NEW YORK (TheStreet) -- Ever since Telsa Motors (TSLA) - Get Tesla Inc Report and Panasonic (PCRFY) announced they would be partnering on the Gigafactory, it's become clear that the joint venture will transform the automotive industry. But this is not just important for those who want to own a cheaper version of the cool Tesla electric car.
The utilities and energy landscape will be hugely altered too.
The Gigafactory is expected to reach production of 500,000 cars per year in 2020, cutting battery costs by 30% or more. And economies of scale thanks to the factory will drive down the price of batteries not just for cars but for solar systems as well.
Off-the-grid is becoming a more popular saying these days, thanks to all the reality survival and do-it-yourself shows on TV. We hear lots of talk of going solar as a way to go off the grid -- something I did myself, sort of, anyway.
When I installed my solar system a few years ago, thanks to very large federal and state rebates, the entire project cost me approximately $14,000. Before the solar system, I would be facing monthly bills of $300 and up to $700 or more in the summer. Now my annual electric bill comes in closer to $300.
To say the solar system paid for itself would be an understatement. Still, I am not totally off the grid, as I have no battery storage. Energy my system makes from the sun flows back onto to the power company's grid during the day, and when the sun sets I pull power I need off the grid. This process, known as net-metering, has served me well these past few years. But that is changing too.
What most people forget is that utilities companies and their monopolies require growth. As champions of solar these past 10 years, they have discovered that for the first time energy use growth in the U.S. has slowed to a crawl. The Wall Street Journal this week talked about the anemic growth in power consumption entering its seventh year.
Electric companies, which can charge a fixed percentage of its sales to generate a profit, need energy use to grow. Solar has helped crimp this. Across the country now, even in solar leader California, changes are coming. And these changes are not the pro-solar moves they been sold to be.
Using a haves-vs.-have-nots approach in California, electric utilities have changed the solar game. The more power you use the less your bill is. For solar customers with low or no bills now, this will mean large increases in power bills -- for those who are on the grid, that is.
Time-of-day charging is coming too. Before, energy was cheap late in the evening. But thanks to smart metering, electric utilities can charge by the minute with differing prices all day long.
So how does this affect Tesla and Panasonic?
Lithium batteries have been prohibitively expensive for solar and for cars. That's why Telsa is building it Gigafactory! (For the record, my system that cost $14,000 after rebates would have cost $50,000 if I had installed my own battery storage system.)
"Both Solar City and Tesla are known to be insurgents and disruptors, and that's why there's so much attention on this particular offering," says RMI senior associate Leia Guccione. While before not many people paid attention to solar-plus-battery systems, "Tesla adds that sexy element, where people are definitely paying attention now."
Wall Street is entirely focused on electric car sales by Tesla and Panasonic -- and rightly so. But once the Gigafactory kicks into high gear in a few years that attention, and likely analyst surprise, will turn to the massive solar storage market.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates TESLA MOTORS INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TESLA MOTORS INC (TSLA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- This stock has managed to rise its share value by 83.68% over the past twelve months. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- TSLA's revenue growth trails the industry average of 21.5%. Since the same quarter one year prior, revenues rose by 10.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- TESLA MOTORS INC's earnings have gone downhill when comparing its most recently reported quarter with the same quarter a year earlier. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TESLA MOTORS INC continued to lose money by earning -$0.71 versus -$3.70 in the prior year. This year, the market expects an improvement in earnings ($1.20 versus -$0.71).
- Net operating cash flow has declined marginally to $60.64 million or 5.36% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Automobiles industry. The net income has significantly decreased by 542.7% when compared to the same quarter one year ago, falling from $11.25 million to -$49.80 million.
- You can view the full analysis from the report here: TSLA Ratings Report
TheStreet Ratings team rates SOLARCITY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOLARCITY CORP (SCTY) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, weak operating cash flow, generally high debt management risk and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for SOLARCITY CORP is rather low; currently it is at 23.27%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -37.86% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$23.31 million or 361.94% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio of 1.15 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, SCTY has managed to keep a strong quick ratio of 1.75, which demonstrates the ability to cover short-term cash needs.
- SOLARCITY CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, SOLARCITY CORP reported poor results of -$0.79 versus -$0.56 in the prior year. For the next year, the market is expecting a contraction of 389.9% in earnings (-$3.87 versus -$0.79).
- Compared to other companies in the Electrical Equipment industry and the overall market, SOLARCITY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SCTY Ratings Report