SolarCity: Rapid Innovation

By Stefan Reichelstein, Davina Drabkin
2015 | Case No. SM232 | Length 12 pgs.

Between 2010 and 2012, SolarCity experienced tremendous growth in an industry that was generally perceived to be struggling.  Many other solar start-ups were failing—Solyndra, which had received a $535M loan from the U.S. government, was the highest profile failure, declaring bankruptcy in September, 2011.  Lyndon Rive noted, “Investors have been burned so badly from the solar sector.  We’ve faced that stigma while selling our company to investors.” Despite that burn, however, SolarCity went forward with an initial public offering (IPO) in December of 2012 at an IPO price of $8.00 per share. By end of the second quarter, 2014, SolarCity operated in 15 states and the District of Columbia and boasted 140,000 customers. It controlled 36 percent of the residential solar market but had never posted a profit—in 2013 it had a net loss of almost $152 million. SolarCity’s growth, however, drove the stock price up, hitting a high of $86.14 in February 2014.  The company’s continued lack of positive accounting earnings, yet impressive stock returns, left analysts and industry observers wondering:  Was SolarCity already making money on installations like the Partnership Flip Model or was the company’s share price primarily a bet on the future with lower solar installations costs? This case describes SolarCity’s business model and summarizes key issues in the solar industry.  It looks at tax equity financing, detailing the Partnership Flip Model which SolarCity used for about two thirds of the funds it had raised by 2014.  The Partnership Flip Model is represented in an Excel spreadsheet that students manipulate to understand the implications of various factors.

Learning Objective

To understand the SolarCity business model and explore in depth the Partnership Flip Model of tax equity financing.

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