Image: SolarCity.
2015 was full of headlines both good and bad for SolarCity Corporation (SCTY.DL). The company continues to be the largest residential solar installer in the U.S., and has moved into commercial solar and module manufacturing in a big way.
But there were a few headlines that weren't very comforting for investors in 2015. Here are the three that stuck out in my mind.
Sales costs are rising
One of SolarCity's biggest selling points to investors since it went public is that it's cutting costs at a rapid pace. But that narrative took a big hit in the third quarter when management said that its sales were down a few cents from a year ago, and sales costs had exploded from $0.49 a year ago to $0.64 in Q3 of this year.
The result echoes a general narrative in solar that incremental sales growth is getting harder and harder to generate. That's the reason SolarCity cut its growth target from a historical trend of nearly 100% to about 40% next year.
This is a more prudent approach for SolarCity to take, but it was certainly a shock to investors, and it caused the company's stock to plunge. SolarCity will have to prove that it can lower sales costs to around $0.40 per watt -- where management is projecting they will be long-term -- or it could be bad news for future growth.
Image: SolarCity.
Short sellers attack
As a company that uses long-term contracts to generate value for shareholders, SolarCity counts on investor confidence that those contracts will live up to their expectations. If that confidence wavers the stock could be in major trouble.
That's why it was such big news when short seller Jim Chanos announced he was short the stock and that he thought SolarCity was a "subprime finance company". I went into detail on where I think Chanos was both right and wrong with those accusations, but the fact that he brought SolarCity's very optimistic projections into focus has certainly had an impact on the company and the stock.
When you combine the high profile short seller and the challenges SolarCity had reaching its own growth and cost goals in the second half of the year, you can see why the stock has been under pressure in 2015.
Growth is slowing fast
I already mentioned that growth in 2016 is expected to slow to about 40%, and that presents a few challenges for SolarCity. The first is that it will now start having to show positive cash flow and profits to maintain investors confidence throughout the year. When you're a growth company, it's easy to chalk up quarter after quarter of losses as investments in growth -- but now that narrative is nearly gone.
But the other big change is that investors don't seem to quite know what SolarCity is. It could be a growth company, only growth is slowing. It could be a play on renewable energy, except there are profitable companies that would make more sense if you just want to invest in renewable energy. It could be a value stock, but SolarCity doesn't make a profit today, and value projections are questionable at best.
This makes SolarCity hard to nail down as an investment. When the stock sold off after third quarter earnings, it was largely because growth investors sold out of the stock because they could see the days of high growth coming to an end. That may be the right strategy for SolarCity long-term, but it also made for a bad headline in 2015.
2016 is looking brighter already
SolarCity has a lot of questions to answer in 2016, including how it will control costs and still meet growth goals. But with the ITC extension now in place, the company's future looks a lot brighter and management has been given some runway to answer those questions for investors.
