By Eric Boehm and Tori Richards | Watchdog.org
SolarCity, a California-based solar energy firm backed by hundreds of millions in federal grants and loans, posted $55 million in losses during 2013 and is running a deficit of more than $166 million, according to an annual financial report released this week.
Still, company officials say the future is looking sunny.
“All our states are doing extremely well and we continue to invest in every state,” said CEO Lyndon Rive in a conference call after the report was released.
TheStreet, a news service devoted to Wall Street, has rated SolarCity’s stock a D+ and urged investors to sell.
“A number of negative factors … could make it more difficult for investors to achieve positive results compared to most of the stocks we cover,” TheStreet wrote. “Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures.”
The annual filing to the Securities and Exchanges Commission, published this week after several delays and an admitted “accounting error” shows plenty of storm clouds on the horizon for the solar energy firm. Chief among the concerns are declining assistance from federal programs designed to prop up alternative energies and cuts in spending like the sequestration in March 2013.
The accounting error stems from a miscalculation of overhead expenses that didn’t have an effect on cash flow, SolarCity reported in a news release earlier in the month.
SolarCity gets two major forms of assistance from the federal government — direct grants that were available through the U.S. Treasury’s Section 1603 program, a part of the federal stimulus from 2009, and investment tax credits that are worth 30 percent of the value of newly installed solar energy systems. So far, the company has received more than $244 million.
But both of those programs are being phased down.
The 1603 grant program is no longer available, and grants awarded last year were reduced by 8.7 percent as a result of the across-the-board cuts enacted in March 2013 as part of the federal sequestration.
Those reductions in grants cost SolarCity $2.4 million last year, according to the annual report.
Going forward, the company plans to put more emphasis on the tax credits, but they will be cut to only 10 percent of the value of systems, beginning in 2017.
Those reductions could increase the cost of energy for SolarCity’s customers.
“Reductions in, or eliminations or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry by increasing our cost of capital, causing us to increase the prices of our energy and solar energy systems,” the annual report admits.
Those cost increases would make it difficult for the company to attract new investors and customers, the report warns. But there are still some bright spots.
For one, SolarCity’s stock has been on a roll recently, topping $85 per share last month. The stock fell to around $72 per share on Wednesday, one day after the annual report was released.
Revenue improved to $163.8 million during 2013, up from $126.9 million during 2012, as SolarCity installed 78 percent more systems during the past year.
And after losing more than $99 million in 2012, the losses in 2013 may not seem as bad. But SolarCity is yet to turn an annual profit, and the losses are piling up.
The company was running a deficit of $111 million at the end of 2012, but that ballooned to $166.7 million by the end of 2013. The annual report warns that the company will continue to experience net losses as it increases spending in coming years.
To achieve profitability, SolarCity says it will have to grow its customer base, find more independent investors (it already has big names like Google and Credit Suisse on board) and reduce the costs of capital and operating costs.
Even if all that goes perfectly, the report contains an ominous warning.
“If we do achieve profitability, we may be unable to sustain or increase our profitability in the future,” it says.
Contact Eric Boehm at email@example.com and Tori Richards @firstname.lastname@example.org