NEW YORK (TheStreet) -- The solar industry is getting smaller, and that's just what it needs to grow, say investors.
SolarCity (SCTY) announced plans this week to acquire solar panel manufacturer Silevo for about $200 million with earn-outs of an additional $150 million based on volume and cost targets. The news comes just two weeks after First Solar (FSLR) announced it would acquire Skytron-Energy, a subsidiary of AEG power that provides utility-scale photovoltaic management systems.
Until now, SolarCity had only dealt in the installation of partner solar panels. The move will cut out the middleman for the solar panel installer founded by Tesla CEO Elon Musk and cousins Peter Rive and Lyndon Rive. And it could spark further consolidation in the industry.
In a blog post, SolarCity's founders said that they plan to build a manufacturing plant in upstate New York capable of producing more than a gigawatt of energy within the next two years. They also said that they may acquire more solar panel manufacturers in the future. "Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power," they wrote. "Although no other acquisitions are currently being contemplated, SolarCity may acquire additional photovoltaics companies as needed to ensure clear technology leadership and we plan to grow internal engineering significantly."
SolarCity shares have increased more than 17.5% since the acquisition was announced.
Though the stock has climbed, some investors said SolarCity trades at such high multiples that growth from consolidation is already priced in. The company trades at 30x trailing twelve month sales and is not yet profitable. It posted a $67 million loss in the first quarter of this year.
$SCTY At the low end of guidance sales only growing sequentially ~ 5%, Investors paying huge multiples for slowing growth, 56xEV/S 40x+ BV? CDM Capital (@CDMCapital) Mar. 18 at 04:37 PM
Other solar panel makers have risen in the past two days on the belief that SolarCity may make residential solar power more mainstream, increasing demands for panels on homes or utility companies that provide green power solutions. FirstSolar, which provides utility scale solar plants, rose more than 1% Wednesday.
Some investors said that they weren't betting on solar across the board. But they would bet on any company that involved entrepreneur Elon Musk, a founder of PayPal, Tesla, SpaceX and SolarCity.
$SCTY On Bloomberg TV. Elon Musk is involved in the plan for SCTY to buy a Solar Company. Never bet against Elon..? Duke2Duke (@duke2duke) Jun. 18 at 12:16 PM
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.