Is SolarCity’s Latest Acquisition a Game-Changer?

Is SolarCity’s acquisition of Silevo enough to justify the surging share price?

Jun 23, 2014 at 10:13AM

The latest spike in shares of SolarCity (NASDAQ:SCTY), the biggest U.S residential solar installer, was prompted, according to several analysts, by the company's recent acquisition of Silevo. Is this the game0changer that SolarCity has been waiting for? Will this purchase be enough to overcome its headwinds?

Raised tariffs on solar panels from China
One of the problems the company has recently faced is related to the announcement made by the U.S. Department of Commerce that it plans to raise tariffs on solar panels manufactured in China. This issue is likely to impact not only SolarCity, which currently imports some of its solar panels from China, but also solar manufactures such as JinkoSolar Holding (NYSE:JKS), which produces all of its panels in China. The raised tariffs are likely to increase SolarCity's operating costs, which could narrow its profitability in the near term.

This acquisition is SolarCity's attempt to enter the manufacturing business in the U.S. Under the terms of the agreement, the company will purchase Silevo for up to $350 million in stock, although $150 million of this sale price will be paid only after certain production millstones are reached.  

This purchase was made after SolarCity struck another deal earlier this month with REC Group to acquire 100 megawatts, which could grow to 240 megawatts, per annum starting at year-end. 

While Silevo currently has 32-megawatt factories in China and California, the main focus is on its future plans, including building a 200 MW module factory in New York, which might scale up to a 1-gigawatt plant within the next couple of years. 

If SolarCity reaches this goal, the company could have one of the largest solar panel production factories in New York. Moreover, some analysts think Silevo's production in China won't be subject to the new hiked tariffs because they don't apply to the specific type of solar cell the company produces. 

But since Silevo isn't, for now, a big producer of solar panels and cells, and the main value of the company will come from its future projects, this play won't have a big impact on SolarCity's operating costs anytime soon.

Is this a game changer for SolarCity?
Over the long run, this deal will reduce SolarCity's operating costs, especially if Silevo increases its cells' and panels' efficiencies levels. But it could be a long time before SolarCity gets a return on its investment and before Silevo meets SolarCity's demand. After all, SolarCity plans to install roughly 525 megawatts in 2014 and 950 MW by 2015.

This deal also changes the risk associated with SolarCity's operations because it has entered the business of manufacturing solar panels. This new investment brings additional operating risk related to the construction of a new factory and a risk that other solar panel manufacturers bear (e.g. cutting costs, increasing efficiency of panels, etc). Therefore, this increased level of risk may also have an adverse effect on SolarCity's valuation. 

In conclusion...
This deal is likely to lower SolarCity's operating costs in the coming years, but in the meantime this purchase won't have much of an impact on its profit margin. This purchase also opens the door to additional risks related to manufacturing, which may, over time, negatively impact SolarCity's valuation.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers