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SolarCity gains as Street talks asset securitization, long-term outlook

  • "We believe investors are largely discounting the potential upside resulting from lower financing costs, grid parity beyond 2016, improving technology/[bill of substance] costs and potential scale benefits driving share gains over time," writes Deutsche's Vishal Shah, reiterating a Buy and $90 PT for SolarCity (SCTY +3.2%).
  • Shah considers recent worries about regulation, tougher competition, and weakening profitability overblown, and thinks SolarCity's retained profit/share will continue seeing a 45% CAGR through 2016.
  • His note comes after SolarCity priced $70.2M worth of solar asset-backed notes due April 2022 at a fairly low interest rate of 4.59%.
  • Roth (Neutral) sees the sale as another positive step towards lowering SolarCity's financing costs. "By varying important variables, such as the advance rate, maturity, and underlying asset profiles, we believe SCTY is attempting to gain an understanding of demand for its ABS product."
  • Credit Suisse and BofA/Merrill are also fans; the former now thinks SolarCity has a best-case valuation of $175/share.
Comments (2)
  • Ray Boggs
    , contributor
    Comments (9) | Send Message
     
    Market share for solar leases and PPAs has largely leveled off now that the availability of $0 down loans and PACE financing with tax deductible interest are rapidly penetrating the market.

     

    Unlike a lease or PPA, $0 down solar loans allow the consumer to own their solar system while retaining the 30% federal tax credit and any applicable cash rebate and are typically offered by dealers that offer considerably lower pricing than the pricing provided by the solar lease/PPA companies.

     

    Despite the fact that consumers have had to forfeit all of their incentives and pay a higher price to the leasing companies, solar leases/PPAs have maintained their popularity.

     

    From 2008 through 2013 the demand for solar leases and PPAs grew due to the fact that there were very few competing $0 down financing options available. In 2014 though this trend is experiencing a reversal as more consumers are becoming aware of the availability of much lower pricing (sub $2.20 per watt installed after the tax credit) coupled with the availability of $0 down solar loans with tax deductible interest.

     

    In my opinion which is backed by over 16 years of experience in the wholesale/retail portion of the PV industry, I feel confident that by the fourth quarter of 2014, solar/leases and PPAs will constitute only small fraction of the existing solar financing market.
    6 Apr, 01:43 PM Reply Like
  • Jonaskinny
    , contributor
    Comments (316) | Send Message
     
    Same argument was made when auto leasing came about. Leasing has only grown from there.
    8 Apr, 05:53 PM Reply Like
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