Seeking Alpha

SolarCity falls amid Congressional inquiry concerns

  • Senator Jeff Sessions has sent a letter to Treasury sec. Jacob Lew questioning the level of government funding SolarCity (SCTY -2.9%) receives. He heavily references an Aug. 31 Barron's column taking aim at SolarCity's fair market value estimates for its solar installation/electricity sale contracts (its government grants are based on them).
  • SolarCity's estimates are above its installation costs. Sessions: "Over-inflating the cost of solar products is not only detrimental to the government, but to investors as well ... there is concern that SolarCity might become the next Solyndra—a company propped on the back of the taxpayers, not the product produced."
  • Sessions also notes SolarCity's history of major losses (generally the result of the company's aggressive financing/installation efforts), and that a planned 2017 drop in federal tax credits to 10% is expected to increase the company's financing needs.
  • He concludes by asking Lew to explain the Treasury Dept.'s willingness to let solar firms to set their own fair market values, as well as to provide details about past grants.
  • SolarCity is down 11% over the last two days, but still up over 4x YTD.
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Comments (17)
  • Hendershott
    , contributor
    Comments (1602) | Send Message
     
    The subject is pretty well disclosed in the 10-Q, pages 38-41.
    19 Nov 2013, 11:22 AM Reply Like
  • stinjames
    , contributor
    Comment (1) | Send Message
     
    I feel this recent drop is directly related to problems with Tesla...I'd like to see peoples thoughts on this.
    19 Nov 2013, 11:33 AM Reply Like
  • MKBaxley
    , contributor
    Comments (57) | Send Message
     
    I think you right. I've always seen them tied together.
    19 Nov 2013, 11:40 AM Reply Like
  • eager1
    , contributor
    Comments (127) | Send Message
     
    I think one comment says it all: "He concludes by asking Lew to explain the Treasury Dept.'s willingness to let solar firms to set their own fair market values..."

     

    Which means he thinks we should have congress to set the fair market value?
    19 Nov 2013, 12:09 PM Reply Like
  • Gumby
    , contributor
    Comments (2613) | Send Message
     
    Firewood and solar energy doesnt mix !!
    19 Nov 2013, 01:04 PM Reply Like
  • mexec1
    , contributor
    Comments (35) | Send Message
     
    This is great news for those that were waiting on the next entry point. investors will reap the benefits of their aggressive expansion and installation in the coming years. I'd be interested to see which big oil lobbyist contribute to Mr. Sessions....
    19 Nov 2013, 01:17 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (4354) | Send Message
     
    Not necessarily stock investors will do the reaping, however. The devil's in the details on this one. SCTY is largely capital constrained and functions most similarly to a utility or leasing company. It can only install as many megawatts as it has the capital to do them. Every effort to raise capital beyond current cash flow from operations results in dilution of earnings to stockholders. For instance, SCTY is selling bonds based on the income streams that result from specific installations financed by the bonds. Depending on how the deals are structured there may not be any significant profit left over after paying off the bonds for the shareholders to enjoy. SCTY structures many of its sales as leases where the SCTY continues to own the equipment on the roofs of clients for the life of the lease. This allows SCTY to retain the tax advantages of ownership, but what happens at the end of the lease if the client does not renew? Does SCTY abandon its equipment? De-install it? Will advances in PV solar technology in the coming years make it completely obsolete and a moot point? This is one company where you need to read all prospectus information and financial disclosures very carefully.
    19 Nov 2013, 03:45 PM Reply Like
  • CDM Capital
    , contributor
    Comments (437) | Send Message
     
    We find it interesting SolarCity put this information in the most recent 10-Q, but mgmt. failed to address it on the conference call.

