SolarCity CEO Says He Wishes Strategy Pitched Differently

  • Company announced plans to slow growth and lower costs
  • Panel installer planning $600 million in securitizations

Less than two weeks after its shares slid by a record, SolarCity Corp. Chief Executive Officer Lyndon Rive said he wishes he had explained a strategic shift to investors differently to better illustrate the value the company is still creating.

The biggest U.S. rooftop solar provider on Oct. 29 discussed plans to shrink growth and focus on becoming cash-flow positive by the end of next year. It’s part of an effort to calm investors worried about the company’s ability to raise financing going into 2017, when a federal tax credit that covers 30 percent of rooftop systems’ costs drops to 10 percent.

The response was not what Rive expected, he said. SolarCity sank 22 percent the next day, the biggest loss since its initial public offering in December 2012.

“I would have done it differently,” Rive, 38, said in an interview Wednesday in San Francisco. “What I would’ve done is come out with the full picture -- come out with, ‘Here’s our new cost target, and this new cost target is significantly lower, and here’s the extra value that we’re creating.’” Tesla Motors Inc. Chief Executive Officer Elon Musk is Rive’s cousin and SolarCity’s chairman.

After almost doubling installations each year since its inception in 2006, Rive decided to pull back. The company now expects the rate of new installed capacity to slow to about 79 percent this year and 40 percent next year. The difference between the value the company will generate with a 40 percent growth rate compared with an 80 percent one “is very small,” he said.

In Hindsight

In hindsight, Rive said he should have tried to show investors how that slowdown will position SolarCity heading into 2017, shrinking the company’s costs so that it may emerge as the only solar panel installer that delivers growth that year. He’s hosting an investor day in Fremont, California, on Dec. 15 to discuss the company’s outlook, among other things.

SolarCity has projected an installation cost of $2.50 per watt in 2017, one that Rive said will be the lowest in the industry. At around the company’s next earnings release, he said the company will cut that cost guidance. In the meantime, cash flows from the systems he has already installed will accelerate, which he said should please investors and scare short sellers.

Shares fell 22 percent in one day

Analysts are interested in SolarCity’s declining installation costs, but they’re looking for more than just that data point.

“What SolarCity needed to do was talk about the three costs of solar -- install cost, customer acquisition cost and overhead costs,” Jeffrey Osborne, an analyst at Cowen & Co., said in e-mail Thursday. “They need to update all three cost metrics on December 15th instead of just steering investors to the installed cost.”

Rive acknowledged that investors are concerned about the company’s access to capital and want to see that it’s able to take out short-term debt and replace it with longer-term loans. SolarCity is planning securitizations totaling about $600 million within the next six months that should reassure them, he said.

“Every time we’ve done securitization, we’ve been highly oversubscribed,” he said. “Expect to see a lot more over the next four to five months. We have a large backlog.”

(An earlier version of this story corrected the spelling of Tesla Motors Inc.)

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