SolarCity Corp (NASDAQ: SCTY)
SolarCity is one of those companies that investors seem to be relatively unsure about, and for good reason. Over the years, the company has grown to be incredibly large. However, to do so, they have amassed a massive amount of debt, which scares investors. Nonetheless, I'm here to tell you that you don't have to worry about the debt. Today, we'll talk about why you don't have to worry about debt and why SCTY is going to climb moving forward. So, let's get right to it...
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Why Debt Is No Longer A Concern For SCTY Investors
In the world of solar, debt is the biggest enemy. Just look at what debt did to Sunedison. However, when it comes to SolarCity, I don't think that debt is much of a concern anymore. Nonetheless, here's a bit of a back story:
SCTY is very different from most other solar companies. You see, most companies focus on building solar power plants in order to sell the massive amounts of energy it generates at wholesale rates to utility companies. So, in most cases, the debt is taken out in order to build the power plants. However, in the case of SCTY, the company is focused on manufacturing solar systems and installing these systems in residential areas. Unfortunately, there's a bit of a problem with this business model. You see, the average consumer doesn't have $30,000 or more to install solar systems in their homes.
As a result of this dilemma, SolarCity came up with a solution. That solution was taking out debt in order to fund the manufacturing and installation of solar systems. Then, the company turned around and offered payment plans. This plan took off like a rocket. Soon, SCTY was selling more solar systems than it had ever sold in the past. Unfortunately however, this also caused the company to be inundated with the debt it was required to take on as a result of covering the expenses up front.
Nonetheless, SCTY has come up with yet another solution. Recently, the company announced that it would be securitizing blocks of solar projects. Under the new plan, no new debt would need to be taken out. Instead, the company would offer securities, getting the funding from investors and passing the risk down the line in the process. This was a genius move that made SCTY a screaming buy in my opinion!
Why I Believe That SolarCity Is Going To Climb From Here
First and foremost, the company's plan to get rid of debt and pass risk down to investors is a big step in the right direction. However, this isn't the only reason I'm bullish on SCTY. The bottom line is that the world's view of energy and how that energy is generated is changing. More and more people, businesses, and even governments are looking to reduce their reliance on the burning of fossil fuels. As a result, demand for solar is climbing!
I also believe that the business model that SCTY is managing puts it on the right path to dominate the industry. The reality is that no matter what the product is, consumers don't like having to depend on other parties. While solar power plants are a great way to generate revenue, reaching out to consumers and putting control over their utilities in their hands will likely prove to be the move that decides who will be the leader of the industry. By putting the control in the hands of consumers, SCTY has created an incredibly appealing product. I believe that this will go a long way with regard to generating revenue and profits in the long run.
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What Do You Think?
Where do you think SCTY is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Flickr]