The Problem With SolarCity

Summary

• SolarCity has been a darling of financial analysts and momentum investors. But does it really deserve its valuation?
• Without the edge in financing, SCTY essentially becomes an installer. It is unlikely that SCTY will continue to enjoy a competitive edge in terms of financing.
• As the cost of solar installations continues to decline, an educated consumer will likely buy a system, as opposed to leasing it.

SolarCity (SCTY) had a great run in the last year, and has been a darling of financial analysts and momentum investors. But does it really deserve the current valuation? What is SCTY's long-term future? To understand this, one has to look at the key value-add of SCTY.

SCTY's claim to fame is its highly successful solar lease program. Without an appealing lease program, SCTY essentially becomes yet another energy contractor. The financial community has rewarded SolarCity's financing edge by giving SCTY a lofty valuation. To its credit, SCTY's management has used its rich valuation to make some smart acquisitions to build scale and barriers (ex: ZEP Solar) and have created some key business advantages. However, SCTY's core business, without the financing magic, is that of an installer/contractor.

If you were to agree that financing edge is the key to SCTY's valuation, then the question becomes if SCTY can continue with its financing magic. With that question in mind, here are some key pros and cons of investing in SCTY:

On the plus side:

- Solar energy is an excellent long growth industry - solar energy technology just hit the bottom of the S-curve, and has a long sustained run ahead of it. Being the largest player of its kind, SCTY is going to be a beneficiary of this trend.

- Federal tax credits and subsidies create compelling value creation options for the customer base. SCTY is a proven innovator of solar leases, and let's give credit to the management that it will continue to provide innovative financing paths. While we believe this is unlikely to be sustainable, it is difficult to write off a proven management team.

- SCTY has established an unrivaled footprint and brand name in the US. The name recognition reduces marketing costs and gives SCTY visibility into opportunities that its smaller rivals may not see.

- And, most importantly, the lifetime of installed systems is longer than duration of the lease, providing SCTY with some cushy back-end revenue streams.

On the minus side:

- Barriers to entry are small. There is nothing technically that SCTY does that cannot be done by any other major player. New players, small and large, continue to enter the space. With increasing competition, the industry is likely to get more fragmented.

- Once SCTY's first-mover advantage on financing dissipates - SCTY will start losing market share and become yet another energy contractor.

- SCTY has no pricing leverage - Smaller, lower overhead contractors will increasingly become a bigger part of the market and compress margins for the bigger players.

- Financing magic will be difficult to create when government incentives reduce or disappear.

- Continuing reductions in cost of solar technology means that the deployed systems are progressively more affordable to customers, thus reducing the incentive to lease and increasing the incentive to buy - this is one dynamic that is not well understood by the market.

- The further you go out in time, the more likely it is that an educated consumer will buy, as opposed to lease - this is an extremely important metric that is not being discounted by analysts.

On the "unknown" side:

- Tax credits and MACRS could end abruptly in 2017 or soon thereafter, crimping SCTY's ability to continue with financial magic.

- Utilities and other energy players could offer lease or other energy alternatives to consumers by offering fractional ownership into the much more cost-effective utility-scale farms. This can be a huge threat to the margins in the current SCTY lease model.

- Given the nascency of solar panel deployment, industry players do not have data on what it takes to operate solar farms over a 20-30 year period (especially on rooftops). Things could go wrong in unanticipated ways, and support costs and losses could mount to un-forecasted levels. SCTY could have a significant latent liability.

So, with the above stated risk profile, does SCTY deserve the valuation multiple that it is being afforded? Should you consider it to be a part of a long-term portfolio at the current levels? We do not believe so.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[gebby]

SCTY is already moving into South Africa where the management team is from. Many there are too poor to purchase outright a system. They are first with their model to South Africa. They will continue to grow. SCTY has the perfect solution for poor home owners. A free way to cut their electricity bill. Who would not do this?

[wiserinvestor]

@MattKee Thank you for your comment. I wish you all the best with your investments!

[MattKee]

Mr.wiserinvestor,

I appreciate your clearly thought out and explained posts. I totally understand what you are saying, and I have no business degree. Don't blow a gasket trying to explain facts to the Jim Jones scty Koolaid drinkers. I can't predict the insanity of the stock market momo guys, but I do know that my portfolio will be profitable selling calls on SCTY, TSLA, ISRG, GMCR and CRM once the fed stops their QEForever.

Time is on my side.

[wiserinvestor]

I don't know if you're selectively reading my posts or you work for a solar lease company and they've trained you to talk in circles or what? How many times do I have to repeat the fact that the barriers to entry into solar are nearly ZERO. As in $0 down solar loans, no money down solar loans, no out of pocket solar loans, nada, zip, zilch. What language do I have to speak to get through to you.

Please set down your cup of solar lease/PPA koolaid for just a few seconds and listen. Purchasing a solar system with a ZERO down solar loan has no barrier to entry, other than steady employment and a 650 credit score which is lower than a lease. And no home equity is even needed.

Our PV company has survived and even flourished during the past 16 years with and without rebates or tax credits. That's a decade longer that SolarCity has even existed. Even without the tax credit we still blow SolarCity's pricing out of the water on a purchased system. If they can compete with us, then they must not be trying very hard because all of the S.C purchase quotes that I've ever reviewed is nowhere near our lower pricing.

No, your claim that S.C will be the only player in the residential market to survive is absolutely ridiculous. Nice try! Put your money where you mouth is. I challenge you to bring me any SolarCity purchase quote that beats our $2.90 a watt before incentives installed quote. I bet you can't do it.

[dastickup]

Obviously the reason you're so against this company is because you have a deep seeded fear that they will put you out of business one day. And the fact of the matter is, Solarcity is a company whose sales i'm sure significantly outpace yours and is growing very rapidly. Is solarcity over valued right now? Sure, but that's what happens in a growth company. I don't know what your company's name is, but solarcity is already building equity with its brand name and doing it nationwide. Why do people buy crappy shampoo and all these commodities even when there are supposedly better cheaper ones out there? Because they saw the name on TV. Because its the name that keeps popping up in magazines and on websites. Big businesses beget big business. Solarcity will continue to grow and achieve economies of scale which are absolutely a barrier to entry against competitors and a shiv to the side of smaller operations. You know back when the automobile first came out there were hundreds and hundreds of car manufacturers in the united states. Now how many are left? Just like the wal-mart effect. They got squeezed out by the big guys. Its sad, but its reality. Of course, some will still survive and even earn a living, but don't expect them to put up the numbers and scale that the big boys do. Solarcity is already a big boy, and its still growing.

[cmnsnse]

Is it your mission in life to comment on every article written about Solarcity and pump your $0 down loan company? I mean, I see your same sales pitch on a lot of different website articles... I have to hand it to you, you are very persistent and ubiquitous... Only problems is the wider market isn't reading investment sites so, yeah... Hope your 900 other website advertising campaign is geared in another direction...

[User 4180091]

I think what you're not getting is that the barriers to entry are actually very high, and are about to get higher. It is very expensive to do what SCTY does, install systems at no cost, and the customer pays less for their power. Within the next few years, most of the great state and federal tax credits are due to expire and will very likely not be renewed considering the GOP's opposition to spending. Therefore small players will not have nearly enough capital to compete with SCTY's offer. They will be the ones who will just be installers, and will only be able to offer customers solar if they want to make 100% of the investment (SCTY also offers a purchase option, and it will be much cheaper than a small installers once the tax breaks expire) SCTY will likely be the only player in the residential solar market to survive. Nice try though.

[wiserinvestor]

From an industry veteran's point of view, this is an excellent, well balanced article. SolarCity should be commended for stimulating public awareness regarding the benefits of solar, but the value of their equity based financing has had its day in the Sun and that day has come and gone.

The awareness of the benefits of solar that they helped to develop will now be their downfall as more and more consumers seek out better, lower cost products and financing.

