SolarCity Corp (SCTY) Sees Leverage In Expenses

SolarCity Corp (SCTY) Sees Leverage In Expenses
By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

SolarCity Corp (NASDAQ:SCTY) recently held its investor meeting, and Goldman Sachs analysts came away with continued positive feelings about the company. They say the company continues to cut costs and believe that of its peers, it may have the most leverage, at least for now.

Goldman Sachs remains Buy-rated on SolarCity

In the wake of SolarCity’s investor day, Goldman Sachs analyst Brian Lee maintained his Conviction Buy rating and $96 per share price target on the company. He says the “all-in cost” of around $3 per watt is far below the company’s peers with the scale advantages. He adds that SolarCity’s general and administrative expenses particularly look to have the most leverage in the near- to mid-term. He expects megawatt growth to result in lower than 5 cents per watt, compared to 25 cents per watt today. This suggests a reduction of 7% to 8% purely in overhead costs.

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In addition, he notes that tax equity costs of around 8% to 9% on new funds are lower than those of most peers, which are around 10% to 14%. And with SolarCity’s access to asset-backed security funding for its solar projects, Lee sees an even greater cost advantage that he believes is a year or two ahead of the company’s peers.

SolarCity sees many positives

SolarCity Corp (NASDAQ:SCTY) said at the investor meeting that while its average selling price remains rather flat in the near term, visibility around it is at least as good as it has been in the last nine months. The company reported that tier-1 Chinese modules now make up around 40% to 60% of its supply, a significant decline from the previous 85%. Chinese modules are locked in at the mid-70 cent per watt, which is in line with recent deals with Kyocera and REC and far below what Lee sees as worst-case scenarios stepping from tariffs in the U.S., Taiwan and China.

The analyst believes that near-term pricing will end up being a tailwind for SolarCity Corp (NASDAQ:SCTY). His checks suggest that in the third quarter, the company is raising the prices for its power purchase agreements by about 10% in some utility regions, possibly including the Northeast. This could be a tailwind heading into next year because of growth upside seen in New Jersey and New York.

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