Barron's makes the bear case on SolarCity

Most of SolarCity's (SCTY) tax benefits and a portion of future cash flows have been pledged to "tax-equity" partners whose claims on the company are often ahead of common stockholders. Should those obligations not be met - i.e., government subsidies get cut, defaults on lease payments - the company may need to raise money elsewhere.

An examination of solar contracts in Arizona and California by Barron's finds SolarCity (SCTY) estimates the fair market value of its panels significantly higher than that of its competitors. Why does this matter? It's a key factor in determining the level of government aid. The government has been on the case and a cut in reimbursements created a potential $8.2M shortfall in money owed to tax equity partners (SolarCIty has sued the government; the DOJ and Treasury are investigating "possible misrepresentations by SCTY and others).

Somehow the company will need more financing, especially as federal tax credits fall to 10% in 2017. Current tax-equity financing is enough to deploy 169MW of power. To meet Street financial models, SolarCity likely needs to install more than 1,000MW by 2017.

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Comments (18)
  • Patent News
    , contributor
    Comments (1475) | Send Message
    sounds like a possible scam run and controlled with elon musk and company.


    lol wall street's 'hero'
    31 Aug 2013, 08:41 AM Reply Like
  • Jake2992
    , contributor
    Comments (1138) | Send Message
    Exactly, this guy is a complete fraud and there is no doubt we will find similar themes in accounting. Ohh wait they are already there with their NON GAAP fairy tale earnings.
    31 Aug 2013, 09:10 AM Reply Like
  • Vico Confino
    , contributor
    Comments (249) | Send Message
    Vico Confino owner of a Tesla 85


    Although the road to success is always bumpy in new innovations, the coming of solar energy is as predictable as death and taxes. As soon as the "big boys" get through jockeying for a strong position in the energy market and outside interference from government and foreign imports levels the playing field, investment will continue to maneuver radically in uncharted waters.
    "Those who fail to learn from the mistakes of the past, are doomed to repeat them". Sit tight, solar energy is just around the corner.
    Vico Confino
    "Been there, done that"
    31 Aug 2013, 08:48 AM Reply Like
  • Jake2992
    , contributor
    Comments (1138) | Send Message
    Solar city doesn't make solar panels. They provide financing, something any of the manufactures could easily do themselves if they thought it was worthwhile. Try researching a company before you invest instead of just going off the hype some ceo puts out to his lemmings.
    31 Aug 2013, 09:11 AM Reply Like
  • Energysystems
    , contributor
    Comments (2127) | Send Message
    30+ years of subsidizing solar has led to what? An industry that cannot survive without subsidy. We've heard this same tune over and over about the viability of solar. Yet every time gov'ts pull back on throwing money away, what happens? Reality sets in quickly.
    31 Aug 2013, 09:47 AM Reply Like
  • D'ster
    , contributor
    Comments (35) | Send Message


    >>"30+ years of subsidizing solar has led to what?"


    According to Deutsche Bank, that leaves solar power hitting grid parity in eleven major markets worldwide — Los Angeles, Hawaii, Chile, Japan, South Korea, Australia, South Africa, Israel, Italy, Spain, and Greece — meaning its levelized cost can compete unsubsidized with traditional sources of electricity. The report also sees the potential for solar to cross that threshold in 10 to 20 other markets within the next 3 years. As soon as 2014, according to Deutsche Bank, three-fourths of the global solar market could be “sustainable” — i.e. competitive without subsidies.



    We are and still continue to subsidize big oil 100+ years later. If the same was spent on clean solar for everyman. Rather than dirty fossil fuels for the big corporations imagine the difference. Energy independence for individuals, small business and farmers. Who would not want to support that.


    Grid parity is here and more markets are joining soon, prepare for a paradigm shift.
    31 Aug 2013, 11:56 AM Reply Like
  • Energysystems
    , contributor
    Comments (2127) | Send Message
    ....alternative energy receives subsidies in excess of a ratio of 1,000:1 compared to oil subsidies on a pKw basis.


    I'll believe it when I see it as far as what happens when subsidies aren't around. I'm not against alternative energy.
    31 Aug 2013, 12:13 PM Reply Like
  • D'ster
    , contributor
    Comments (35) | Send Message
    This is the second time you have made a statement without siting a source or linking to a valid article to back up your point of view.


    I always like to read up on opposing points of view. You are beginning to lose credibility 1,000:1 ratio what a convenient round number.


    From Wikipedia:
    The global fossil fuel subsidies were $523 billion and renewable energy subsidies $88 billion in 2011.[1] According to Fatih Birol, Chief Economist at the International Energy Agency without a phasing out of fossil fuel subsidies, we will not reach our climate targets.[2]



    Drawing on government, academic and NGO sources, Pfund and Healy find that when the first 15 years of subsidy life are compared, government support for the oil, gas and nuclear industries as a percentage of inflation-adjusted federal spending far outweighed the support granted to renewables.
    Taking a longer-term view and again adjusting for inflation, the authors find that between 1918 and 2009, the oil and gas industry received a cumulative $446.96 billion in subsidies compared to just $5.93 billion given to renewables in the years between 1994 and 2009. Meanwhile, the nuclear industry benefitted from a cumulative $185.38 billion in federal subsidies between 1947 and 1999.
    31 Aug 2013, 12:49 PM Reply Like
  • ElectrictTorque
    , contributor
    Comments (5) | Send Message
    Solarcity is setting up a 20 year residual income from each customer. once they stop doing installations they will start getting profitable. each contract is calculated to be profitable regardless of existing government incentives. of course, government incentives are just the icing on the cake.
    31 Aug 2013, 01:37 PM Reply Like
  • Andy Zelenak
    , contributor
    Comments (411) | Send Message
    Energysystems, please do me a favor and read the first 3 paragraphs of this link...