Solar leases and PPAs might have made sense 2 years ago when very little existed in the way of solar financing, but today, far better $0 down options exist in the marketplace. The simple fact that you can write off the interest on several of these $0 down solar loan options while you cannot do so with a solar lease or PPA, will be the nail in the coffin for the solar lease companies. After all, the ability to write of the interest is the very reason why many people choose to buy their homes rather than rent.

Couple this fact with the much lower (sub $3.00 per watt) pricing before incentives, that exists today with retention of all of the financial incentives and full system ownership (a resellable asset) and you have the classic makings of the end of an era. (the solar lease and PPA era)

Market share for solar leases and PPAs has largely leveled off. As more and more consumers learn of the availability of $0 down loans and PACE financing with tax deductible interest, that market share will rapidly decline. Remember, this is the age of the Internet. It won't take long for word to spread.

[cmnsnse]

Wiseinvestor,

Can you explain writing off interest? Are talking about the loan interest? To be fair, how does this make it an advantage over lease/ppa when you don't have a loan for this product? Payback is still equal or more then current monthly payments, so many non-early adopters won't want the loan option. If you think there is a property tax advantage, then why does an owner still pay the same property tax amount at the end of the day?

The average American just wants cheaper electricity, cleaner is the icing on the cake. It's hard to compete with immediate savings and the peace of mind of not having to worry about the PV system in any shape or form for decades.

[cmnsnse]

Interest is tax Deductable if you itemized list is over $7500, right?

[wiserinvestor]

My statement that you're replied to specifically refers to loan interest. As I stated above, "The simple fact that you can write off the interest on several of these $0 down solar loan options while you cannot do so with a solar lease or PPA"

My statement should make it pretty clear that I am referring to loan interest. Why on Earth would you think that I might be referring to a "property tax advantage". I never mentioned property taxes?

And please clarify what you mean by "how does this make it an advantage over lease/ppa when you don't have a loan for this product?" We do offer a $0 down loan for this product.

And as for your statement "The average American just wants cheaper electricity, cleaner is the icing on the cake. It's hard to compete with immediate savings and the peace of mind of not having to worry about the PV system in any shape or form for decades."

Yes that's true, Americans do want cheaper electricity. Which is why a $0 down solar loan with tax deductible interest on a lower priced solar system with immediate savings will appeal more to consumers than a higher priced solar system with non tax deductible lease payments.

And I have to disagree with your peace of mind claim. The massive price difference between a much lower priced purchase and a more expensive lease can buy a whole lot of peace of mind many times over.

[BudH]

Their financing is not 'magic', it's just a nice package. SCTY is vertically integrated system for the homeowner who wants solar power. Just call them up and you get your solar system. Impress the neighbors and feel green all over. Solar City install it, integrate it and finance it. Competitors may be able to do it cheaper, but not by much. They will not have the horsepower to finance systems cheaper than Solar City. Elon Musk has huge financial prowess.

The homeowner cannot rely on Cheapo Charlie maintaining or being around to warrantee the system. It'll be tough for a new competitor to win large market share. Reliability and consumer confidence will be hard to win over.

[wiserinvestor]

I beg to differ. Our company sells a higher performance system with U.S. made solar panels, with a 25 year warranty on both the inverter and the solar panels with online performance monitoring for nearly a third of the cost of a $0 down solar lease.

And we offer a $0 down solar loan with tax deductible interest that's easier to qualify for than a lease that lets the homeowner keep all of their incentives and own their system for a much better return on investment. We've been selling system across the entire U.S. for a decade longer than SolarCity so we're hardly "Cheapo Charlie. And we're not alone. Today there are many non-lease/PPA dealers across the U.S. that are giving SolarCity a run for their money.

SolarCity's primary advantage is their momentum, they were first to market
with a $0 down financing package. Unfortunately for all of the solar lease and PPA companies that momentum is slowing down as more and more competitors enter the market with better offerings at a lower price with better $0 down financing.

[xamd]

wiser,
can you put up your details so we can see what company you are with, or where you are working? Would help all in discussion. Thanks.

[cmnsnse]

Wiseinvestor, what do you say when some Solarcity ppa/lease customers get 3x more production then what they pay for? Solarcity doesn't charge for overproduction. How does your price compare to those cases? Do you charge for labor on warranty calls? You bombard every article with $0 down loans, but don't offer any real counterpoints or risks to $0 down loans. Does your company only sell systems? What is you business going to be like after the ITC goes away? You surely can't be a one trick pony, can you?

[ludus]

Whether loans will drive down leasing is pure speculation. As Solar moves into the broader market it moves downscale, so the appeal of spending tens of thousands of dollars even on good loan terms will be muted.

Something that's not speculation is that the electric utilities will start to push back hard against laws requiring them to buy back power as distributed solar increasingly makes load balancing harder. Solar City is way ahead of the competition in seeking to solve this. Part of the Tesla gigafactory plan is to repack batteries at reduced capacity for a second life as home/business battery packs. The combination of solar with a smart battery pack plays nice with a smart grid in ways solar alone does not. It also adds the value of being emergency back-up power while basic solar installs have to go offline if the grid fails to avoid creating dangers to utility workers.

[Stephen Aniston]

Like utilities have had any success against legislation in the past. Ever since utilities became regulated by the government they've been under the govt thumb and if government says go green, they will go green whether they like it or not.

[wiserinvestor]

"so the appeal of spending tens of thousands of dollars" Spoken like a well trained solar lease salesperson. Solar systems don't cost "tens of thousands of dollars anymore. Today a typical sized 4.75 kW system that would would fit the needs of the vast majority of household in America, costs less that $10,000 after applying the 30% tax credit.

Why would someone lease something that costs less than $10,000? And your battery pack idea is nothing more than a pipe dream. We've been selling off grid and battery backed grid tie solar systems for over 16 years see offgridsolar .com and no one has ever been able to make batteries pencil out from a financial point of view. Especially expensive Li-ion batteries.

[cvmiller85]

Many good points but the comment "Barriers to entry are small. There is nothing technically that SCTY does that cannot be done by any other major player." overlooks the relationship the company has with Tesla Motors. The advantage of offering battery packs is most likely just the tip of the iceberg.

[EnerTuition]

Firstly, the number of instances where people buy batteries would be tiny.
If and when batteries become a big part of the mix in a given applications there is going to be Chinese competition. There is nothing magical about battery technology.

[Bill Cunningham]

Tesla is a separate public company and Elon Musk has to be careful to avoid conflicts of interest by marketing Tesla's batteries in a way that most benefits Tesla's stockholders, which could mean selling these batteries to whatever solar installer (or installers) offer Tesla the best deal.

[xamd]

Casual,
beg to disagree on your "nothing magical about battery technology" comment. Please read the Tesla articles when there is a battery article and you will see the amount of discussion on battery technology. Maybe I have misunderstood your statement, but battery technology is something like alchemy turning lead into gold. Some companies have been working on the grail of a perfect lithium battery for decades. Tesla has lots of patents on lithium batteries, but they are building the gigafactory (sometime) to try to get the most important point of their car, the battery, correct and cheaper. So many companies say they are investigating some new battery technology but if they start now, the result is at best, a couple years away. Maybe off topic, sorry about that, but had to say. If SCTY can have a monopoly on battery technology storage via Tesla, then THAT is a moat.

[xamd]

Author,
yes agreed on all your points. Not to pat myself on the back, but I thought about all your points a couple months ago. I don't think Solarcity is a good long long term stock. I got out with 30 per cent profit, ... still too early. Went up another 20 bucks.

The problem with my and your thesis is WHEN. When are customers going to get wise and use other services such as PACE or even the local credit union to get a loan to put up panels and then get the federal tax credit themselves instead of giving it to solar city? And then owning themselves? Will it happen in two or one year? Or next week? I think that is the important question. And I don't think it can be answered. So.. SCTY is a good investment for now. It will probably get back up to that 85 range again. But I don't have any free money to get back in. But I hold Real Goods Solar (RGSE) anyway in a big way, so I ll have to sit on the sidelines with SCTY.

