General Electric (GE +0.17%) has a history of making big, bold acquisitions to buy into a market it sees as having long-term potential. In its past, management has seen opportunities in media, energy, and healthcare and built leading positions almost from scratch by acquiring aggressively.
I think now is the time to make another ambitious bet on the future of energy by buying leading solar and energy storage assets. GE already has a dominant position in wind energy, and it could use its position as a leading equipment supplier to utilities to be a partner of choice in renewable energy as well. Here are the assets GE should put at the top of the list.
Image source: First Solar.
Buy First Solar and SunPower
First Solar (FSLR +1.08%) and SunPower (SPWR +0.00%) are two of the leading solar companies in the world and are the rare manufacturers that use differentiated technology. First Solar's thin-film solar panels have long been a cost leader and are ideal for hot conditions, squeezing more energy from each watt installed than competitors. SunPower's high efficiency cells are up to 25% efficient, compared to under 20% efficiency for commodity solar cells, making them ideal for space-constrained locations like residential or commercial rooftops.
By buying both companies, GE could offer solar solutions to every segment of the solar market around the world and build on the technology lead these companies already have today. And with SunPower's market cap of $1.55 billion and First Solar's $5.1 billion value, buying both could probably be done for around $10 billion, a steal for GE to buy its way into a leading market position in solar energy.
Buy Stem, Sunverge, and AeroVironment's charging business
To augment wind and solar, GE needs to start taking energy storage seriously. The company has been researching energy storage for years, but has been fairly quiet as big contracts went to companies like Tesla (TSLA 1.98%) and AES. GE doesn't seem to have a clear strategy for how to build out an energy storage business. Buying Stem, Sunverge, and AeroVironment's (AVAV +2.97%) EV charger business could jump-start the company's move into energy storage.
Stem is an energy storage company who installs systems in commercial buildings. It doesn't make batteries, it's the brains behind energy storage, working to maximize value for customers or savings for the grid. Sunverge provides a similar service to residential customers, creating a virtual power plant that can give or take energy from the grid as needed. Both companies would augment the solar business above, especially when you consider SunPower's current partnerships with both Stem and Sunverge. These acquisitions would give the company a leg up in the solar plus storage systems of the future.
Buying AeroVironment's EV charging business would consolidate the commercial and home EV charger business under GE. AeroVironment has partnerships with most major EV manufacturers and is arguably GE's biggest competitor in the space. It's small with $35.9 million in charger sales in fiscal 2017, but its 25.3% gross margin makes for a profitable product to expand GE's portfolio. GE may even want to combine chargers with inverters and energy storage, providing a complete renewable energy package to customers.
Combine the wind, solar, energy storage, and charging assets and you start to see a complete suite of products customers large and small could buy as needed. And unlike Tesla, GE would cast a wider net than the automaker, which has proprietary charging and only a small footprint in solar. The greater value offered by a complete solution could also push gross margins north of 20%, which is typically where solar companies have maxed out in the last few years.
Give renewable energy the GE financing magic
What could tie all of these assets together is GE's financing arm and Predix, the company's internet of things platform. GE could provide leases or loans to finance commercial and residential solar projects. GE may also extend debt to wind or solar farms, as well as energy storage, just like it does in the power plant business today. And having the IoT platform to control thousands, or millions, of industrial assets around the world could help maximize the energy storage and charging assets as well. This could make GE the preferred partner for developers, commercial building owners, and residential solar installers alike.
Renewable energy is a multitrillion-dollar opportunity that GE could lead with the right strategy. But it will need to make bold bets to take a leadership position, something it's proven in the past that it can do. These buys would make it a renewable energy powerhouse few other companies could compete with.
