tesla is mostly powered by the sun.

2. No more electric bills, for the most part.

3. Massive reductions in our GHG emissions.

4. And a future Tesla residential battery (NOW PLEASE!) so that we'll eventually push #2 to a full credit every month.

all for ONE payment of $8k in 2013.

And we'll enjoy full warranty coverage, and monitoring of performance, from SCTY for the next 20 years.

I pitch the SolarCity/Tesla to anyone who has a cm of common sense and gives a damn about leaving the planet just a little bit better than how we entered it.

And this is far more painless than dealing with a local "Ma and Pa" Solar Company where they work out of a pickup truck and may, or may not, show up for repairs and will never monitor a single kWh of output...which makes SolarCity a very, very compelling company and an investment as well.

Hence, our lease of a SolarCity PV system, and purchase of SCTY stock at about the same time, BECAUSE IT WAS A NO-BRAINER.

As the ad copy said about 40 years ago, "Ask the man who owns [leases] one."

 

[SBenson]

Just read on Raymond James Energy Daily update that per GTM Research:

In residential sector, for 1Q14

- SolarCity is leading with 29% market share.

- Followed by Vivint at 2nd place with 9% share.

- Sunrun/REC solar combination may be close to the second position.

In terms of market share data coming from SCTY management, we only saw it upto 3Q13. So this is a good data point as in it's the latest we can get.

Btw, SCTY market share was
32% in 3Q13
26% in 2Q13
20% in 1Q13
20% in 4Q12
19% in 3Q12
16% in 2Q12
12% in 1Q12

So it seems to have stabilised at around 30% for now.

 

[kenliles]

Vivint IPO

Vivint Solar makes confidential IPO filing - report - PV-Tech

 

[tsla168]

thanks for the info.. what happens if you move within 20 years? thanks

 

[Monsoon]

I had a Solar City lease and ended up moving within the first year.
They have a very smooth process for a lease transfer to the new home buyer. It was pretty simple for all parties. Of course, it does require educating the new buyer on the system benefits, lease obligation, and they have to qualify. But if they are paying cash for the home or getting a mortgage, they can most likely qualify for the lease.

 

[DriverOne]

Business is good, "We experienced unprecedented demand in the quarter with triple-digit year-over-year growth in all our key operating metrics"

SolarCity Announces Second Quarter 2014 Financial Results (NASDAQ:SCTY)

 

[DaveH]

"218 MW Booked", when is the last time scty release their backlog?

 

[Robert.Boston]

Up 2.50 in after-hours. Clearly the market's happy with the report.