SCTY Stock: Huge Upside for SolarCity Corp?

SCTY Stock UpsideBy now you have probably realized that not all solar companies are solid. But that doesn’t mean you should exclude the entire industry from your portfolio. For instance, SolarCity Corp (NASDAQ:SCTY) has an interesting business model and efficient operations. Let’s see if SCTY stock is worth a spot on your watch list.

Why SolarCity Stock Should Be at the Top of Your Watch List

For those not in the know, SolarCity focuses on residential consumers. But rather than charging consumers for installing solar panels on their roofs, the company offers something a bit different—power purchase agreement plans (PPAs).

You see, the biggest hurdle for residential consumers to adopt solar energy is the high upfront costs. With PPAs, SolarCity would install solar panels on consumers’ rooftops and let them buy electricity from the company at a low price. The best part is that consumers don’t have to pay a penny upfront.

Since electricity rates are highest at the residential level, consumers would have strong incentive to adopt solar energy. But just how much can they save by choosing SolarCity?

Well, based on the tier pricing in California, the company estimated that the old average bill would be around $2,256 for an entire year. If the consumer were to use SolarCity’s PPA, the new average bill would be approximately $1,848 per year. (Source: “Investor Presentation,” SolarCity Corp, February 2016.)

So by going with SolarCity, an average consumer in California would save $400.00 on electricity bills each year. And since there are no upfront costs for installation, consumers could start saving more than 18% from day one.

The strong value proposition offered by SolarCity has made the company a clear leader in its business. In the first three quarters of 2015, SolarCity was the largest U.S. residential and commercial solar installer. The company was responsible for installing 28% of distributed solar during this period.

One unique feature offered by SolarCity is its proprietary residential mounting hardware. We have all seen what rooftop solar panels look like. And let’s be honest, some of them aren’t that aesthetically appealing. But thanks to its acquisition of solar-module mounting startup Zep Solar, SolarCity now offers its own Zep mounting hardware. (Source: “SolarCity Buys Zep to Cut Labor Time for Rooftop Solar,” Forbes, October 9, 2013.) The installation not only looks better, but also requires fewer components and labor hours, thus lowering cost for SolarCity.

Another thing that improves both aesthetics and efficiency is integrated module production. Through vertical integration into module production, SolarCity aims to produce modules at a lower cost of $0.55/W and at a higher module efficiency of 21%–22% by 2017.

SolarCity’s efforts have already started producing solid results. In the most recent quarter, total installation increased 54% year-over-year to a record 272 MW. Costs per watt have declined to a record-low of $2.71. (Source: “SolarCity Fourth Quarter 2015 Shareholder Letter,” SolarCity Corp, February 9, 2016.)

The Bottom Line on SCTY Stock

Going forward, SolarCity still has huge potential. Despite increased adoption of solar energy in the U.S., solar penetration remains low. By the end of the third quarter of 2015, residential solar is installed on less than two percent of single-family homes in SolarCity’s service territories.
When more consumers realize the value of SolarCity’s offerings, don’t be surprised if SCTY stock starts soaring.