In October SolarCity announced its Q3 2015 earnings. The company had a gross margin of 46% for its lease business and a negative gross margin of -48% on system and component sales. The company’s gross margin on total revenues was 22%. SolarCity also had an operating loss of $191.1-million and a net loss of $234.3-million.
Comment: It was only a matter of time before SolarCity’s older leases began turning a profit and supporting its newer activities. Unfortunately, component and system sales will be a more difficult profit ship to turn around – a lease will turn profitable over time when the equipment is paid off, an underpriced component or system will never turn a profit. This begs the question, why continue selling unprofitably at this point? Also, given the uncertain future for PV deployment in the US and the highly competitive global market for PV modules – meaning, low price point wins, and differentiating is basically based on price – what is the future for the company’s Silevo acquisition? If SolarCity is planning to consume 100% of Silevo output — when it is commercial that is — what happens if installation growth slows significantly? Many a crystalline cell/thin film panel/module assembler has faced the stark reality of slowing sales and crumbled under the weight of low price expectations.
Concerning the solar lease business model, this vehicle continues to need correction in terms of the value offered to the end user. The annual escalation charge needs addressing, better customer qualification and education is necessary, after installation maintenance, quite expensive on a system by system basis, needs to be rethought and appropriately valued so that when a lessee calls a truck rolls. All solar lease providers are now discovering what utilities have known for years – it is costly to roll a truck.
It will be years before the impact of abandoned systems (in the case of foreclosure) and system removal becomes apparent and along the lines of system removal, the value of components removed from a roof after five years is not established.
Should the company decide that asset ownership and management is its future direction, meaning owning the solar asset on the roof – it is probably the right time for some corporate soul searching.