Lyndon Rive, Peter Rive, and Chairman Elon Musk are the leaders of one of the most exciting companies today. SolarCity (SCTY +0.00%) allows you to harness the power of the sun. It will save you money, its solutions help our planet, and if you invest in it, you have the potential to generate an exceptional return in the process.
So let's start with the basics. Before you commit cash, it's important to know how a business works, why it provides value to its customers, a little bit about its competition, and the size of its market. Let's also take a look at one of SolarCity's biggest competitors, both in residential and commercial solar: SunPower (SPWR +0.00%).
What you can expect as a customer
Once you set up a consultation, a rep will come to your home, design a system that works best for you, and takes care of all the red tape. You don't have to worry about permits, inspections, and getting all the rebates and incentives you're due.
Once the installers set you up, the panels start working their magic. The system turns direct current power from the panels into alternating current power (the type of power used by your home) using an inverter. That AC power is then sent to your breaker box and is used by everything running in your home.
Now that the sun is powering your pad, you will have a surplus of energy. Your electric meter keeps track of everything your system produces. You will earn credits from your electric company, which will offset most (if not all) of your electric bill. SolarCity also has some pretty cool tech that keeps an eye on your system to ensure it's working properly and that you're using your energy efficiently.
Source: company website
How it provides value
SolarCity works because it provides clear value for its customers. If you choose to lease a system (you can also buy it outright) you have no initial costs for installation. Zero, zilch, nada, none. It's also a snap to transfer to whomever buys your home. SolarCity estimates that if you're paying $0.18 per kWh, your new bill will be about 20% less, or $0.15 per kWh. Over time, do the math on how much you can save.
It's tough to find a fault with residential solar. It's clean, it's renewable, and it can be deployed on a case-by-case basis, so it doesn't take massive amounts of infrastructure to get it rolling. In an imperfect world, it's about as perfect a solution as we're going to get.
A formidable foe
SunPower has a residential solar business that is growing in leaps and bounds. It also builds industrial solar farms and other power generation facilities on a larger scale than SolarCity. But the main difference between SunPower and SolarCity has to do with their respective business models.
SolarCity doesn't make panels -- it gets them from sources like Yingli Green Energy. SunPower is more vertically integrated, in that it makes its own panels, then has a network of local contractors install its residential systems. In essence, SolarCity acts as a middleman, while SunPower is more of a one-stop shop.
Though they're more expensive, SunPower claims to make the highest efficiency panels available. And believe me, these panels are durable. From 2006 to 2012 only 27 panels, of 1 million produced, have needed to be covered by warranty.
The panels SolarCity uses are effective but not as efficient. Depending on your needs, that might not matter. If you only need a 4kW system and have plenty of space on your roof, why would you need an ultra-efficient, top-of-the-line panel?
Source: SunPower
The market is robust
SolarCity's addressable market is huge. There is about 377,000 gigawatt hours, or GWh, of electricity sold in the United States each year. Its current blended electricity price is around $0.14 -- once you crunch the numbers that works out to be around $63 billion.
SolarCity is targeting 1 million customers by 2018, which is a 70% compounded annual growth rate from where it is today. Sound impossible to achieve? SolarCity has achieved a compounded growth rate of 99% since 2009, so this target isn't too much of a stretch.
Foolish final words
Right now, SolarCity is a story stock, run by some truly exceptional entrepreneurs. Admittedly, you have to have some vision to see its potential and some courage to invest. But as it continues to do business and build out its scale, it could generate some serious cash flow.
It claims there are more than 42 million buildings in the 17 markets it operates in. A 1 million customer penetration will only cover about 2.4% of those markets. The point is SolarCity is just starting to scratch the surface -- its future and its potential are tremendous. If you're looking for an environmentally conscious company with loads of potential, SolarCity might be right for you.
