SolarCity was acquired by Tesla Motors for $2.6 billion in late 2016. Both companies will be led by Elon Musk and expect to achieve cost synergies of $150 million in the first full year after closing. By combining Tesla's new electric vehicles with SolarCity's newest solar products, the companies expect to lower hardware costs, reduce installation costs, and improve their manufacturing efficiency.

Operations

SolarCity's main selling point is that it offers renewable energy for less than traditional utility companies. While customers feel good about choosing an alternative energy source, they're also usually saving money. Much of the costs associated with new installation and monthly fees are offset by SolarCity's investment funds. To date, the company has formed more than 20 investment funds and raised more than $1.5 billion from banks and other companies such as Credit Suisse, Google, PG&E Corporation, and U.S. Bancorp. (Two funds, however, are being audited by the IRS.) SolarCity also depends on federal and state tax rebates and credits to lower costs and create incentives for fund investors. For example, the federal government offers a tax credit of 30% to install solar power through 2016. (After 2016, the tax credit will fall to 10%.)

Electricity is sold under long-term contracts; generally customers agree to a 20-year term. Customers are either signed up as leases or power purchase agreements. Lease customers pay a fixed monthly rate while the rate for power purchase agreement customers depends on the amount of electricity the solar energy system produces. The vast majority of its customers (some 90%) "rent" the solar installations instead of buying them outright, in order to keep SolarCity in charge of the product warranty.

Geographic Reach

California-based SolarCity serves customers in 16 states and the District of Columbia. Its offices and warehouses reside in Arizona, California, Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Nevada, New Jersey, New York, Oregon, Texas, Canada, and China. The company earned over 75% of its revenue collectively from California, Arizona, Colorado, Hawaii, and New York.

Sales and Marketing

The company's client list includes residential customers, commercial entities such as Wal-Mart, eBay, Intel, and Safeway, and government entities such as the U.S. Military. SolarCity sells its products and services through a direct outside sales force from 64 sales offices in 16 states and Washington, DC. (Most states have one sales office, but its home state of California has 12.) It also has a call center.

Financial Performance

Fast-growing SolarCity is posting impressive revenue gains, but no profits yet. Indeed, the solar services company reported $255 million in sales in 2014, an increase of 56% versus 2013. The company credited the double-digit gain for 2014 to a major increase in the installation and operation of solar energy systems under lease and power purchase agreements in new and existing markets, along with an increase in sales of solar energy systems and components. SolarCity's net loss for 2014 was fueled by an increase in sales and marketing costs and interest expenses.

Strategy

SolarCity installs about one of every four solar energy systems in the US, but is still hungry for more. The company's products and services are available through home-improvement-retail-giant The Home Depot. Also, in 2014, the company partnered with electronics retailer Best Buy to offer its products and services through some 60 Best Buy stores in California, Arizona, Hawaii, New York, and Oregon. SolarCity also partners with more than 100 homebuilders, including Pulte, and Del Webb. Other channel partners include Tesla Motors, Viridian Energy, Honda, Acura, and BMW.

While residential customers are important to the company, going forward SolarCity is seeking to install larger solar energy systems for businesses and government customers. The company is also growing its business through acquisitions.

Mergers and Acquisitions

In mid-2014, SolarCity acquired Silevo, a solar panel technology and manufacturing company. The acquisition helped to manage the company's supply chain and control the design and manufacturing of solar cells and photovoltaic panels that are a key component of its solar energy systems. The deal also enabled SolarCity to utilize and combine Silevo's technology with economies of scale to achieve significant cost reductions.

Company Background

SolarCity was founded in 2006 by CEO Lyndon Rive and his brother, COO and CTO Peter Rive. The Rives are cousins of non-executive chairman Elon Musk, a notable entrepreneur who co-founded PayPal and also heads Tesla Motors and SpaceX.