Vivint Solar (NYSE:VSLR) hit the public markets last week in the most highly anticipated solar IPO to hit the market since SolarCity (NASDAQ:SCTY). Amid the hustle and bustle of that IPO, CEO Greg Butterfield took some time out to talk to me and answer a few questions about his company, the industry, and the future of this newly public company.
Below is an overview of our discussion and the five most important questions I asked him.
What's your view of the solar industry and where it's going?
Like many solar executives, Butterfield thinks the runway for solar is long and we're only scratching the surface of its potential. Vivint Solar is just trying to position itself to capture a big piece of the market.
He said that solar energy is only about 0.6%-1% of energy capacity in the U.S. -- depending on how you're measuring capacity -- meaning that Vivint and others can grow at a rapid rate for years to come without hitting saturation.
Will Vivint's IPO increase competition in residential solar?
Related to the direction of the industry, I asked if Butterfield thought that competition would increase as Vivint Solar grows and companies like NRG Energy, Sunrun, SunPower, and others expand in residential solar. I've long thought that margins or retained value per watt would come down as competition increases, but that may not be the case for some time.
Butterfield thinks there's enough space for everyone right now, and it'll be years before competition forces lower margins or even a push to different financing options. Whether the business model changes before margins are squeezed is another question.
Will Vivint Solar's business model change to include loans or move into commercial solar?
One of the rapidly changing pieces of the solar industry is the business model. In the past, manufacturing panels was a successful model, then building projects was profitable, and today Vivint Solar and others are having success with the residential lease and PPA model by financing projects themselves. But the future may include loans, cash sales, or other financing options, which I brought up in our conversation.
Right now, Vivint Solar is focused solely on residential power purchase agreements and leases, offering only one option to consumers. The PPA is used in six states the company operates in, and Arizona is a lease structure. The simplicity of what's being offered makes the business model simple as well, but it's unknown if the model that's winning today will be the model that wins in the next decade.
This is the biggest question mark for Vivint Solar. Even in its short time as a public company SolarCity has shown the ability to adapt to what's winning in the marketplace, even testing loan products recently. SunPower is one company offering everything from cash sales to leases, so it's another nimble financier. Time will tell if Vivint Solar needs to be equally nimble or if it can offer one product and still grow rapidly as the solar market grows.
Is Vivint Solar going to buy or change suppliers?
Another major change in recent years has been vertical integration within the solar industry. Sunrun acquired a residential solar installer, SolarCity bought racking and panel companies, and SunPower is almost fully vertically integrated. Vivint Solar, on the other hand, works with a small number of suppliers for its key components and doesn't currently have plans to vertically integrate beyond being the installer and financier.
One interesting takeaway from Butterfield was that Vivint Solar doesn't see a problem with some of its current key suppliers. Yingli Green Energy and Trina Solar provide most of the company's solar panels, and tariffs on these imports haven't changed that relationship.
So, while other companies are gobbling up suppliers to further vertically integrate, Vivint Solar is comfortable letting panel makers, inverter manufacturers, and racking companies do what they do best. Vivint Solar will focus on sales, engineering, and financing, which is what it does best.
Is Vivint Solar's sales strategy going to change?
Another key way Vivint Solar is different from other solar companies is its sales strategy. It uses door-to-door sales and 100% commission compensation for its sales employees. This concentrates its market to highly concentrated pockets where sales reps are working and customers are referring new customers.
Butterfield did say that right now the strategy is working well, and he doesn't anticipate changing it, but that could change. This will be interesting to watch as the company grows because competitors are taking a variety of sales strategies from telemarketing to having posts in Home Depot. Vivint Solar may have to adapt and adjust its sales strategy as it grows.
Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.