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SolarCity set to plunge after missing 2015 target

Shares of SolarCity looked set to plummet on Thursday, as investors become sceptical of the company’s ability to meet its targets in spite of otherwise favourable conditions in the US solar market.

To someone not paying attention to SolarCity’s recent guidance, the company’s 2015 performance looks strong.

The 870MW of PV capacity SolarCity installed in 2015 is equivalent to 12% of the total solar capacity installed across the entire US last year. The California-based company commanded a 35% share of the fast-growing US residential solar market, and 28% of the distributed solar market.

SolarCity’s “PowerCo” unit now owns more than 1.7GW of operational PV capacity, up 76% from a year ago. All those rooftop panels generated 1.6TWh of electricity in 2015, most of it sold to residential customers through long-term solar PPAs and leases.

As a result, SolarCity’s total revenue last year grew 57% to $400m.

Meanwhile, the US solar industry is set to benefit from the recent multi-year extension of the solar investment tax credit (ITC) and an important policy win in California that will preserve the basics of the state's net energy metering programme for at least several years.

Unfortunately for SolarCity, its investors have been paying very close attention to its guidance, and the company seems to have a growing problem with hitting its numbers.

Amid deepening concerns about the viability of its business model, loss-making SolarCity last autumn lowered its deployment guidance for 2015.

Yet the company failed to hit even that lowered target of 878-898MW.

SolarCity's fourth-quarter deployments of 253MW, too, fell short of its 280-300MW guidance.

Chief executive Lyndon Rive blamed the shortfalls on power-market regulators in Nevada – a state SolarCity recently pulled out of altogether – and a handful of tricky commercial projects in New Jersey which are expected to reach completion shortly.

Nevada regulators recently upended the state’s net energy metering programme, prompting SolarCity to slash hundreds of jobs in the state. In a conference call, Rive said he expects Nevada’s decision to be overturned by the public via a ballot referendum by the end of 2016.

Rive added that the company will be more careful in the future about issuing guidance based on unpredictable commercial projects.

SolarCity also said that it will soon announce a “strategic initiative” that will allow it to monetize its newly installed PV assets far more quickly.

None of this, however, reassured investors, who dumped SolarCity shares on the results.

In after-hours trading Wednesday, SolarCity shares lost roughly one-third of their value, draining the company’s market capitalisation to a level not seen in nearly three years.

Having last year backed away from its previous goal of roughly doubling installations each year, SolarCity stood by its recently adopted target of deploying 1.25GW in 2016 – a year on year jump of 40% – and reiterated its intention to be cash flow positive by the end of this year.

Analysts, however, were sceptical of the 1.25GW target given that SolarCity expects to install just 180MW in the first quarter.

SolarCity posted a net loss for 2015 of $768.8m, compared to a loss of $375.2m in 2014.

Rive also revealed that ordering the manufacturing equipment that will fill its under-construction PV module factory in New York state has required “a longer lead time than we expected”.

The equipment is now not expected to arrive until the middle of 2017, meaning SolarCity will delay purchasing other equipment for the factory – shifting much of the capital expenditure tied to the factory into 2017.

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