If there's one thing for sure in the solar industry, it's that we don't know where stocks are headed short-term. Stocks can go up and down at a moment's notice on almost no news, and even unrelated events can send solar stocks crashing down.

SolarCity Corp (NASDAQ:SCTY) hasn't been spared from the industry's volatility, but there are three big reasons the company's stock could rise long-term. 

A huge growth story

Despite the fact that SolarCity has grown to be the market leader in residential solar, it's still just scratching the surface of its potential. Sometime in 2018, SolarCity plans to install its 1 millionth solar-power system. That's impressive and sounds like a big number, but according to the Census Bureau, there are 115 million households in the U.S., meaning SolarCity would have penetrated less than 1% of its potential market. 

Put another way, solar energy accounts for less than 1% of all electricity generated in the U.S. The potential for the solar industry is incredible, and as a leader in residential solar, SolarCity has huge upside.

What investors should consider is that SolarCity has nearly doubled its installations every year since 2010, expecting to reach 920 megawatts to 1,000 megawatts installed next year.

Solarcity Growth Rate

Source: SolarCity.

Eventually, doubling every year will be impossible, but that doesn't mean SolarCity can't continue to grow into an extremely attractive solar market. If it does that and gets to Chairman Elon Musk's lofty goal of over 10 gigawatts installed, shares will certainly rise long-term.

The only way to stay competitive in solar

If there's one thing every solar company has to do, it's cut costs consistently. A cost structure that was competitive last year won't be competitive this year and could leave you bankrupt next year. 

Case in point is the fact that SolarCity's success has drawn the attention of fast-expanding installers like Vivint Solar (NYSE: VSLR) as well as experienced manufacturers like SunPower (NASDAQ: SPWR), both of which offer products that compete with SolarCity's. If they can lower costs faster than SolarCity, they'll be able to steal market share, but so far SolarCity is keeping its lead. 

Management continues to be hyper-focused on squeezing each penny it can out of an installation, and the acquisitions of Zep Solar and Silevo are meant to drive costs down further. You can see below the low-cost structure it already has in place.

Solarcity Cost Reductions

Source: SolarCity.

If costs continue to fall, it will keep SolarCity competitive, but it could also help push margins higher. Now that residential solar energy is lower-cost than electricity from the grid in dozens of states around the country, we're seeing solar power purchase agreement prices stabilize, and if costs come down that would be great for business.

International growth

One of the greatest downside risks for SolarCity is its 100% exposure to the U.S. solar market. This is important because the investment tax credit SolarCity relies on to effectively pay for 30% of each installation (by selling the tax credit to equity investors) will expire in 2017. This could crater its market and kill growth in its tracks.

International expansion would both diversify SolarCity's portfolio and provide another growth opportunity. The good news is that the company doesn't need to go far to expand. Mexico and South America are burgeoning solar markets, and with high electricity prices and high solar insulation (intensity), it would be a natural market. 

I would expect SolarCity to begin expanding internationally within the next two years, and when it does, it'll open up a new growth market for investors. 

SolarCity's story has just begun

Despite the fact that SolarCity has risen to dominance in residential solar, it's still just scratching the surface of its long-term potential. If management can execute cost reduction, manufacturing expansion, and growth plans effectively, the stock could easily outperform the market over the next few years.

Watch the three key factors I outlined above, and if SolarCity executes well in those areas, it's a stock worth having in your portfolio.

Travis Hoium manages an account that owns shares of SunPower and is personally long shares and options of SunPower. The Motley Fool recommends and 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.