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SolarCity Copies Musk’s ‘Gigafactory’ Manufacturing Model

Elon Musk is extending his gigafactory concept to solar energy.

SolarCity Corp., the installer of rooftop power systems that lists Musk as its top shareholder and chairman, agreed to pay $200 million in stock to acquire a maker of high-performance solar panels. It plans to build a factory that will have at least a gigawatt of annual production capacity, the company said yesterday.

SolarCity is driving a boom in U.S. rooftop solar energy by leasing systems that carry little to no upfront costs. It has more than 110,000 customers and expects to install as much as 1 gigawatt this year, using panels it buys from other companies, mostly in China. The company sees annual demand eventually reaching “tens of gigawatts” and needs more control over its supply chain, Musk said on a conference call yesterday.

“The crazy thing is that the gigawatt plant is almost like the pilot plant for what will come,” he said. “If we don’t do this, we thought there was risk of not being able to have the solar panels we need to expand the business.”

The move into manufacturing is aimed at reducing costs and ensuring a steady supply of panels, Musk said. It mirrors his electric car company Tesla Motors Inc., which is planning a so-called gigafactory to build batteries needed by his vehicles. Musk has said having control over production capacity will drive down Tesla’s costs, just as buying Fremont, California-based Silevo Inc. will reduce SolarCity’s.

The deal is expected to close in the third quarter. SolarCity may pay an additional $150 million if Silevo meets certain conditions, according to a filing with the Securities and Exchange Commission.

Cheaper Power

“The path to ultimately having solar power be way cheaper than coal or fracked-gas power is to combine huge economies of scale with the most advanced technology,” Musk said.

SolarCity also offers power-storage systems using the same battery technology used in Tesla cars, and expects to use batteries from Musk’s gigafactory.

SolarCity has become more vertically integrated in the past year, including its acquisition of Zep Solar Inc., a supplier of racking systems that make installation easier and reduce labor costs, said Shayle Kann, vice president of research at Boston-based GTM Research.

“This is getting closer to SolarCity being able to provide the bulk of the hardware.”

High Efficiency

Silevo’s cells currently convert about 21 percent of the energy in sunlight into electricity, and the company has said it may reach efficiency rates as high as 24 percent. That’s better than the industry average of about 17 percent and will be competitive with products from SunPower Corp., which are currently the best in the industry.

Silevo’s solar cells use a hybrid of thin-film and so-called tunneling oxide technology to increase electricity output, especially in high-temperature environments, while cutting costs by using copper in place of the more expensive silver used in typical solar panels.

More efficient panels will reduce system costs, Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, said by e-mail.

“Above-average conversion efficiency translates into above-average energy density, enabling fewer modules to generate the same amount of power output,” he said.

It will take several years for the technology to end up in SolarCity’s systems. “Silevo has a high-efficiency technology, but it’s a startup, with no commercial production until 2015 or 2016,” Molchanov said.

SolarCity is in talks with the state of New York to build a manufacturing plant that will have annual production capacity of as much as 1 gigawatt within two years. It may open additional, larger factories after that. It already has a site in China with 32 megawatts of production capacity.

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