SolarCity Files for $200 Million IPO
On October 5 SolarCity registered for an initial public offering (IPO) with the Securities and Exchange Commission (SEC) that the company hopes will raise over $200 million. Founded in 2006, this leading installer of residential solar power systems is bullish on solar’s future in the United States despite recent setbacks in both the domestic and international markets. The San Mateo-based company, however, bets that demand for solar will surge, in part because the price of retail electricity in the U.S. has increased over three percent annually since 2000--with the result that energy from the sun will become a more viable cost-effective option for homeowners. SolarCity explained in its registration statement that its track record of providing consumers lower electricity bills immediately upon installation of its systems will play well in a market that could total as much as $80 billion in business by 2020. The company’s management also insists its technology, brand recognition, consumer relationships and overall track record justify the approximate 30 million shares that will soon be sold on NASDAQ. The company’s recent financial performance, however, has been a mixed bag. In the six months that ended June 30, revenues surged to $71.4 million but the company lost $23.1 million. So is this IPO the right move for Solar City, and of course, investors? In the “Risk Factors” section of the company’s registration statement, or S-1, SolarCity acknowledges several hurdles to its long term success. Much of the company’s business depends on the available of tax credits, rebates and other financial incentives thanks to various levels of government. And as Todd Woody of Forbes pointed out earlier this week, SolarCity’s business model relies on the cobbling together of investment funds that finance installations on houses. Those funds make the company’s solar panel installations more tantalizing for homeowners, 90 percent of whom would rather lease, not purchase, these systems. Two of the funds are undergoing an audit the IRS started this month to gauge whether underwriters set these solar power systems’ valuations at a fair market price. Finally, the change in regulations that could provide barriers to a sustained demand for solar and other forms of clean energy is always a concern--especially as next month’s elections could end up as either a Democratic squeaker or Republican landslide. Such concerns notwithstanding, SolarCity points to its long-term relationships with its consumers, who generally sign contracts to purchase energy under the company’s contracts for 20 years. The company’s size and scale, in addition to the cheap Chinese solar panels that have flooded the market in recent years, offers those same customers power at a cheaper rate than what they would pay for retail electricity--and it turn one-quarter of the company’s new projects in 2011 were due to word of mouth from its client base. With conventional energy prices on an overall upward trajectory, and ambitious solar expansion programs such as the one New York state recently announced, reports of solar’s death, despite all the hype, are greatly exaggerated as the SolarCity IPO demonstrates. Published earlier today on Triple Pundit. You can follow Leon Kaye and ask him questions on Twitter. Image courtesy SolarCity’s S-1 statement.