Image source: SolarCity.

What: Shares of solar giant SolarCity Corp. (NASDAQ:SCTY.DL) were hammered again in May, falling 26.2% after the company reported less-than-stellar earnings.

So what: A common theme continued in May when SolarCity reported first-quarter earnings. The company failed to hit its own targets and reduced full-year guidance once again. Instead of 1.25 GW of installations, management now only expects to install 1.0 GW to 1.1 GW of solar.

The problem is that customers simply aren't signing up to go solar early this year. There's no urgency after the investment tax credit was extended and SolarCity didn't have a loan product until recently, meaning a loss of customers who didn't want to sign a 20-year lease/power purchase agreement.

To make matters worse, when growth doesn't hit SolarCity's targets, its cost structure gets out of whack and sales costs per watt skyrocket, which resulted in cost per watt jumping from $2.67 to $3.18 sequentially.

Now what: There are a lot of holes starting to form in SolarCity's business model and slowing growth is beginning to expose them. The company doesn't have any big differentiation versus competitors and without a loan product, it is losing sales to competitors with more flexible financing models. It's launched a loan now, but now the worry is that it will have to compete for sales on price with local installers who have even lower costs. Until SolarCity can prove it can make money and build a strategic advantage long term, this is a stock that's a lot riskier than people might think and that risk is starting to be exposed.

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