Also I think your last point of the plus side is very important. They are growing so much now, at some point they can just sit back and take long lunch breaks and go home early on Fridays and they still will be earning a lot because of their leasing stream.

A lot of good comments from people above which made me stop and think more about SCTY. Ie, Izzy1 above carries solar city panels, I think his comment is important and helpful. Folks, IMHHO, if you have SCTY, stay in it. Don't sell under 85 if you are long. Good luck to all SCTY longs. Wish I could join ya.

[EnerTuition]

"WHEN" is a good question. The first answer is:
- We don't know because we don't try to time these developments. For buy and hold investing timing is not that important
The second answer is that:
- When the market realized the trend the valuation will take care of itself even if the "WHEN" is far away. We are not fans of the greater fool theory of investing.

[terrychauvin]

I totally agree.
Are we trying to see the forest through the trees? We are all wrapped up in defining value in lease vs. buy? Let us think about Joe Blow at Best Buy. "I can have a solar system and cut 10%-15% off my current utility bill for nothing? Just sign my name?"

This off of Grist.org:

At 60 Best Buys in the solar-heavy states of Arizona, California, Hawaii, New York, and Oregon, customers can sign up to have SolarCity equip their house with solar panels free of charge. SolarCity retains ownership of the panels; it sells homeowners the power they produce at a rate the company says is roughly 10 to 15 percent lower than the standard utility rate. Homeowners get cheaper, cleaner power, while the company makes money on the energy sales; excess power gets sold back into the grid.

Outstanding business model and marketing!
I concur panels will become cheaper and also more efficiently able to selling back into the grid as well as increasing rates will all positively increased margins and lower cost.
"That's $35,760 after the tax credit over the course of the 20 year lease." was wiserinvestors factual statement on a $12,443 unit sounds like a great profit.
I have been researching for a long term solar investment and I have just found it.
finance co/alt energy co/consumer good co/ utility co. all in 1.
BUYING THE DIP : )

[Stephan Mac]

The majority of homeowners will continue to lease and won't buy a solar array even if capital cost are to drop. Why, Because the typical homeowner doesn't want to deal with O&M of a system. Example: I lease my car. Why, Because why would I own and pay interest on something that depreciates over time, becomes less efficient and requires capital maintenance cost after the warranty period ends. Leasing make sense for the majority of homeowners.

[civ-e]

not sure if the leasing of a car is a good comparison to make your argument - most people who are considered financially prudent would advise against leasing a car.

[Ray Boggs]

This is nothing more than a classic myth (scare tactic) that has been used by the leasing companies since 2008. A modern grid tie solar system does not require maintenance other than an occasional cleaning of the PV glass with a common garden hose if you live in a dusty area. Otherwise rain takes care of that issue.

The only item that will typically need to be replaced is the inverter and the inverters that we offer include a 25 year warranty so all you're left with is the cost of labor to replace a solar panel or two which also includes a 25 year warranty and the cost to replace the inverter.

Add up your solar lease and PPA payments and you'll find that the amount will be nearly triple the amount that you would have paid had you purchased your system instead.

Here's an example that was taken straight off the pages of a recent solar lease quote when compared to an outright purchase of the same sized solar system: A leased 4.75 kW system will typically cost the consumer $117.00 per month for a total cost of $28,080. The same purchased 4.75 kW system would cost the consumer $9,642 after applying the 30% federal tax credit. That's a difference of $18,438 wasted when you lease.

And that's without adding in the 2.9% annual payment escalator that the leasing companies are fond of adding into their contracts. Add in the annual payment escalator and the cost to lease a solar system rises substantially.

I can assure you that the "O&M" of a modern 4.7 kW solar system over it's expected 25 to 30 year lifetime will not cost $18,438. It won't even be a tenth of that amount.

[Deep Value One]

Additionally, NRG has completed large scale roof installations for commercial clients so has the know-how, the balance sheet and the scale (http://www.nrgsolar.com).

[Deep Value One]

NRG Energy (NRG) has recently acquired the 8th largest solar installer installer, and the CEO has officially announced he would like to overtake SCTY (http://bit.ly/1g7ie8r).

Since NRG already has a competitive retail arm (and expanding) with several million customers, it already has a direct contact point.

Additionally, it generates $1.3 BN in FREE CASH FLOW (even in current depressed natural gas environment) and sports a $10 BN market cap. This compares to SCTY's $5 BN market cap on REVENUES of only $163 MM.

[EnerTuition]

SCTY success is a catalyst for competition. The barriers to entry are pretty low. So, there will be a lot more companies like NRG that will be entering this game.

[cmnsnse]

System costs will come down, but labor costs won't. Only way to compete will be scale in this case. Solarcity has the scale, and thus, the cheapest labor/watt installed on the market.

[wiserinvestor]

Labor cost has its minimum limits which are set by Federal law. So economies of scale has little to do with labor cost. If anything, because of S.C.'s shear size labor cost is probably one of their biggest liabilities which makes it harder for an organization of their size to be price competitive. I've seen labor rates as low as 60 cents per watt. I seriously doubt that any of the larger solar leasing companies out their can match that rate.

[BigVolt]

And also the highest SG&A expenses!

[cmnsnse]

Wiseinvestor,

If scale allows you to buy parts cheaper, have quality software management systems, develop a robust training program, offer benefits that create career Solarcity employees, strong relationships with various scaled up partners, etc... The total package that makes up a workforce aimed at installing MWs quick and cheap, then you will understand installation costs per watt will most definitely be less then a company that does not have the same scale.

[LagunaBB]

Regarding "- Continuing reductions in cost of solar technology means that the deployed systems are progressively more affordable to customers, thus reducing the incentive to lease and increasing the incentive to buy - this is one dynamic that is not well understood by the market."

Why would customers want to own knowing that future panels will be cheaper and better? Seems like the technology trend will always favor leasing over owning.

[EnerTuition]

Laguna, there are couple of things at play here.
One is the price point:
Would anyone lease a solar system if it costs $20K to put it up? Yes - a lots of them. That's why SCTY is successful.
Would anyone lease a solar system if it only costs $1? No?
At what point will a given consumers mind change on that topic? It varies. For some people it could $5K, for some it is $10K, and for some others it may be $15K. I would say there is going to be a marked shift when a typical system installation cost goes below $10K.

Second is the utility value:
Computers/laptops kept dropping in price every year. Did that stop stop people from buying computers?
Think about cars. Every year cars get better. Does that stop people from buying cars indefinitely.
When something makes economical sense for people and the need justifies it, they go for it. They don't keep delaying the decision indefinitely because there is going to be something better next year. There will always be something better next year.

[david a thomas]

We all know it's more economical to buy our automobile but most people don't because they want the latest and greatest and don't want the issues of maintenance/repair. SCTY business model is excellent. They own 32% of the residential market and have excellent customer satisfaction. Why would a homeowner go to a mom and pop shop to install their solar system. In your last statement you summed it up as to SCTY value and why they are and will be successful in the future. Am I going to install a solar system that's going to be outdated in 5 years and have to be replaced rather than lease one and receive the updates and improvements? Also you forgot to mention battery storage.

[wiserinvestor]

You just made a great point for not leasing. First of all allow me to clear the smoke and mirrors myth of "updates and improvements" No where in any solar lease or PPA contract does it mention "updates and improvements".

About the only thing that might be updated is an inverter's firmware (a microchip). If you actually believe, even for an instant that the solar lease or PPA company is going to improve or update your system's components (solar panels or inverter) without a failure, well then I've got a bridge that I'd like to sell you.

The truth is that you'll be stuck with the same aging solar panels and the same aging inverter until something fails for the full 20 year term of the lease. The only way your equipment will be upgraded will be after you've paid off your 20 year lease and only after you've signed a new lease contract for a newly installed system. And the bottom line is that you'll end up paying so much more for that rented system with a solar lease or PPA when compared to a purchase, that it will be you, not the leasing company that will be paying for your own repairs.

