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Summary

  • There are just too many plans for giga-watt sized factories, especially when an industry is already glutted.
  • GT Advanced Technologies should win big, even if only a few of these factory plans are executed.
  • Recommendation today is to short sell Solarcity, at least temporarily, and buy GT Advanced Technologies for long term gains.

SolarCity's (NASDAQ:SCTY) plan for a gigawatt sized solar panel factory is, for lack of a better word, a bit crazy. One company that could see significant revenues and incomes from all these factory plans is GT Advanced Technologies (GTAT). Comprehensive details are provided in the five paragraphs below, so keep an open mind and set aside any emotions for a few moments. I might just convince you.

About a month ago Europe announced plans to build a gigawatt sized panel factory. Leave a comment and I'll certainly post any links you may want. SolarCity essentially adopted the same plan this week. To top it off, GT Advanced Technologies just sold HICZ factory production equipment to Qatar Solar Energy where they are planning for 2.5 gigawatts of production. The combination of these factory plans, amongst others announced elsewhere, represent an excessive amount of factory expansion in an industry that is already glutted with capacity.

GTAT should win big out of all this, even if only some of the factory plans get executed, because they sell solar factory production/inspection equipment at great margins. Don't forget that China isn't going to sit idle. China should upgrade many of their factories (even more sales for GTAT) before the new giga-factories come online.

If I were SolarCity, Qatar Solar, Apple (NASDAQ:AAPL), Applied Materials (NASDAQ:AMAT) or a large Chinese energy/utility company I'd acquire GT Advanced Technologies before these events unfold. One of them could make that acquisition simply to control who can receive next generation factory equipment and at what prices. Hint: competitors will see higher prices if they see any equipment sales at all.

The bottom line is that Elon Musk doesn't seem to realize that giga-sizing everything [battery factory for Tesla (NASDAQ:TSLA), solar panel factory, etc.] isn't the solution. Such plans initially sound great but they take enormous capital outlays where the potential payback, if it materializes before competition moves in, is too far down the road. Think back to your Finance 101 class (cost of capital, calculation of NPV, calculation of IRR). If one spends $ billions now they must receive $ billions in income soon thereafter. Otherwise the investment results in a financial loss. Note that it must be income (profit) not just revenue.

SolarCity's stock price has shot up far too much over the past few days. I recommend shorting SCTY temporarily and buying some of GTAT for the long run.

Disclosure: The author is long GTAT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Author is also temporarily shorting SCTY given the stock's enormous climb this week.