SCTY Stock: Here’s Why Warren Buffett Can’t Take Down SolarCity Corp
I’m Still Bullish on SCTY Stock
SolarCity Corporation (NASDAQ:SCTY) ended 2015 on a high note, but that optimism was quickly crushed by a loss to Berkshire Hathaway Inc.’s NV Energy. Many analysts think Warren Buffett may have dealt a fatal blow to SCTY stock, but that just reflects the media’s tendency towards sensationalism.
The saga that played out in Nevada is tragic in every aspect. Households and businesses with rooftop solar panels can add excess energy back onto the grid, a service that utility companies pay them for, but the utility companies aren’t happy about it.
Instead, they view solar power as a threat to their very existence. Buffett’s company, NV Energy, recently lobbied a commission in Nevada to revise how those payments are structured. (Source: “Buffett’s Win in Nevada Prompts SolarCity to Make First Job Cuts,” Bloomberg, January 6, 2016.)
They won that battle, but the war rages on.
Why Nevada Doesn’t Matter to SolarCity
The end result is that Average Joes with rooftop solar panels have to pay more on their monthly bills, while a big utility company gets mollycoddled by the state. To add insult to injury, the commission ordered NV Energy to start charging solar users 40% more in administrative fees. (Source: Ibid.)
As a result, SolarCity is leaving the state altogether. They are cutting 550 jobs, which should hopefully get the state to reconsider its decision. It’s easy to see this as yet another blow to SolarCity, but I think it’s a blessing in disguise.
Consider the usual criticisms of SolarCity. They say the firm is overburdened by expenses, its cost per customer is too high, and its operations are growing out of control. By that logic, the recommendations to SCTY stock are exactly what the company’s been handed on a silver platter.
SolarCity is being forced to focus on the business it already has. This could be the very moment SCTY stockholders have been waiting for—a moment of clarity that can finally get the company to streamline its operations and trim the fat in between.
Doing so could help deliver more impressive results than SolarCity has delivered in recent quarters. Increasing its workforce from 4,300 at the end of 2013 to 15,000 had put a strain on the company’s finances, deepening its losses quarter after quarter. (Source: Ibid.)
Warren Buffett Did SCTY Stock a Favor
Instead of looking at how many more installations they had, investors are now concerned about ballooning costs. Markets grew wary of the firm’s ability to fill the gap, which posed a serious threat to SolarCity’s long-term survival.
The firm was already shifting towards a cost-cutting strategy, but there was a certain amount of reluctance in giving up the one-million-installations goal. The Nevada ruling just makes it easier. Warren Buffett and NV Energy really did SCTY a favor.
I was far more worried when there was a possibility of the solar tax credits expiring. That had weighed on SolarCity all through 2015, but once Congress passed an extension, investors regained their enthusiasm. With that tailwind back in place, and the incidental cutback in labor expenses, I actually think SolarCity is well poised to face the future.
Sorry, Mr. Buffett; it’ll take more than one state to stop the solar industry and SCTY stock, too.
