Unfortunately, their business model and pricing is far from competitive in some areas of the United States. I inquired into their services, and when it came to pricing, they were at least 50% over the average of all service providers and plans, and in the bottom 10% as far as price per kw/h.
Also, the home owner has no ownership stakes in any of the hardware. That's great during the service period (10 years if I recall), where they maintain and manage the hardware. However, at the end of the term, you are offered to buy the equipment with a hefty baloon payment. To the point ehere you'd be better off and come out FAR ahead by paying out of pocket from the onset and own the equipment outright.
The lease payments do not make it to SCTY's balance sheet, they're securitized and sold as SolarBonds, a financial beast of their own, with no secondary market, no default protection and no rating from a ratings agency.
I've currently invested in Solar Bonds, and am comfortable with the risks they present. I don't need a secondary market and I'm not worried about vast amounts of people no longer paying their electric bill.
> I'm not worried about vast amounts of people no longer paying their electric bill
No one was worried about vast amounts of people no longer paying their subprime mortgages either. Not saying your investment strategy is wrong, but "predictions are difficult, especially about the future".
If the lease payments backing the bond stop, Solar City will attempt to rectify the situation, but it's not responsible for the remainder of the debt in any fashion. This specific aspect of operation is similar to other online servicers, like LendingClub, which would not compensate you in the event of a peer-to-peer loan default.
• your inability to initiate bankruptcy proceedings against SolarCity;
• the lack of certain “customary” investor protective covenants in the indenture;
• your inability to require us to repurchase the Solar Bonds upon a change of control of SolarCity;
• lack of cross-default provisions in the indenture with respect to our other debt; and
• the lack of an underwriter to conduct third party due diligence and other types of “gatekeeper” actions typically taken by an underwriter in an underwritten public offering.
The buyers likely can't afford to outright buy. Being the cheapest isn't usually the best idea in business either. Apple does pretty well being much more expensive than the average.
I think the key here is batteries. The utilities will fight (lobby) to give themselves the upper hand when it comes to buying solar power from consumers. Tesla plans to make lots of batteries. Batteries also happen to be good solution to these legislative issues.
A match made in... the backroom?
It's not about brand at this point, it's about economies of scale and production?
Its about sidestepping regulatory capture. If you can drive battery costs down far enough, you don't need net metering subsidies than can be taken away on a whim.
Converting to metered grids (on which consumers can sell) costs a small fortune, often for very little benefit. Even environmentalists have been weighing in against it as wasteful.
Tesla's home battery solution offers an obvious response to this situation - you can minimize or avoid grid sell-off by doing in-home storage to smooth demand. That has the potential to make SolarCity an incomparable player in non-metered markets, keeping with Musk's general "no viable competitors" ethos.
Also, Tesla automobiles are giant batteries themselves. If you're looking at demand shifting, it's rarely a bad thing to have two days of storage capacity plugged in all night. I think that is where the true magic happens, converting non net metering markets to profitability.
well then think of it like the perks package. solar city allows people that couldn't afford solar to afford solar (at least up front). electrons are electrons, sure just like a job is a job but some jobs have a beer fridge and some jobs do not
To expand on this, it seems clear to me that Tesla should be in the business of selling home solar installations. The question is whether this the right way to get into the business. This was a cheap way to get 1/3 of the market.
On the 1 hour and 32 minute Tesla conference call this morning Elon mentioned:
-there is redundant/duplicate hardware between solar panel & the Powerwall installations
-substantial drop of cost of sales for SolarCity between 30-50%, also drop on tesla's side
-biggest asset is SolarCity's installers
-also some strengths in the SolarCity's sales side
-a special deal with SolarCity would be a conflict of interest
-a seamlessly integrated product/system is just better, and "you aren't wondering if you should blame the solar company, the battery company or what if you are the end customer"
-installation crew can do everything in one visit instead of two or three
Other interesting note:
-Elon explicitly said Tesla has the potential to be a trillion dollar market cap company
My take on it is if the deal is viewed solely based on past performance and traditional financial analysis it probably has big issues. If viewed from a future standpoint where Tesla pulls off things like the Model 3 successfully, it could be a pretty good deal for Tesla. A bigger question for shareholders is what kind of shareholder dilution could occur between today and say 5 years from now on whatever roadmap Elon is imaging and isn't public.
There is an existing partnership where SolarCity sells and installs Tesla batteries.
I think Tesla's ability to sell another company's installations is limited by the impression they are trading on their brand. ie. a "Trump Steaks" problem.
Also, the home owner has no ownership stakes in any of the hardware. That's great during the service period (10 years if I recall), where they maintain and manage the hardware. However, at the end of the term, you are offered to buy the equipment with a hefty baloon payment. To the point ehere you'd be better off and come out FAR ahead by paying out of pocket from the onset and own the equipment outright.