Solarcity (SCTY) Q1 2016 Earnings Call

posted in: Earnings Call, Notes | 0

Solarcity (SCTY) CEO Lyndon Rive says they finally have more regulatory clarity 

“We had a bunch of headwinds that hit us all at the same time and I’d like to walk them through.  We had a bunch of pending regulatory outcomes in California, Massachusetts, and New Hampshire. These are all open items in Q1 that now have been resolved and actually look really good for the solar industry. We now have long-term visibility in those states and in fact, we’ve never had this type of long-term clarity for some time. So though it was rocky in Q1, we now have that clarity.”

Increased prices which may have pulled sales forward into the quarter

“We also increased pricing in January and with the increase in pricing, it’s pulled in our sales cycle. So typically we have about a 15 day to 20 day sales cycle for residential. And with our customers knowing that we’re going to increase pricing in January, they came in and made the decision earlier. What happened to us then is that, starting the year, we essentially flushed our pipeline and now we have to build a new pipeline.”

Solarcity (SCTY) Chief Technology Officer Peter Rive said they are increasingly trying to work together with the incumbent utilities

“Some great progress has been made towards a future vision for how rooftop solar can be compensated and integrated into utility operations. Specifically a group of utilities and solar companies jointly proposed a long-term solution that supports net metering being in place until 2020, it removes uncertainty for customers on grandfathering and recognizes the value that solar provides to the distribution system.”

Trying to figure out how solar can allow for expanded business opportunities amongst many constituents 

“The post-2020 framework is basically to value the exported energy at the energy price plus the value to the distribution system plus the environmental benefits. This approach should work for us and is in line with our goal to include storage with most of our solar systems around that timeframe. Additionally a big part of the discussions we’re having with regulators and utilities surround additional business model opportunities created by customer-sited energy resources. And to that end, we’re excited about some product releases that address utility infrastructure needs which is more than a $50 billion a year market.”

Solarcity (SCTY) CFO Tanguay Serra said institutional investors are interested in solar bonds as an asset class

“The thing that’s clear to us having done the work here is that this market is real, exists and there’s market participants that are very, very active in it. They typically not had exposure to the residential solar assets, but invested in a number of different infrastructure classes. So I think this market as I discussed is reasonably big. Since we announced this, we’ve had a number of inbounds. But at this stage, we’re not willing to make any commitments for the rest of the year, but it’s clearly an asset class that had interest from some of the largest most sophisticated institutional investors on the planet.”

Seeing cost deflation across their materials they purchase

“A couple of things on what we’re seeing, how to reduce costs because today we’re seeing the ASPs of module prices decline, we’re seeing the same happening with inverters and then there’s a couple of pretty big breakthroughs in the mounting hardware on the residential side as well as on the commercial side that will further drive down costs and give us a lot of confidence for our long-term cost targets.”

Solarcity (SCTY) CFO Tanguay Serra highlighted being the low cost operator as a competitive advantage

“I’ve got massive respect for all our competitors. The one thing I would say is that our key clear differentiators are cost structure, our cost structure is just better than everybody else’s, and we’re optimally selling is the commodity electron. So we’re clearly in a better place there. The other big differentiator I think is all the investments that we’re making under Pete’s leadership on the grid services, the agreement that was – come up between us and some of our peers in one of the Eastern states, the State of New York, I think it’s a blueprint for how the industry is going to go from forward. So we’ve got clear technological leadership, we own our mounting hardware and destiny around that, we have clear EBITDA to capital and we’re ultimately building what is our best-in-class power plants for the lowest cost, that feels like pretty strong differentiators.”