Barron's makes the bear case on SolarCity

|About: SolarCity Corp. (SCTY)|By:, SA News Editor

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.