Please ensure Javascript is enabled for purposes of website accessibility

5 Things SolarCity Corp's Management Wants You to Know

By Travis Hoium - May 16, 2016 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Listen to SolarCity's management after the first quarter and you'll get a view of how they see the next year unfolding.

Image source: SolarCity.

With all of the questions facing SolarCity Corp (SCTY.DL), it's important to hear what management has to say about the direction of the business going forward. And there may not be a more important conference call in the company's public history than the one it gave after the first quarter. Here were my five takeaways.

The disappointment in Q1

When first-quarter earnings were released, there's no doubt the numbers were a disappointment to investors. CEO Lyndon Rive said:

So Q1 bookings came in a lot lower than expected. We had a bunch of headwinds that hit us all at the same time.

He would go on to say that regulatory uncertainty affected sales and a price increase pulled bookings into Q4 2015 and out of Q1 2016. And those dynamics had a huge effect on costs too.

Why costs soared in Q1

The cost to deploy a watt of solar in the first quarter jumped from $2.67 to $3.18 sequentially. The big jump was explained by the slow bookings, but Rive thinks this will be more than a one-quarter problem.

Because of all these headwinds, volume was low, that increased our customer acquisition costs. These have all been addressed, so these all temporarily affected us. And we're starting to see our customer acquisition cost come down quite dramatically in Q2. But it will take us about two quarters to get back to normalized customer acquisition levels.

Rising sales costs were really what hit the stock hard in late 2015, so knowing that sales costs aren't going to normalize until late in 2016 is concerning. And it's reason to wonder if management will really be able to control costs long-term.

Loans are on their way

One of the things that's been lacking from SolarCity's business is an alternative to the lease or power purchase agreement. So, the loan announcement from Rive was key to the conference call:

We also halfway through the quarter ended our MyPower product. We've now redesigned it, and it's a lot better and a lot more simple product for a customer to understand. Previously, it was kind of a hybrid between a power purchase agreement and a loan, now it's a fixed monthly payment. Customers like it a lot more. We just launched it, we launched it last week, and we're expecting to see big demand for that. And we also have different financing terms. Previously, it was only 30-year financing. Now we have 20-year and 10-year financing.

Simple, fixed-cost financing for solar is a big step in the right direction for SolarCity and it could be good for investors as well. Loans mean SolarCity will be recording sales and margin up front rather than playing the financing engineering game long-term. And if you want SolarCity to be a profitable company, that's good news long-term.

The move into utility services is about more than solar

SolarCity announced recently that it was moving into utility-scale solar and grid services. The announcement was sort of strange given the company's focus on small-scale solar and the structural advantages competitors have in the utility space. But CTO Peter Rive explained the move this way:

We have over 100 megawatt hours of storage under contract and plan to complete one of the planet's largest firm and dispatchable solar systems in Hawaii this year. We're also engaged in several pilots with some of the largest investor-owned utilities to prove the benefits of our control systems within the distribution system, grid functions that have traditionally been performed through equipment like transformers and capacitor banks can now be performed by solar inverters, providing us with opportunities to extend our income streams beyond the sale of energy.

More than just low-cost solar

Another comment that was telling on the utility side was that SolarCity doesn't want to compete to be the low-cost supplier. Instead, it wants to provide a more comprehensive solution to utilities. Peter Rive put it this way:

So the majority of the utility-scale business that we're pursuing is this kind of hybrid between solar economics and battery economics, but it's not like we're signing up $0.03, $0.04 kilowatt hour utility-scale projects or anything like that.

That's a little reassuring since the utility-scale solar business is highly competitive today. And with customers looking to own solar systems rather than sign 20-year contracts to buy energy, this should help the company with sales in the future.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SolarCity Corporation Stock Quote
SolarCity Corporation
SCTY.DL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.