Published on July 31st, 2016 | by Zachary Shahan0
Sunrun (A Top Solar Installer): Tesla’s SolarCity Acquisition = Sweet Deal For Tesla
July 31st, 2016 by Zachary Shahan
I follow well over 100 sites (that is, I check at least the titles of every single article they publish) in order to curate most of the stories we cover on CleanTechnica, and to stimulate ideas for completely original stories of my own. One of these sites is Sunrun, which happens to be the 3rd-largest solar installer in the United States — only trailing SolarCity and Vivint Solar. Ironically, Sunrun just published one of the articles that I would say most strongly makes the case for Tesla’s acquisition of SolarCity*.
The author of the article wasn’t just “some dude,” either. The author was Lynn Jurich, co-founder and CEO of Sunrun, and one of the most influential people in the modern solar energy era. The summary of her argument was captured well in the title: “It’s an Open Secret: Tesla’s Getting a Great Deal on SolarCity.”
Simply calling this an “open secret” is one of the key reasons why this is one of the strongest arguments for the acquisition. I know it’s just another claim, but for those of us inside the industry, this is the story. If Tesla gets SolarCity at this stage of the game, with the advantages it has accrued, at the price on the table, and with the solar industry beginning to explode (i.e., grow very quickly), Tesla is one lucky bastard. (Tesla’s co-founders are all men, and it wasn’t adopted, so I think “bastard” is a technical term and hope it won’t offend anyone.)
Granted, Sunrun’s aim in publishing the story was likely to help make the case for Sunrun’s own competitive advantages, bright future, and, thus, attractiveness to investors. Still, I found the article to be a pretty fascinating admission.
As a person who has been obsessively covering the solar industry for 6–7 years, my knee-jerk reaction was also that the acquisition would be a sweet deal for Tesla — for reasons Lynn and Tesla CEO (and SolarCity Chairman) Elon Musk have both explained. I didn’t think it would end up an “open secret,” since I didn’t anticipate much pushback or skepticism when the news first popped up — I didn’t think it would be a secret of any kind.
I think that I do understand the factors that lead people to be cautious or even negative about the acquisition, but the advantages seem to far outweigh any risks or downsides. (See the following article for a discussion of both sides of the issue: “74% Of Cleantech Enthusiasts Support Tesla’s SolarCity Acquisition Offer.”) Furthermore, I think the biggest concern critics of the deal have is that SolarCity has a lot of debt. But that debt covered the cost of the solar panels it bought, now has sitting on customer roofs, and anticipates earning strong revenues on over the coming decades — SolarCity should make enough money on these solar panels to pay back its debt and earn a healthy profit. (Lynn, who was one of the key entrepreneurs who ushered in the explosive era of solar leasing, knows this very well — it’s the model she, Ed Fenster, and Nat Kreamer built Sunrun on.)
Another criticism is that the solar market is shifting to solar purchasing rather than solar leasing (SolarCity, like Sunrun, has mostly focused on solar leasing, and its first big venture into solar loans didn’t go over too well). Again, though, this is an area where bringing SolarCity underneath Tesla’s falcon wings could offer a great benefit. Tesla should be able to get better financing and offer solar buyers better loans.
Condensing only Lynn’s arguments (not arguments made by others) into a bullet list, here’s the case she made to explain why this acquisition is such a sweet deal:
- “The residential solar opportunity is massive in its own right.” Indeed, it is.
- Quickly falling energy storage prices just increase the market and opportunity. (Note: One odd comment in the article, though, was that “LG will deliver batteries to GM in 2017 at prices [that] will undercut Tesla’s current pricing by 50 percent or more.” I’m not sure what data she used to come up with this claim, but the LG Chem battery cells for the Chevy Bolt are being sold to GM for $145/kWh, while the latest Tesla battery pack price that Tesla has shared publicly is under $190/kWh. There’s plenty more to the cost of a battery pack than the cells, and we estimate that the Chevy Bolt battery pack probably costs ~$190/kWh as well. Meanwhile, Tesla’s battery costs for batteries coming out of just-opened Gigafactory 1 are likely to be considerably lower than today’s battery costs. So … yeah … I don’t understand where Lynn got her numbers for that claim.)
- The EV revolution again grows the market and the opportunity, and there’s huge potential for people looking to buy an EV to be sold on solar panels as well, and vice versa.
- “Low-cost home batteries to store solar electricity will ignite the full shift to self-powered mobility and clean electricity sooner than many think possible.” (Yes, this is essentially a combination of the points above, but the extra note here is that the shift will happen much faster than many people think — and SolarCity would likely be a much more expensive acquisition soon.)
- Home solar companies that quickly grow large customer bases have a strong competitive advantage in this industry. (This is one key reason I invested in SolarCity — with 34% of the market, compared to 12% for Vivint Solar, 3% for Sunrun, and 2% or less for every other solar installer, SolarCity is off to a tremendous head start.)
- Top home solar providers have gained “customer experience scores on par with Southwest Airlines or Zappos.” (I’m not sure what the source is for this claim — I only see it otherwise mentioned here — and it’s not clear whether this is the case for SolarCity, but it doesn’t even need to be in order for the point to be valuable. Tesla is hugely loved for its customer service approach, and offering solar in a similar way would almost definitely make many people happy customers and Tesla Solar evangelists.)
- “In an environment like this one, those willing to be bold will be rewarded.” Lynn’s closing line is a generic point, but it’s one that Elon is already living, and on this topic, the force seems to be strong with 21st-century Skywalker.
I could have given Lynn a few tips on her article to better capitalize on the situation, and am a bit bewildered at some of the opportunities that were left unimplemented there, but the overall piece is great — and especially the potent and to-the-point title.
Furthermore, let’s remember, this lady knows a ton more about the solar industry than any of us. Her confession is one of the strongest statements in support of the acquisition that I’ve seen.
(Naturally, bears will claim it’s all something that it’s not, and is actually a sign that it’s a horrible decision for Tesla, but such is the nature of the often irrational and short-sighted stock market and its human electrons.)
*Full disclosure: I own stock in Tesla and SolarCity, for what I think are obvious reasons related to their long-term competitive advantages, the future of their industries, and my own intention to support companies that help society. I don’t own stock in Vivint Solar or Sunrun.