ANALYSIS: SolarCity's IPO means PV's new kids are in town
SolarCity fooled the headline writers, at least. The company “shined” in its 14 December initial public offering (IPO), with shares “leaping” 47% to $11.79 on their first day of trading, claimed USA Today.
And, indeed, a 47% pop is impressive – until one considers that the shares were priced at $8, compared to the $14-$15 range the California-based company had indicated previously.
Yet if the knee-jerk triumphalism of such glowing headlines seemed daft, so too the backlash has seemed disproportionate, with some financial writers deeming the company a delicious prospect for short-sellers.
There are compelling arguments for the notion that SolarCity – which installs PV systems on residential rooftops at no upfront cost, sells power to the homeowner at a fixed rate, and takes a cut off the top – is overvalued.
In its six-year history, it has never turned in a profitable quarter; residential solar installation is still a heavily fragmented game in the US; and there would not seem to be many entry barriers for potential competitors.
Also, undoubtedly, the presence of chairman Elon Musk – of Tesla and PayPal fame – has given the company additional cachet.
But one perceived black mark against SolarCity – its valuation compared to other PV heavyhitters – seems hollow.
SolarCity’s current share price gives it a market capitalisation of about $830m. Given its unproven model – and the depressed valuations of big names like Suntech ($224m) or SolarWorld ($160m) – that may seem rich.
But SolarCity is playing an entirely different game to most traditional PV companies, including benefiting from ever-lower module prices.
It is perhaps foremost among a new crop of companies – in the US, but also in Germany and other countries – claiming to represent the future shape of power providers, and bringing the fight to the doorstep of traditional energy utilities.
The global PV business is in a strange place just now. Few industries have its vast growth potential. Yet the companies that presently define it in investors’ minds are, in many cases, either the walking dead or utter basket cases.
Into this void will step new companies looking to take advantage of the chaos – or old businesses that were smart or lucky enough to stay out of the solar business until now.
SolarCity faces a host of challenges specific to its business plan.
But regardless of where its share price goes, its IPO is a turning point for the industry. It represents the end of the era when stocks are taken as losers simply because they have the word “solar” in their name.