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SolarCity Outshining Rivals Ahead of 2Q Earnings

Stocks in this article: SCTY FSLR TSLA HMC GOOG USB GS BAC

The company also has close ties with Tesla (TSLA), as the car company CEO Elon Musk, is SolarCity's board chairman and cousin to the company's founders. The company is incorporating Tesla's battery technology into its residence installations and has supplied the equipment for car charging stations that Tesla is currently rolling out nationwide.

Most significant for second-half 2013 guidance is SolarCity's program, announced in June, offering free installation for homebuilders. Builders incur no upfront costs for a solar installation; the cost is recouped from owners' electric bills. If the company sees a large percentage of new-home buyers choosing to go solar, it could spell a huge increase in confidence for the company and hasten the day when it turns a profit.

The arrangement for free installation requires a network of financing agreements which could still prove to be the fledgling company's Achilles heel. Google (GOOG), U.S. Bancorp (USB), Goldman Sachs (GS) and Bank of America Merrill Lynch (BAC) are among SolarCity's major partners in its financing efforts, which currently total $1.28 billion.

Part of the attraction for investors however, came from federal incentives, including a 30% federal tax credit and a grant program. The tax credit turns to 10% -- the same as fossil fuel -- for 2017. CEO Lyndon Rive has maintained that the 30% rate is an important element to keep up the momentum for the solar industry. We can assume it is equally important part of the company's attraction to its financing partners.

While the grant program expired at the end of September 2012, the Treasury has begun investigating whether companies like SolarCity overvalued the equipment they were installing. The company said in a press release last year that while there is no indication it has done anything wrong, if the Treasury brought a civil action against SolarCity as a result of the investigation, the company could have to repay money along with penalties.

Earlier this year, SolarCity fought back, suing the Treasury Department. The company claims it did not received the money it was promised due to changes in the way the Treasury valued solar arrays.

Investors seem pleased with the stock generally, but bears love to short solar. Roberto Pedone of TheStreet's Stockpickr notes significant short interest in SCTY. If results are greeted positively, the shorts could bail, sending the stock up dramatically.

-- Written by Carlton Wilkinson in New York

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