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Why SolarCity Is Shining Once Again for Investors

Stocks in this article: SCTY TSLA

NEW YORK (TheStreet) -- SolarCity (SCTY) just announced the acquisition of Silevo, a solar technology and manufacturing company whose modules have achieved a unique combination of high energy output and low cost.

Solar City is a name I owned earlier in the year but I sold the stock back in April. Although I do not currently own the stock, it is still an interesting company to keep an eye on, particularly given its close connection to Elon Musk.

Solar City's new plant in Buffalo will be one of the biggest in the world and is reminiscent of Tesla's (TSLA) planned Gigafactory, the enormous battery manufacturing facility that will produce lower cost batteries. The SolarCity PV panel plant will be powered substantially through hydroelectric power generated by the nearby Niagara Falls.

The acquisition news was well received by the market and the stock traded up significantly, closing Wednesday at $67.15, up over 18% for the year to date.

Basically, SolarCity is buying competitive advantage in cost and supply, much like Tesla plans to do with battery technology. SolarCity said on the conference call it's concerned that a few years down the road there will not be enough panel production to fit the company's needs.

There also may be other acquisitions and partnerships in the future with the aim of expanding low cost capacity. Another interesting note: famed serial entrepreneur Elon Musk was on the conference call. He may not run SolarCity but he is actively involved in the company's management.

SolarCity's CEO Lyndon Rive, is Elon Musk's cousin. Elon Musk, Tesla's CEO and chairman and the founder and CEO of SpaceX, is also the Chairman of SolarCity. This linkage is particularly significant given the potential business synergies between SolarCity and Tesla Motors.

SolarCity offer investors an attractive way to invest in the growing solar industry with a recurring revenue model. Up until this acquisition, the company did not manufacture its own solar panels, meaning that its financial results were not negatively impacted by declining solar panel prices and margin pressure. So this move signifies a change in strategic direction, but is not entirely unexpected.

The Leasing Model

SolarCity sells solar panel systems to residential and commercial customers, but the bulk of its business comes from the leasing side. SolarCity will generally install a system for free in exchange for a 20-year lease contract. SolarCity utilizes tax incentives and third-party financing (including crowdfunding) to cover the installation costs.

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