April 7, 2013

SolarCity SWOT analysis

This article is a part of the article series SolarCity Stock Analysis


SolarCity helps their customer to save money by installing solar panels on their roofs. You might think solar energy is expensive - but it's no longer true. The customers can either buy the solar panels or lease them. 

Strengths
  • Strong growth. In 2013, SolarCity got one new customer every three 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, 467 in 2013 
  • Sells energy to the customers at prices below utility rate so the customer will save money. And the customer doesn't have to pay a large sum to install the system 
  • Easy to switch to SolarCity since they cover the entire 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, so the customer can renew the lease after 20 years 
  • Large customers. Potential customers trust a company with well recognized customers such as Walmart and the US government 
  • Management with track record. The chairman Elon Musk has founded (or co-founded) PayPal, Tesla Motors, and SpaceX. Lyndon and Peter Rive have also founded companies, such as Everdream. Of Tesla Motors, SpaceX, and SolarCity, Elon musk said the company he believed the most in is SolarCity 
  • 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 provide the solar panels and they will manufacture their own solar panels in the future 
  • Large company - the largest employer in the US solar industry - so they can achieve economies of scale 
  • Happy customers. 27 percent of the new residential projects in 2013 originated from existing customer referrals 
  • Has developed strategic relationships with third parties, such as commercial home builders, to generate new customers 
  • No competition from low-cost countries. A Chinese company canät install cheaper solar panels in US 

Weaknesses
  • 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 
  • Customers may not pay for their installed solar systems. As of the end of 2013, SolarCity has repossessed 16 financed solar systems 
  • SolarCity borrows money to pay for an installed solar system. If the value of these systems is lowered for some reason, the company has to pay back the difference. They are neither guaranteed that they can borrow money 
  • Are limited for a geographical point of view - solar panels are not popular in regions where there's snow 
  • Founded in 2006, so has a limited operating history. It's impossible to know if the solar system will operate for 20 years 
  • SolarCity sells the solar panels to investors so they get lower taxes and it's costing the government money and it wouldn't be very difficult for the government to close this "loophole" 

Opportunities
  • We are running out of oil and it will force customers to purchase electric vehicles. The easiest way to power these cars is to install solar panels on the roof 
  • 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 
  • Can acquire other companies, products, technologies, or enter into joint ventures 
  • As of 2011, the cost of solar power has fallen well below that of nuclear power and is set to fall further 

Threats
  • The primary competitors are the traditional utilities that supply energy to potential customers. A reduction in utility electricity prices or a cheaper renewable energy source will make it unprofitable to install solar panels. Because commercial customers pay less for energy than residential customers, they will be the first to abandon SolarCity 
  • Rising interest rates would increase the cost of capital 
  • Have customers in 14 US states. But many houses are in California – an earthquake-zone. Will the solar panels survive a hurricane or a tornado? 
  • SolarCity's business depends on "net metering" (customers can export excess electricity to the grid they are connected to) and several other financial incentives. What if some or all of these are removed? In 2012, 26 US senators wanted to eliminate all solar subsidies 
  • There's a limited number of investors who are interested in the tax benefits associated with the funds 
  • A rising cost of solar panels and the technology needed to build the entire solar system 
  • As more and more companies install solar panels, it might be difficult to find employees with those skills 
  • A new recession. In late 2008 and 2009, SolarCity had troubles to find new investors who wanted to invest in their funds

If you want to learn more about the history of SolarCity and Elon Musk, you should read my new biography (380 pages). There are two chapters available for free: "Sand Hill Road" tells the story of how Elon Musk crashed his McLaren F1, and "The Electric Stars" tells the story of Tesla Motors's first small steps.

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- 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

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