The leading residential solar installer in the U.S.,
) has acquired Californian solar panel maker, Silevo Inc., marking
a strategic move to get into the solar manufacturing market. The
market more than welcomed the news, pushing its stock price higher
by 17.58% yesterday.
Launched in 2007, Silevo is a solar technology company
headquartered in Silicon Valley. The company is also building
production capabilities in Hangzhou, China. Silevo has introduced
the use of silicon for solar that offers cost-effective,
high-performance solar modules for speedy acceleration of grid
parity and widespread solar adoption.
Terms of the Deal
SolarCity's Silevo transaction came at a cost of $200 million. It
is also obligated to pay $150 million based on megawatt production
and cost targets through 2016.
What does this mean for SolarCity?
Silevo has a planned plant in Buffalo, NY that SolarCity intends to
expand to over 1 gigawatt (GW). The plant is expected to be
operational by the next two years. This solar-panel module plant
will likely triple the size of the largest solar plant in the U.S.,
competing at par with Chinese manufacturers. SolarCity will not
stop at this. The company plans to produce an astonishing 10 GW of
panels from its factories in the future.
Silevo manufactures panels which have a peak efficiency level of
18.4%. It has also produced cells with 22% efficiency on a
production scale. With the commissioning of the 1 GW factory,
SolarCity expects cell efficiencies to rise to 24%, bringing up
panel efficiency to 20% to 21%. Additionally, Silevo has the finest
technology team among all PV manufacturers. This is not a tall
claim, as the company produces highly efficient cells from copper
instead of the more expensive silver for the grid lines. This has
enabled Silevo to drastically cut production costs.
For SolarCity, its endeavors are well supported by a booming U.S.
solar market. SolarCity sees installations climbing to as much as
900 MW to 1 GW by 2015. It also expects a million rooftop solar
customers by 2018.
Hence, this paradigm shift from residential solar-panel
installation and financing to outright manufacturing will bring
SolarCity one step closer to being a fully integrated solar power
provider, with presence across the entire spectrum of the solar
panel supply chain.
The solar industry rallied in 2013 following a difficult period
since 2011. The U.S. Energy Information Administration (EIA)
estimates that U.S solar demand increased more than 32% in 2013.
For 2014, the EIA projects that U.S. solar energy consumption will
rise by roughly 35%. The expected increase in demand is likely to
fuel top-line growth at the solar manufacturers.
A Look at the Financials
At the end of first-quarter 2014, SolarCity's cash balance was
$525.9 million (including restricted cash). If SolarCity gets into
full scale module manufacturing, the company will necessarily
require a substantial pool of funds to enhance manufacturing
capacity and step up R&D.
The foil to SolarCity's ambitious plans will come from who else but
the Chinese solar panel manufacturers. Let's not forget that they
have tremendous government support as well as economies of scale
that sharply cut panel prices.
The company will also face hard competition from the largest U.S.
solar panel manufacturer,
First Solar Inc.
) as well as
To End Up
SolarCity has focused on installing and financing solar panels for
homes and businesses. The company allows residential customers to
pay back for their solar installations on a monthly basis over an
extended period of 20 years. This not only helps customers to evade
bulky upfront payments, but also lends top-line visibility to the
The Silevo buyout despite its risks will likely bring low-cost
green energy to the markets. It will help evade the adverse impact
of higher tariffs levied on Chinese-made modules in the U.S.
Moreover, Silevo's highly automated plant would keep labor costs
low. However, how these lofty plans work out for SolarCity,
particularly on its pockets, is yet to be seen.
Tesla Motors Inc.
) founder Elon Musk, SolarCity presently carries a Zacks Rank #4
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