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Solar eclipse

9 January 2014 By Christopher Swann

It may take Stephen Schwarzman to bring Wunderkind SolarCity boss Elon Musk down to earth. To justify a near $6 billion market capitalization, the money-losing SolarCity needs to hold off competitors. Yet rival solar panel installer Vivint, owned by Schwarzman’s Blackstone Group, is a faster-growing number two in the market and a threat.

The good news for SolarCity is that it captured about a third of residential solar panel installations in the third quarter of 2013, up from an average of 17 percent in 2012, according to GTM Research. Musk’s company was the first to find a clever way to fit panels at little or no upfront cost to homeowners. The expenses are covered by backers such as Google and U.S. Bancorp which then collect tax credits, and customers pay SolarCity for electricity much as they would a utility supplier.

Barriers to entry are, however, low and well-funded rivals are muscling in. Vivint, acquired by Blackstone in November 2012, has come from almost nowhere that year to grab 9 percent of new residential installations in last year’s third quarter, GTM reckons. With its roots in home security and automation, Vivint’s three-year-old solar unit can draw on the company’s 800,000 existing customers. Others selling services to homeowners – including home security market leader ADT – could yet be tempted into the fray.

An influx of new players and a glut of supply is exactly what brought many solar panel makers to the brink of bankruptcy – an episode that Musk and his rivals must be aware of. Yet there’s little hint of this threat in SolarCity’s valuation. The company is currently worth a whopping 12 times analyst estimates of its sales in 2015. ADT, which uses a comparable lease-based model in its slower-growing business, trades at just twice expected revenue next year.

Musk, the vaunted entrepreneur behind electric car producer Tesla Motors and rocket maker SpaceX, adds magic dust to SolarCity’s market lead. But Vivint or other rivals could quickly erode SolarCity’s market share and future profitability. Although SolarCity currently enjoys scarcity value as the only publicly traded panel installer, its toppy valuation could even tempt Schwarzman to change that, too. Rocket and automotive science may be hard to duplicate. Musk’s solar effort, though, is more fragile.


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