If you purchase your system instead. You own it. So you can sell it any time you like and take the proceeds from the sale and upgrade the system any time you wish. You can't do that with a leased system because the system doesn't belong to you. In fact it won't belong to you even after you've paid off your lease.

[dhdhoora]

The boo birds have easy pickings with $SCTY as long as they are grubbing for worms on the ground. Uh, when they look up into the sky and scan the rooftops, they might just get a different, much brighter, picture!

Ideas that never come out in these pieces:
1) SolaCity's huger market share -- and growing. How can this be if it's just a simple thing to strap panels up on your roof - any dolt can do it?
2) One stop shopping -- they have some very innovative financing (acknowledged in the article) along with some very good engineering -- something overlooked in the article.
3) Barriers to entry -- size -- just ask Amazon.com.
4) Potential for cooperation with local utilities -- states have mandated clean energy quotas and they can work with distributed solar to help manage peak base load and get green brownie points. They are not going to work with the local kids...
5) Commercial and government. Once again, the kids on the block are not going to get this business.
6) SCTY, Musk et. al, track record for innovation. Nay sayers assume that the world is flat... While costs for solar will come down, there simply is no clearly identified technology in the intermediate future that is going to disrupt or replace this technology. My guess is that homeowners will readily enjoy the savings instread of waiting for Mr. Goodbar...

So, some investors can worry about what the world is going to be like in 20 years -- in the mean time, $SCTY is going to do just fine-- thank you.

All the very best,
Don

[User 22937711]

SolarCity's business model has alway been about access to capital through the sell of tax benefit transfer to its finance partners. As federal and state tax incentive program expire SolarCity's advantage will cease.
SolarCity's future is tied to government regulation and success of their lobbing program.

[Stephen Aniston]

SCTY will be a $400 stock once they reach enough penetration over the next 2-3 years. They are certainly on pace to grow 10x revenues. They are in only 0.6% of the homes in the US. 6% penetration is not far-fetched at all for these guys. This dip is a buying opportunity.

[hedgesauce]

Blue sky investing... Every time solar city wants to install additional panels, they must raise additional financing in the form of debt or equity - neither one being particularly good for a shareholder. There is a significant limit on how much they can grow.

Further, their 'Retained Value' figure is particularly telling. The simplest way to see whether SCTY has been a value creator or destroyer -- compare the 'Retained Value' number to the amount of debt and equity raised over the last 4 years. You will see that they approximately break even. This is only due to SCTYs extremely unrealistic assumptions (6% discount rate, 90% renewal rate at 10% discount).

[EnerTuition]

You brought up two important issues. The first one being how SCTY finances its growth and the second being Retained Value.
The current valuations indicate that markets (a lot of sell side analysts) do not understand the retained value aspects well. Look for our article on retained value coming up anytime now .....

[Quartapint.com]

Forget the numbers for a moment. Even if solar equipment is becoming cheaper, you are still overlooking the fact that Elon Musk has been an innovator, and has the vision needed to stay a cut above the rest. Do you really think any of his companies are just going to remain stagnant, doing the same old thing forever? The man wants to put people on mars, and is quickly building the resources to do so. People like him find a way.

[wiserinvestor]

The company has too much momentum. It will be like stopping a freight train. The time for a different business model was 2 or 3 years ago when all of these alternative $0 down "non lease" forms of financing began to enter the scene.

[Bill Cunningham]

Quartapint,

It appears you may be overlooking the fact that the market value of the company is a multiple of what it would otherwise have been if Elon Musk were not viewed as an innovator. It is up by 700+% since its IPO less than 18 months ago, has no current earnings and is trading at a huge multiple to revenue. It is definitely not trading as a stagnant company; the debate is about whether a potentially very bright future justifies an astronomical (no pun intended, well maybe it is) stock price due to the Musk factor.

[Quartapint.com]

Bill, trust me, I clearly understand what you are saying. But that's why I said to forget the numbers for a moment. Take a look at history, there are always trends. When certain types of people or actions are taken, certain inevitable results come about. Will SCTY always be the chart topper? No. But as long as People like Musk are around, the foreseeable future will be something promising.