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SolarCity still needs Buffalo

Even as investors bailed out on SolarCity after the company’s latest earnings disappointment Monday, top state officials are still confident that their $750 million bet on the solar energy systems installer will pay off for the Buffalo Niagara region.

“Not at all” is how Alain E. Kaloyeros, president of SUNY Polytechnic Institute and one of the main drivers of the state’s Buffalo Billion initiative, answered when asked whether he was worried about SolarCity being able to deliver on its promise to operate the biggest solar panel factory in the Western Hemisphere at RiverBend in South Buffalo and create 2,900 jobs here.

The reality, Kaloyeros said, is that SolarCity still needs the Buffalo factory – and all the solar panels that it will be able to produce beginning next year – to meet its scaled-back growth forecasts.

Here’s the basic math: The Buffalo factory will be able to produce enough panels to generate about 1,000 megawatts of solar power. SolarCity’s reduced forecast now calls for the company to install between 1,000 and 1,100 megawatts of new solar generating capacity this year.

In other words, even with the slower growth that caused investors to dump their shares and send SolarCity’s stock down by 25 percent Tuesday, the company still will need each and every solar panel the Buffalo factory can make.

And because the panels made at the Buffalo factory are expected to be more efficient than the conventional panels that the company now uses, SolarCity needs the Buffalo factory to help it meet its goal of reducing its costs by about 30 percent by the end of next year. The modules will be an important part of SolarCity’s push to sharply reduce its costs by the end of next year. “The reduced growth forecast well exceeds and will consume the entire Buffalo facility output, with SolarCity placing top priority on using the Buffalo facility’s output first,” Kaloyeros said.

“The energy sector has been volatile across the board this year, but the long-term prospects for the clean energy sector remain strong,” said Howard A. Zemsky, the Buffalo developer who is president of Empire State Development. “SolarCity’s market cap is still over $1.5 billion, even after the decline, and it continues to have a leading market share nationally.”

SolarCity’s stock closed down by 20.84 percent, or $4.69, to $17.82 on Tuesday – its lowest level since February – after reporting a bigger-than-expected first-quarter loss and cutting its growth forecast for the second time since fall. Six brokerage firms cut their price target for SolarCity’s stock, with CreditSuisse analyst Patrick Jobin making the biggest, slashing his target to $38, from $62.

It is the company’s third reduced-growth forecast, from more than 80 percent growth predicted last summer to 44 percent last fall and then to 21 percent Monday.

It’s a big about-face for Wall Street, which had embraced SolarCity and its innovative programs to install rooftop solar power systems on homes and allowing consumers to pay over time and not come up with any money upfront. It fueled rapid growth and allowed SolarCity to capture about a third of the residential solar market – far more than its nearest competitor.

But SolarCity’s no-money-down financing plans means that the company needs to raise billions in new money to pay for its steadily rising installations. This year alone, SolarCity needs to raise about $2.8 billion in financing, Tanguy Serra, the company’s chief financial officer, said during a conference call Monday.

“Financing, for us, is really like working capital,” Serra said.

While SolarCity already has raised about $1.1 billion, its financing costs have been rising as investors have grown more wary. And SolarCity has sought to ease its reliance on the financing markets by trying to generate more cash than its operations use by the end of the year, even if it means slowing the company’s growth.

“We have reduced volume and we have focused on cost optimization for the year,” said SolarCity CEO Lyndon Rive.

Buffalo can only hope he’s right.