Even though SolarCity (SCTY) sits pretty making news for its alliance with JP Morgan (JPM, Financial) for the $350 million fund, but the times ahead are not going to be as smooth sailing as one might expect. News has revealed that several of its co-founding members are dumping stock, and also that there could have been insider trading taking place, which the Securities and Exchange Commission revealed in a Form 4 filing. And if those weren’t big enough, the consumers are beginning to turn against the company, as recent developments also revealed that SolarCity had promised big time savings on electricity bills, but the opposite seemed to have happened. In the house of Congress, 4 Democrats and 12 Republicans, have approached different Federal agencies to look into the matter, where they also allege that the 20-year lease deal with zero upfront payment, could be one of the ‘potentially deceptive sales tactics’ of the company.
The dicey stock trends
SolarCity was hoping to boast of some recently healthy stock market readings, as they sign a deal with JP Morgan Chase to fund $350 million towards solar power projects. This will allow them offer customers, the option of a zero amount in upfront payment, and the monthly electricity charges which they hope will be quicker. Though this has also run into controversy as Congress members take a firm stand against the lease period of 20-years, the positive ring of the news has sounded positively for them, and restored faith, since this is the 2nd time they have gotten into such a deal. In 2013, JP and Solar had entered into a similar agreement to fund about $170 million in solar projects. The recent closing price on Thursday (8th January, 2014) for the SolarCity stock was $50.91, which was a significant 3.21% increment. However, Friday washed it away with SolarCity going at $49.62 a share, a dip of 2.53% from previous closing.
Brothers shedding stock in steady stream
It has been reported from various sources, that the co-founders of SolarCity, Brothers Lydon Rive, the CEO, and Peter Rive, the CTO, have been dumping stock on the market at a steady pace. One source has revealed that as many as 1.7 million shares have been put on the market this way, beginning October 2013. Lyndon Rive is known to have sold 900,000 shares (28% of initial position), of which 329,287 were his exercise options. It means that the sales were planned irrespective of the price of shares at any point, mainly as a part of their personal compensation packages. His brother Peter Rive also sold 800,000 shares in this period, of which 312,500 shares fell into the exercise option category. This changed his position by 26%, from his initial holdings in the company.
With these changes, the market seems to have lost the love for the company somewhat, since the sale has been at a steady pace, and in a mentionable volume. What needs to be watched here is, whether it was a part of their well-planned strategy to encash on at a later stage. Speculations say that these cousins of billionaire Elon Musk, may actually be looking to diversify their personal wealth, and selling the shares might just be for that reason alone.
Silver lining for the dark cloud
2015 has just started and all of it naturally doesn’t seem to be smooth sailing for STCY. But like every dark cloud has a silver lining somewhere, there are indications that the year could signal a turnaround in fortunes at a later part of the year. The positive indications are:
- The ‘Gigafactory’ signing with the State University of New York following the purchase of Silevo, the solar panel maker, means that the company is on its way to saving $750 million in taxes. Apart from lending a vertical stance to the supply chain of the company, the facility of over 1 million square feet in expanse, will be able to capitalise big time on the estimated $5 billion in expenses by the corporation. So longer and medium terms gains are certainly on the cards.
- The net-metering policies have been on SolarCity‘s side from the beginning. More than just making solar power system, the company has been known to use technology, enabling the consumers to synchronise their solar systems to the national grid, on a real time basis. This means that they use only that part of electricity from the government grid, which their solar system cannot produce, and even have the chance to sell back (as discounts) to the government grid, in case there is extra production. Though state wise policies on this differ, the company is pushing hard to educate potential and new customers on this, which in turn could affect the way state policies are formed.
- The Federal ITC (Income Tax Credit) has been pushing the company a great deal, and the results are to show soon. The government has been providing a 30% tax break as an incentive to those installing solar power units on a commercial and residential scale. Though 2016 is expected to see this incentive being removed, this year will see the Solar getting into the thick of action, and leveraging their other benefits to expand installations as far and wide as possible, signalling for a positive financial future.
The final thoughts
SolarCity is indeed something that the long term investors would love to have as a part of their kitty. In fact, those who have their sights set on the stock would want the markets to go down a little bit more, so that they can get a better purchase on their money, and later with the benefits rolling in, make their share of wealth as well. However, with the news of insider trading rolling in and the Congress protest regarding the sales tactics involving the pioneering 20-year lease model, Solar has to ensure that don’t send the stocks to the deep end, which would erode their own wealth, their wealthy cousin Elon Mask’s wealth, and most importantly, make future medium and longer term plans tougher to execute.
