Solar Power Craze on Wall St. Propels Start-Up

January 3, 2014

Solar Power Craze on Wall St. Propels Start-Up


The first inklings of the idea came to Elon Musk and a cousin in an R.V. heading to the Burning Man festival in 2004. Solar energy, they agreed, could be big. But not even Mr. Musk, the billionaire behind the Tesla electric car, could have foreseen the solar power craze that is sweeping Wall Street. He and his cousins Peter and Lyndon Rive are riding a wave of exuberance over the industry and their young business, SolarCity.The company — the nation’s largest provider of rooftop solar systems, with more than 80,000 customers — has not made a dime. And, frankly, no one quite seems to know when, or if, it will.

But SolarCity has captured investors’ imaginations and become a potent symbol of a stock market ascent that makes the vertigo-inducing heights of Twitter seem tame. SolarCity’s share price, which closed at $59.27 on Friday, has soared more than sevenfold since it went public, and the company, which did not exist eight years ago, is valued at roughly $4.9 billion.

Depending on whom you talk to, the rise of SolarCity and similar companies is either a sure sign that solar power is finally having its day or that yet another mania has gripped the markets. Two other companies, SunPower and SunEdison, have also exploded in value. In all, an estimated $13 billion was invested in solar projects in 2013, a tenfold increase since 2007, according to GTM Research, which tracks the industry.

Solar companies have had the wind at their backs lately. The broad stock market is coming off its best year since 1997 — the Standard & Poor’s 500-stock index rose nearly 30 percent in 2013 — and the shares of many young companies have leaped from one high to another.

But few have been hotter than SolarCity, in part thanks to the Musk mystique surrounding Tesla Motors, itself a market darling.

This much is certain: The stock market has been very good to Mr. Musk, 42. On paper, his wealth quadrupled in 2013, to more than $5.5 billion, reflecting his stakes in SolarCity and Tesla. As chairman of SolarCity, he has little day-to-day involvement in the company.

“It’s the easiest job I have, that’s for sure,” Mr. Musk said in a telephone interview. “Most of what I do is show up to hear the good news.”

Still, SolarCity and its ilk face formidable challenges. It is trying to outrun rivals in a race to transform the power industry. Utilities are furiously working to undo the incentives that have fueled the solar industry’s growth. A generous federal tax credit is set to shrink in a few years. It has attracted the attention of regulators, who have questioned the way it values the rooftop systems.

And, because of its stock price, it must continue to feed Wall Street’s appetite.

“The market expects them to grow really rapidly for a while — there’s no other way that that price makes sense,” said Shayle Kann of GTM Research.

But there have been signs of growing pains. In interviews, former employees describe a high-pressure environment that went into hyper-drive when the company went public in December 2012. Complaints to the Better Business Bureau of misleading marketing and flawed installations, along with negative reviews on social media forums like Yelp, appear to be rising.

SolarCity says its employees as well as most of its customers are happy, and that its ratings have remained high. But the bad reviews have attracted the attention of Peter Rive, one of SolarCity’s co-founders and its chief operations officer. He regularly responds to the criticisms on Yelp.

“Any negative review that we get, be it through Yelp or through our own customer satisfaction survey, I take very seriously,” Mr. Rive, 39, said, adding that nothing he had seen indicated that service was deteriorating, despite the rapid growth. He delves into complaints, he said, “just because it bugs me — every single time somebody has a negative review I want to understand” the root cause of the problem.

SolarCity is not the first venture for the Rive brothers nor for Mr. Musk, who made a fortune as a co-founder of PayPal. The Rives were working at a computer services company that Lyndon Rive had started with another brother, but he was getting antsy.

“I wanted something that would be long-lasting,” Mr. Rive, 36, said. “And something that could solve some of the environmental challenges we’re facing.”

Mr. Musk suggested he look into solar.

The Rives, and a handful of others, decided not to simply sell solar systems. Instead, they pioneered a way to sell the energy itself, making SolarCity almost like a newfangled utility.

SolarCity and competitors like Sunrun, Sungevity and Vivint install rooftop systems for little to no upfront payment and then sell the electricity for prices below what customers pay utilities. Though greeted with skepticism at first, the service has proved appealing to customers who want solar power but do not have the cash to buy a system outright.

SolarCity will not predict when it will make a profit. In fact, executives argue that the losses are a good thing. “Losing more money means we’re investing more capital and creating more value,” Robert Kelly, SolarCity’s chief financial officer, said.

But as the company tries to expand and show robust growth, signs of customer dissatisfaction have emerged.

“This is the biggest homeowner’s mistake I have ever made,” said Jeffrey Leeds of El Grenada, Calif. With an electric bill running up to $450 a month, Mr. Leeds turned to SolarCity in 2012.

But last fall, he owed his utility $1,300 — more than double what he expected. SolarCity told him he must have used more energy, but Mr. Leeds said “absolutely nothing” had changed about the way his family lived.

SolarCity and Mr. Leeds agree that his overall costs were lower, but disagree on how much. Mr. Leeds said he saved $200, the company said about $575.

Regardless, he said, “that’s not the sort of money I thought I would be saving.”

SolarCity said Mr. Leeds’s case was unusual, affected by a complex design, a persnickety inspector and unusually foggy weather. Most customers are satisfied, it said; the rate of complaints has remained steady even though the company now signs up a new customer about every three minutes of the workday.Executives see little standing between them and the one million customers they want to reach in four years.

As a result, Mr. Musk says the company’s stock price is too low.

“People do not understand the magnitude of the business,” he said. “It’s really very, very significant.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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