SolarCity Corp (NASDAQ:SCTY) stock is rising in midday action on Wednesday, gaining as much as 4% after investment bank Credit Suisse Group AG (ADR) (NYSE:CS) helped finance a $1 billion fund that will be used to further accelerate the company’s expansion plans.
It’s a nice change of momentum for SCTY stock, which is off about 3% in the last year.
The funding is the largest to-date for SolarCity, which also just raised a $750 million fund — including $300 million from Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) — expected to finance the installation of 25,000 residential solar panel installations.
This Credit Suisse deal is a little different, and notable not just because of its large 10-digit price tag, but because of what the $1 billion is for and what it could mean for SCTY stock.
Elon Musk Doubles Up
Today’s funding announcement comes, rather appropriately, on Earth Day, and “is expected to finance more than $1 billion in commercial solar energy systems — including battery storage systems — for businesses, schools and government organizations across the U.S.,” according to SolarCity’s news release.
That part about battery storage systems is important not just for SCTY but for Tesla Motors Inc (NASDAQ:TSLA), which is expected to provide the batteries that will store the energy SolarCity’s installments generate. It marks the beginning of a new era for both companies, as TSLA CEO and SolarCity board member Elon Musk has previously said every SolarCity panel will be coupled with some sort of battery storage feature.
Deutsche Bank analyst Rod Lache said in a note on Wednesday that home energy storage is a “significant opportunity” for TSLA — but what’s not directly addressed in the note is the fact that a partnership would also be hugely beneficial to SCTY stock. Consider the following comment from Lache, which underscores the competitive viability of renewable energy, a common criticism of the area:
“The synergy between stationary storage and distributed energy generation (i.e. solar and wind) is relatively straightforward.”
He estimates that the coupling of SCTY panels and TSLA batteries could bring energy costs to 39 cents per kilowatt-hour (kWh). With peak energy costs around 49 cents/kWh today, I’d say that makes solar pretty competitive.
But equally as important as the commercial viability of SolarCity’s offerings is the type of customer this $1 billion hoard will attempt to acquire: businesses. Brad Buss, CFO of SCTY, had this to say about the company’s newest fund:
“Continuing technology improvements, cost reductions and strong financing support from partners like Credit Suisse are making solar economically attractive to a growing number of businesses across the U.S. SolarCity has installed more than 1,800 commercial solar projects in 21 states — and we’ve barely scratched the surface of the addressable market.”
Although SCTY is far from profitable today, its blistering pace of growth and partnership with TSLA make it one stock I don’t want to bet against. Revenue growth is expected to come in at an eye-popping 68% in 2015 before accelerating to 78% in 2016 — and those estimates were before today’s announcement.
Consider me a believer.
As of this writing John Divine was long shares of GOOG stock, GOOGL stock, and Jan 2016 SCTY $80 calls. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.