No. of Recommendations: 7
How do you NOT make money in that business??

They probably will make money, although nothing is guaranteed, obviously.

The reason they show such big losses against sales is because they are using a very different financing model. Rather than "selling" a system to a homeowner, who goes to the bank and gets a loan for it (or less likely, pays cash), SolarCity is self-financing installations in return for a flow of payments back from the homeowner over time. This requires them to expense 100% of sales, while revenue recognition takes time, possibly as much as 20 years, depending on the deals they strike with homeowners.

This is not new. GMAC was, at first, a self-finance arm for GM so people could buy cars. Some home builders went into the self-finance business rather than pass that lucrative part of the business off to banks. SolarCity will use the proceeds from the IPO to continue the build-out, but it looks as though they will net only about 60% of what their advisors thought, which may change things in the business model.

Their figures, developed over the course of several years, show homeowners that they can realize about a 10% annual savings on energy and eventually own the system, which is decent, but not overly compelling, since the life expectancy of these sorts of systems is 25-40 years, depending. (I don't know about their system specifically, that's just a generic average.)

And yes, if the homeowner stops paying, they will come and remove the system. Of course that costs them again, but I've heard of it happening. There are other risks; it's possible that utilities will stop being required to purchase power from homeowners (and might do so), or the rates for doing so might change, or lots of other things. But yoda is off base laughing quite so hard at their "losses" versus "sales." It's about revenue recognition and timing, not some airy "solar power" pipe dream.
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