Lyndon Rive, CEO of SolarCity (SCTY.DL), has set an ambitious goal for the company: 1 million cumulative customers by 2018. With the company's popular solar leasing model -- where residential and business customers receive a solar installation for no upfront cost -- Rive certainly has reason to be optimistic in SolarCity's ability to attract future customers. However, facing competition from other solar-leasing businesses such as SunPower (SPWR -0.77%) and push-back from traditional utilities, it is by no means a lock for SolarCity to reach 1 million customers in the next four years.
100,000 down, 900,000 to go
In SolarCity's March 18 press release announcing final results for the fourth quarter, Lyndon Rive also shared that SolarCity signed its 100,000th customer earlier this month. SolarCity is 10% of the way to reaching its customer goal for 2018. How likely is it for SolarCity to increase its customer base tenfold in the next four years?
We know that SolarCity had 92,998 customers at the end of December 2013. From these numbers, we can deduce that SolarCity added roughly 7,000 customers during January and February to bring the company to its 100,000th customer in early March. This leaves 59 remaining months -- between March 2014 and December 2018 -- for SolarCity to reach Lyndon Rive's goal of 1 million customers by 2018.
This means SolarCity will need to add an average of 15,254 new customers per month between today and December 2018 to reach 1 million customers in 2018. This number is significantly greater than SolarCity's current rate of 3,500 new customers per month (based on the numbers so far reported this year). Monthly customer growth, however, should increase over time as SolarCity improves its internal efficiency and scales the business across the U.S.
SolarCity controls 32% of the residential solar market and enjoys a comfortable lead compared to its closest competitors. SunPower, which launched its solar power leasing program in 2011, has just over 20,500 solar leasing customers in the U.S. as of December 2013. While this number is up from the 14,500 solar leasing customers SunPower had in 2012, the company is still trailing SolarCity's base of 100,000 customers by a considerable margin. Thomas Werner, SunPower's chairman, CEO, and president, maintains that "demand for our rooftop solutions remains very strong" in the North American market.
What to watch going forward
If SolarCity does successfully scale its operations and reach 1 million customers within the next four years, it is safe to say that utilities will no longer treat SolarCity as a mere inconvenience or a minor competitor. Right now, SolarCity's base of 100,000 customers spread over 14 states is relatively insignificant compared to the millions of customers with traditional utilities. With 1 million customers, however, SolarCity will be a serious contender in the energy delivery business and probably treated as such.
The long-term growth of solar leasing businesses -- such as SolarCity's and SunPower's -- depends largely on the ability to build strategic partnerships with traditional utilities. Without utility partnerships, the residential solar leasing model will face more roadblocks as leased solar captures a greater percentage of the energy delivery market. In other words, if SolarCity is facing push-back from utilities, you can bet that push-back will increase as the company nears 1 million customers. Partnering with utilities today may help alleviate the competitive pressures that are bound to increase as solar leasing gains in popularity and adoption.
A recent poll conducted by Clean Edge and SolarCity found that 69% of Americans want more choice over the sources of their energy and electricity supply. Given the public's support for solar energy and energy choice in general, it is unlikely for utilities to successfully lobby local and state governments to heavily discourage the residential solar leasing model adopted by SolarCity and SunPower.
SolarCity may have significant political sway in cash-strapped California, where the company is already saving local governments -- such as McFarland, California -- thousands of dollars per year through the solar leasing model. As more local governments adopt solar leasing contracts to reduce their own utility bills, the ability of utilities to discourage solar leasing through government regulations may diminish considerably.
Still, if SolarCity continues to face delays or push-back from utilities, the company may find difficulty bringing on new customers at a fast enough rate to justify a premium valuation. This is not so much an immediate problem as it is something to keep an eye on as SolarCity scales its operations and brings on tens of thousands of new customers.
Foolish bottom line
SolarCity is a fledgling pioneer in the solar leasing field and has hardly scratched the surface of its potential. Between the innovation of the Rive brothers and their notable cousin -- serial disrupter Elon Musk, who owns 25% of SolarCity and serves as chairman -- one would be hard pressed to assemble a team more likely to transform the delivery of energy. Patient long-term investors, with a stomach for volatility, should put SolarCity at the top of their watchlists as the company climbs toward the milestone of 1 million customers by 2018.