    31 Aug 2013, 02:47 PM Reply Like
  • King Rat
    , contributor
    Comments (1847) | Send Message
    D'ster, you are a great twister of truth. Are you a politician?


    First of all there is a HUGE difference between tax break and subsidy. When a tech company in Redmond buys a copier to make printouts of products made by a tech company in Cupertino, they can write off the cost of the machine over time as it depreciates.
    Now imagine if that Redmond company buys copiers with no warranty and 2/3 of them break down before making a single copy. Of course they should be able to write off that cost!
    Most of these oil "subsidies" as you call them simply the same allowance for non-producing wells and as a matter of fact, they scale down with the size of the firm so SMALL OIL gets a larger share of the write-offs speaking as a matter of percentage of business.


    No only do you misuse the term subsidy, but you lump in nuclear, where by government law, only government-sponsored entities could build nuclear plants. That's like saying the government subsidized the defense industry when really it was just a government-run oligarchy.


    Then you continue by cutting off the time period for solar to end in 2009.


    The biggest flaw in your argument is simply this: if oil "subsidies" as you call them went away in say, 1994, what do you think would have happened to the price of gas/oil at the consumer level? Of course people would have had to pay much more as the oil companies would have had to raise prices. Furthermore, as the "subsidies" as you call them favor SMALL OIL over "BIG OIL", the oil industry would have consolidated more and we would have had a huge oligarchy instead of the current fractured market that allows for more competition.


    If you want to rip on oil for its "subsidies" then surely you consider any income tax breaks as "personal tax subsidies" too. Dependents? By your definition, a subsidy. "Making work pay"? By your definition a subsidy. Yikes.


    I prefer solar to oil but I have to keep it real.


    For what it's worth, where I live, and no it's not Hawaii, solar has surpassed grid parity and I am a huge supporter of solar in general. I am planning a party when even Seattle reaches grid parity.
    31 Aug 2013, 09:57 PM Reply Like
  • rcarterbrown
    , contributor
    Comments (13) | Send Message
    You're forgetting the $680 billion + pa that is spent on the military to stabilise oil rich regions... Also the 'real' cost of burning fossil fuels isn't even factored into the price per barrel. Once you take everything into account the subsidy to the oil industry would be absolutely huge.
    1 Sep 2013, 08:09 AM Reply Like
  • rcarterbrown
    , contributor
    Comments (13) | Send Message
    Well take a look at NZ where there is no subsidy for solar panel production or installation. The cost per kWh dropped below the cost of grid electricity half way through 2012. I'm sure if subsidies in the US were gradually phased out solar panel producers and installers would adapt their business models and still be able to carve out a profit and maintain growth.
    1 Sep 2013, 08:10 AM Reply Like
  • Deja Vu
    , contributor
    Comments (1825) | Send Message
    no link to the barron's story?
    31 Aug 2013, 09:51 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (7639) | Send Message
    It's behind a paywall, preview:

    1 Sep 2013, 03:41 PM Reply Like
  • pat1000
    , contributor
    Comments (496) | Send Message
    This may be another job for Iron Man-----


    Interesting that SCTY was acting great even as they announced a financing then out of the blue it went down About 10%----


    Glad no one got word on the Barron's article----


    Very luckily got out with only a $7200 loss ( thought I smelled a rat ) when I covered 50 puts sold short on the financing news----
    31 Aug 2013, 02:26 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (7639) | Send Message
    If there is a stranger valuation than TSLA this year, it was SCTY at $50.


    What is the lasting competitive advantage of SCTY? I don't see how they can protect themselves against new entrants in this business who will likely get cheaper solar cells in the future. Nothing unique about SCTY in a fragmented business over time. Compared to RSOL and others SCTY looks very overvalued.


    RSOL is also struggling at the moment, but they just acquired two companies...



    Compare the market caps of tiny RSOL and SCTY, factor of almost 50x, doesn't make sense to me.


    PS: I have nothing against Elon Musk as a person, he just happens to be involved with both companies (SCTY and TSLA)
    1 Sep 2013, 01:14 PM Reply Like
  • Valerian415
    , contributor
    Comment (1) | Send Message
    Elon is not the CEO of this company, and all the nasayers on here are actually blind to the fact that the planet is running out of resources and heating up to the point it will be unlivable. I would support any subsidies to help the transition to cleaner energy. Besides everyone that knocks gov't subsidies I have a few questions for you.. Do you send your kids to school? Do you drive on the roads? None of those would be possible with out the help of gov't funding. So, your arguments are old and tired. We only have one planet and we have to do everything we can to be good stewarts and conserve the resources we have left. Check out this link if you dont think the situation is dire.
    1 Sep 2013, 09:58 PM Reply Like
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