The Wonders of SolarCity
Joel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently there's been an increase in the cost of living due to electricity costs. This leads the average American to have a few choices; continue paying the rising costs of dirty energy and deal with it or sign up for SolarCity (NASDAQ: SCTY). I'd do the latter.
Solar leasing for a solar city
SolarCity has a unique system of solar leasing that allows the customer to pay no upfront costs and have a full solar system installed on their rooftop. The customer then signs a contract to pay SolarCity a monthly fee instead of paying the usual electricity bill to the utilities company. Solar leasing is revolutionizing residential solar installations, but can this growth continue?
SolarCity share price has increased more than 400% since going public December because of their unique way of doing things. They still have yet to report a profit, which is a good thing. This is something that some people don't understand about SolarCity's business model. SolarCity SHOULDN'T report quarterly profits for quite some time, and if they do then it's a bad sign. The reason being that if they report a profit it means that the cost of installations has decreased to the point where their income from contracts has surpassed that cost.
SolarCity doesn't want that, according to Lyndon Rive, the CEO. If this happens anytime soon, it means that Solarcity will have stopped growing. Ideally, SolarCity wants to continue installations for many decades to come, until the time they turn profits and their installations are so numerous that it isn't possible to have higher installation costs than contract income. With an EPS of -6.59 that's exactly what's happening now. More installation costs than contract income which is GREAT. Keep it up.
Clean, renewable, affordable energy
SolarCity is clean energy I like. It's smart clean energy. Wind energy and Vestas Wind Systems (NASDAQOTH: VWDRY.PK) goes along with that. Although wind energy is becoming more efficient, it's ranked as one of the lowest in cost efficiency of the renewables. Solar ranked in the top 3, even with the list including nuclear energy (which although is renewable, shouldn't be grouped with the clean energies). This isn't to say that Vestas isn't doing well. With two huge wind projects in Croatia and South Africa recently contracted, Vestas is looking pretty good for this year. They've been crazy volatile with a 52 week share price range of $23-$86 and investors must really have the stomach for the roller coaster, but Vestas could become extremely successful in the long term.
First Solar (NASDAQ: FSLR) is alongside SolarCity, and I don't see solar slowing down anytime soon. As the largest solar panel manufacturer and worldwide leader in thin film module manufacturing, First Solar benefits from customers such as SolarCity. First Solar recently announced that they were expecting profits as much as 28% higher than expected for 2013. This is because demand, driven up by companies like SolarCity, has increased dramatically. Also 1/3 of the PV manufacturers that have been polluting the market were either acquired, closed, or went bankrupt when prices slumped. Decreasing suppliers and better manufacturing technology for First Solar mean higher revenue and higher profits. Their share price of $45 is nowhere near their 2008 share price in the $200's, so could we be looking at a comeback? Panel costs have gone down and SolarCity alone plans on installing 270 MW this year, up from 250 expected. The entire United States is expecting 5.3 gigawatts to be installed compared to 3.3 from last year. That's almost 70% growth.
The future of electricity
If the growth that SolarCity and First Solar are experiencing continues, their 2.7 billion and 3.9 billion market caps will be pocket change in a few decades. But will the government realize the potential we have for complete energy independence using only renewable energy sources and continue subsidies? If things continue to pan out for these forward thinking companies, investors could be sitting on a nice profit.
One home run investing opportunity has been slipping under Wall Street's radar for months. But it won't stay hidden much longer. Forward-thinking energy players like GE and Ford have already plowed sizable amounts of research capital into this little-known stock… because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!
Joel Wasserman owns shares of SolarCity. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!