Can This $113 Million Investment Save SolarCity?

The troubled solar power company SolarCity is about to get a flood of cash from three sources, but can money solve its problems?

The company announced Wednesday that it had raised $113 million in new money, including $100 million alone from the private equity firm Silver Lake, as well as $10 million from SolarCity’s chairman, Elon Musk, and $3 million from the company’s CEO, Lyndon Rive. Musk and Rive are two of the three founders of SolarCity.

Although such infusions are often seen as expressions of confidence in a company, it’s not clear whether it will do much to enhance SolarCity’s fortunes with investors in the long term. The company is the nation’s largest installer of rooftop solar power systems, but has been short of cash and has curtailed its operations lately to focus on cutting costs.

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Until recently, SolarCity’s growth rate had been enormous, around 85 percent per year, but under the new strategy it’s expected to drop to a much more modest rate of around 40 percent. The company has shown quarterly profits only twice since going public in December 2012.

On Oct. 30 it reported a third-quarter loss for 2015 that was larger than analysts had expected, even though revenues were better than expected. Since then, the company’s shares have fallen by more than 30 percent, reducing SolarCity’s overall value to about $2.5 billion, compared with more than $5.2 billion at the end of the third quarter of 2014.

Many investment managers say they believe SolarCity’s stock will continue falling, as have stocks in other makers and installers of photovoltaic power systems. Besides the company’s tenuous access to investment capital, it also faces the expiration of the generous investment tax credit (ITC) for solar installations next year. At that time the credit will shrink from 30 percent to 10 percent.

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The Solar Energy Industries Association (SEIA) says it successfully fought for an extension of the larger credit in 2008 and is working for another extension, this one lasting five years, or at least until 2021. It calls the ITC “one of the most important federal policy mechanisms to support the deployment of solar energy in the United States.”

It may not be surprising that Musk and Rive are investing in the company they helped found, but evidently SolarCity also has the confidence of Kraftwerk, Silver Lake’s division concerned with alternative energy. In 2012, before SolarCity became a publicly owned company, Kraftwerk had invested about $25 million, which returned four times that amount within about 18 months. Related: No Consensus For OPEC On Where To Go Next

Since then, Kraftwerk has kept its eye on SolarCity, and while the company’s stock was falling in value since the grim earnings report of Oct. 30, Kraftwerk officials approached Rive and offered its investment of $100 million if Musk contributed $10 million and Rive, $3 million. Musk and Rive agreed.

This new investment is not expected to generate interest to Silver Lake Kraftwerk because the private equity firm hopes to earn a profit from what it sees as an eventual rally in SolarCity’s stock price. Kraftwerk also will not have a seat on SolarCity’s board, as is customary with such large investors, but will maintain regular access to Rive and receive periodic updates on the company’s policies and planning.

By Andy Tully of Oilprice.com

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