SolarCity Corp (NASDAQ:SCTY) is no more stuck with the traditional solar leasing model. The company backed by Elon Musk entered into a deal with the New York state for building up a solar factory in the upstate, says a press release. The shares of the company surged 5% on Wednesday.
A new venture from SolarCity
“SolarCity is getting into a business it has never been before,” said Angelo Zino, an analyst with Capital IQ. Zino informed that previously the panels were outsourced by the company from the Chinese markets. Analysts further said that the company will face with execution risks for setting up the new business of making solar panels and will also need capital for doing so.
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The factory is expected to be functional soon, probably by 2016 and is called Riverbend factory. An amount of $1 and utility costs will be paid by SolarCity to lease it for the coming decade. There will also be an option to get the lease renewed. For the purpose of fostering ‘economic activity’ in the region, an amount of $5 billion will be spent by SolarCity over ten years. The commitments made by the company need to be fulfilled at any cost else it will be fined.
Cost shared by Empire State
The deal is finalized for $1 billion and is in favor of SolarCity. The company has Musk’s cousin Lyndon Rive as its CEO while Musk occupies the position of Chairman. The costs incurred in building up the facility, and adding the infrastructure will be shared by the Empire State. An amount of $750 million will be offered by the Empire State while all the other costs will be borne by SolarCity.
In June, an amount of $200 was spent by SolarCity for the acquisition of Fremont, California-based solar-panel maker Silevo, who even before the acquisition committed to building a solar panel factory in New York.
At the end of 2016, there will be a decline in solar Federal tax incentives, which will fall to 10% from the current rate of 30%. “SolarCity needs to find a way to reduce its cost structure,” Capital IQ’s Zino said. Year to date, the S&P 500 Index gained 7.7% while the shares of SolarCity gained 13% over the same period..
Recently, SolarCity announced a convertible debt offering worth $500 million due in 2019. It is expected that the company hopes to fund its share in the Albany project with this amount.