I'm currently working on a book about the entrepreneur Elon Musk (Update: The book is now finished and you can purchase it here: The Engineer - Follow Elon Musk on a journey from South Africa to Mars). Elon Musk is famous for founding or co-founding the companies PayPal, Tesla Motors, and SpaceX. One often forgotten company in his empire is SolarCity ($SCTY) where Elon Musk is a chairman, and his cousins Lyndon Rive and Peter Rive are running the company.
|SolarCity ($SCTY) Stock Chart|
They got the idea behind the company while the three of them were traveling towards the Burning Man festival. Elon Musk had earlier co-founded the electric car manufacturer Tesla Motors, and now he needed to power the cars with clean energy.
Most companies in the solar industry focused on the wrong area: the manufacturing of the solar panel. Making a standardized solar panel is like making a drywall, it's a problem, but not the large problem. The large problem is how to convince the society to install solar on the top of tens of thousands of rooftops.
They came to the conclusion that they would provide solar panels for residential buildings in a similar way as Dell is selling computers. No manufacturing would be needed, since they thought that the manufacturing business was too competitive. They would just purchase the parts needed, install the solar panels, and provide the infrastructure around them, and thus SolarCity was founded in 2006.
The vision of SolarCity is to "Create the most compelling energy company of the 21st century by delivering cleaner, cheaper power through distributed generation"
SolarCity provides the sales, financing, engineering, installation, monitoring, and financing of solar panels.
- The installation of the solar panels is free
- Customers pay a monthly fee ($0.15/kWh) which is hopefully lower than their utility bill ($0.18/kWh)
- Easily transferable if the customers move
- Most customers agree to a 20-year contract term while the solar energy systems have an estimated life of 30 years
- The customer will still be connected to the utility grid. The excess electricity produced by the solar panels are fed into the grid. The meter will then spin backward, accumulating credits with the utility company that will offset the customer on the next bill
- The system has no moving parts. Only cleaning and inspection are needed by the customer, such as no growing trees should shade the system. The SolarCity service team proactively monitors the system to ensure the system is performing as it should
- Walmart. 160 stores where 30 percent of each facility's total electric needs is supplied by the solar panels
- Tesla Motors. 750 SuperCharger stations (like gas stations but electricity) where Tesla owners can re-charge their electric vehicles for free. When you buy a Tesla car, you also asked if you want to lease solar panels from SolarCity
- SolarStrong. 120,000 military housing units
- SolarLease. The customer pay a fixed monthly fee with an electricity production guarantee
- Power Purchase Agreement. The customer pay a rate based on the amount of electricity the solar energy system actually produces
- Home Energy Evaluation. At each new building, SolarCity perform an energy efficiency evaluation. During the evaluation, a software enables them to capture, catalog, and analyze all of the energy loads in a home to identify the most valuable and actionable solutions to lower the energy costs.
- Energy Efficiency Upgrades. They then offer to perform these upgrades identified during the Home Energy Evaluation.
- They also offer energy-related products such as electric vehicle charging stations and monitoring software.
In 2012, 48 percent of the new customers also purchased additional energy products or services.
The main product is the Solar Energy System:
The main product is the Solar Energy System:
- Solar panels that convert sunlight into electrical current
- Inverters that convert the electrical output from the panels to a usable current compatible with the electric grid
- Racking that attaches the solar panels to the roof or ground
- Electrical hardware that connects the system to the electric grid
- Monitoring devices
- The headquarter is in San Mateo, California
- Purchases major components from multiple manufacturers. Most solar panels are purchased from manufacturers in China
- 6 centralized storage and distribution facilities
- Distribute inventory to local warehouses weekly
- 700 trucks and other vehicles
- Strong growth. A new customer every five minute of the working day. Number of MW measures how many solar panels have been installed: 58 MW in 2010, 129 in 2011, 287 in 2012 – or 122 percent per year
- Sells energy to the customers at prices below utility rate so the customer will save money
- Easy to switch to SolarCity since they provide the chain: sales, financing, engineering, installation, monitoring, and financing
- Long-term customer relationships for at least 20 years. The installed system will last for 30 years
- Large customers. Potential customers trust a company with well recognized customers such as Walmart and the US government
- No manufacturing of solar panels - this area is too competitive
- Management with track record. The chairman Elon Musk has founded PayPal, Tesla Motors, and SpaceX. Lyndon and Peter Rive have also founded companies, such as Everdream
- A customer referral program to find new customers. SolarCity offers cash awards to customers who convinces their friends, family, and colleagues to become new customers
- Purchases major components from multiple manufacturers. At least four companies provides the solar panels
- Some argue that solar panels are ugly on the rooftops, but not as ugly as wind power
- Not yet profitable, need to achieve economies of scale
- Peak Oil will force customers to purchase electric vehicles, the demand for electricity will increase with the result that prices of traditional electricity from the grid will increase, and thus make solar panels more competitive
- International expansion where distributed solar energy generation is a viable economic alternative to traditional electricity from the grid
- People are concerned about the environment, including nuclear and coal power plants
- No competition from low-cost countries
- The primary competitors are the traditional utilities that supply energy to potential customers
- A reduction in utility electricity prices will make it unprofitable to install solar panels
- Rising interest rates would increase the cost of capital
- Discovery of a better alternative to solar panels
- Have customers in 14 US states. But many houses are in California – an earthquake-zone. How will the solar panels survive a hurricane or a tornado, also common in the US?
If you are interested in learning more about the history of SolarCity, Elon Musk's other companies such as Tesla Motors, and the founder himself, you should read my new biography (370 pages). The first two chapters are available for free: "Sand Hill Road" tells the story of how Elon Musk crashed his McLaren F1, and "Lost Cities" tells the story of Elon Musk's ancestors.
"I doubt anyone, even Musk's employees, will get through it without some big insights about Elon and his companies."- z940912
"Good shit."- Cornucopia
"It serves well as a first pass on the story of Elon Musk. I actually learned quite a bit."- Chad Kohalyk
"The Engineer is loaded with clues as to what comprises such a hard driven visionary. The research Erik Nordeus did to write this book is remarkable."- Heavy Duty Insight