SolarCity (SCTY.DL) will release its quarterly report on Monday, and investors have sent shares of the residential-solar company to all-time record levels recently. But even as SolarCity has pioneered installations of solar systems for homeowners and small businesses, the company will increasingly deal with competition not just from solar peers SunPower (SPWR 31.27%) but also Duke Energy (DUK -0.39%), Edison International (EIX -0.12%), and other utility companies looking to hold off the threat that localized solar power could pose to their grid-based business model.

Until recently, the solar energy industry focused almost entirely on large-scale solar projects for utilities seeking to boost the amount of renewable energy in their overall electricity generation portfolio. But SolarCity helped revolutionize the industry, making it easier for smaller customers to install solar power systems customized for their own particular needs. Moreover, by extending financing and lease arrangements, SolarCity and its rivals have now taken away one of the biggest obstacles to solar installations. Let's take an early look at what's been happening with SolarCity over the past quarter and what we're likely to see in its report.

Source: SolarCity.

Stats on SolarCity

Analyst EPS Estimate


Year-Ago EPS


Revenue Estimate

$43.07 million

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

When will SolarCity earnings go profitable?
In recent months, analysts have gotten a bit more optimistic about SolarCity earnings, narrowing their fourth-quarter loss estimates by a penny per share and their full-year 2014 projections by 4%. The stock has kept soaring, with gains of 37% since mid-November.

The stock's recent gains followed a big plunge after SolarCity's third-quarter earnings report, which included guidance that scared many investors about the company's future growth prospects. Although revenue jumped 52%, projections that SolarCity would post a worse-than-expected loss in the fourth quarter caused shares to drop 17% following the earnings release. Yet those who bid the shares down ignored the fact that more than three-quarters of the 78 megawatts of systems that SolarCity installed during the quarter came from residential rooftop installations, almost quadrupling what SunPower installed for residential customers during the period. With SolarCity anticipating 475 to 525 megawatts of installations in 2014, the company clearly has growth potential as falling installation costs make systems more attractive.

The biggest news for SolarCity came last month, when the company issued $200 million in securitized solar-lease debt to investors. By creating demand on the investment side for solar-related financial assets, SolarCity should be able to focus less on its own balance sheet and more on efforts to get more systems installed.

SolarCity has also made progress in resolving other uncertainties about its long-term business strategy. In December, shares soared after the company got $200 million in financing to help it cover the upfront costs of lease arrangements with its residential customers. SolarCity has also taken steps to meet nighttime electricity needs, using its relationship with Tesla Motors (TSLA -2.04%) to look at battery technology for onsite energy storage. Doing so could pose an even bigger threat to utilities by making grid interconnection unnecessary.

SolarCity's efforts with Tesla could prove especially important if efforts from utilities to change current net-metering arrangements gain steam. Utilities argue that crediting customers with the full cost of electricity generation and transmission from residential solar systems isn't the right solution, instead preferring to treat residences like wholesale power suppliers and credit them with smaller payments. The next few years will be a key time for the net-metering debate, as utilities need to act before the number of solar users rises high enough to make it politically impractical to get changes made. After that point, efforts like the ones Duke and Edison are making to come up with their own residential-solar solutions might be the only avenue left.

But SolarCity also can't ignore competition. It's not difficult to copy SolarCity's business model, and Sunrun has made big efforts to build an integrated business with purchases of solar-installer REC Solar and solar-rack company SnapNrack. In the end, SolarCity might need to buy out these smaller rivals in order to prevent them from becoming larger threats to its success.

In the SolarCity earnings report, watch to see how the company plans to differentiate itself from its rivals. With CEO Elon Musk always providing innovative looks at his business endeavors, it'll be essential for SolarCity to find a way to build a sustainable moat around a business that many are looking to copy.

Click here to add SolarCity to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.