Big news today from SolarCity (SCTY.DL) and BMW (BAMXF -3.53%):
SolarCity, America's No. 1 full-service solar power provider, and BMW have partnered to offer owners of the new BMW i vehicles exclusive access to SolarCity's most affordable solar service option. The partnership will make it possible for many BMW i owners in SolarCity's territories to power their cars with clean electricity for less than it would cost with electricity provided by their utility company.
So goes the beginning of the press release, meaning that SolarCity is now partnered with both BMW and Tesla (TSLA -1.11%) to provide electric car owners access to cheap solar electricity. With Tesla founder and CEO Elon Musk also being the chairman of SolarCity, and holding a 25% stake in the company, what does this mean for investors in any of these companies? Did SunPower (SPWR 5.85%) just miss out on an opportunity to partner with the next big thing in electric vehicles? Let's take a closer look.
BMW i3. Source: Wikipedia user RudolfSimon
It's about scale
At the heart of this agreement, BMW was most likely looking for a partner with enough scale to meet demand for what could be a geographically diverse customer base. For solar manufacturers like SunPower that rely on a dealer base for the majority of its sales, it will be harder for the company to meet the needs for a partnership with EV makers. Even if SunPower was able to come up with some sort of competitive offering, BMW or any other EV maker may not be willing to depend on third-party dealers that are largely out of SunPower's influence to be the point-of-contact with their customers. SolarCity's size -- with a commanding 25% of the U.S. market -- places it far ahead of the competition in being a single point provider. This is a major advantage for these sorts of deals versus companies like SunPower and First Solar.
And cache
SolarCity has also become the established, recognized brand in solar, and make no bones about it -- this is important to BMW. And while every mom-and-pop solar outfit out there will be willing to discount to meet or beat the pricing that SolarCity and BMW have put together, the average BMW buyer is probably going to choose to partner with the company BMW is partnered with: SolarCity.
Why would Elon Musk let this happen?
Musk was central to the founding of both Tesla and SolarCity, having provided a significant amount of initial investment and subsequent investment when the company was started. Continued growth at Tesla and the expansion of EVs from other companies are by no means mutually exclusive. To the contrary, major players in the auto market like BMW taking significant steps into EVs is as much of a positive for the EV market -- and by extension both solar and the prospects for Tesla -- as it is a potential competitive challenge. For BMW to take this step is a sign that the company recognizes a significant market opportunity.
You can rest assured that Elon Musk was aware of this agreement before the press release. What would he say? Probably that SolarCity is now partnered with two of the pre-eminent automakers in the world, while also reminding us that only one -- Tesla -- also provides owners with free solar at its SuperChargers stations, which are, by the way, built and maintained by SolarCity. Either way, Musk (and investors in both Tesla and SolarCity) are long-term winners in this trend.
Tesla Model S at SuperCharger station. Source: Jeff Cooper via Wikipedia
Final thoughts
It's worth another reminder that it's still incredibly early in both the solar energy and EV stories. BMW's i3 won't even begin shipping in the U.S. until Q2 of 2014, so the impact on SolarCity's results won't be apparent until late next year. As to Tesla, the i3 isn't a competitor to the Model S -- it's more likely to compete with lesser priced EVs and plug-in hybrids from Ford, Nissan, and Toyota. The i8, set to launch near the end of 2014 at a price of more than $130,000, is more of a potential threat. But again, it's too early to tell what that threat really looks like. For investors today, keep looking at the long view. Don't get too caught up in the noise.