     

    http://seekingalpha.co...
    19 Nov 2013, 01:17 PM Reply Like
  • Hendershott
    , contributor
    Comments (1602) | Send Message
     
    It was also in the previous 10-Q starting on page 34.
    19 Nov 2013, 02:21 PM Reply Like
  • Warren Buffett Jr.
    , contributor
    Comment (1) | Send Message
     
    QE tapering will start in 2014 and FOMC will raised Fed Funds Rate starting sometime between 2015 - 2017. Federal Tax treatment doesn't change for SCTY until EOY 2016. With securitization, increasing retained value from $/watt, SCTY will install to their 1M homes or 6,000 MW goal by 2017. Analyst NPV puts share price at $98 and 1 year target between $63 to $75. 2 acquisitions help front of the funnel and back of the funnel. I think it's more likely than not that buying now to be long will result in a 40-60% increase within 12 months. There's strong support at 200 day MA. I think it will drop to low 40s and then I'll be buying up a big long position. TSLA and SCTY for no good reason tend to track each other. TSLA demand is increasing globally, their current supply issues will work itself out 2-3 years from now, with Model X, I would expect TSLA to be $200 to $250 in 1-2 years. That's a 100% gain in 1-2 years. Just in time to become bearish and start shorting any cyclicals.
    19 Nov 2013, 07:02 PM Reply Like
  • William Ford
    , contributor
    Comments (90) | Send Message
     
    can't disagree with comments.
    I would like to add that this pull back could be many reasons, even seasonal demand, since we are in the fall/winter months.
    I ask would there be added incentives to purchasers or is there a back log unknown to investors?
    good luck.
    would like to see TSLA and SCTY hit 200 DMA
    19 Nov 2013, 10:52 PM Reply Like
  • Nick Cox
    , contributor
    Comments (799) | Send Message
     
    Companies like solar city are bound to come under pressure from these mouthpieces of Big Oil and of the traditional fuel industry.Just one red-necked Republican congressman earning his money from his lobby interests no doubt.
    20 Nov 2013, 02:38 AM Reply Like
  • Hendershott
    , contributor
    Comments (1602) | Send Message
     
    Oil doesn't compete with solar. NG and coal do. any political pressure is most likely to come from the electrical generating industry not the oil companies.
    20 Nov 2013, 10:54 AM Reply Like
  • cmnsnse
    , contributor
    Comments (793) | Send Message
     
    Solarcity rebuttal to Jeff Sessions letter: blog.solarcity.com

     

    It's interesting to note Jeff Sessions and Barrons seem to have come late to the party on the government investigation of Solarcity. Solarcity, itself, has been reporting on it since October 2012 -- well before it even became a public company on the NASDAQ (Scty first traded in mid December 2012). Not to mention they've disclosed the on going investigation in more than 24 public filings since.
    20 Nov 2013, 01:16 PM Reply Like
  • cmnsnse
    , contributor
    Comments (793) | Send Message
     
    After Solarcity is cleared, stock will under go a very compelling appreciation period. The future of the "subsidies" argument will change from the solar panels to energy storage since that's the next step in the energy market transformation. Tesla battery storage for Solarcity PV systems will increase dramatically by 2015. Considering Solarcity projecting 1m customers by 2018, it should be quite a substantial part of the business for Sessions to try and hack down...

     

    IMS Research report, the global energy storage industry will increase from approximately $200 million in 2012 to $19 billion by 2017.
    20 Nov 2013, 02:13 PM Reply Like
  • ElectricJolt
    , contributor
    Comment (1) | Send Message
     
    Solar City just posted a Blog setting the record straight. Unlike suggested by Barron's Article, SCTY does not set the fair market value. The fair market value is done by a 3rd party using the guide lines set by treasury. Solar city is at no fault here. check the blog your self at blog . solarcity . com /?p=474
    20 Nov 2013, 02:20 PM Reply Like
  • Nick Cox
    , contributor
    Comments (799) | Send Message
     
    The American political system is so inherently corrupt.
    Two major contributors to Sessions' political campaigning are utility firm Southern Company and coal mining company Drummond Co.
    Not surprisingly he voted to open the Arctic Wildlife Refuge to oil drilling.
    Now you understand why he is going after Tesla.
    Just to show that he is a typical Southern Republican,he was quoted as stating that the Ku Klux Klan was "okay until I found out they smoked pot."
    22 Nov 2013, 12:06 AM Reply Like
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