SolarCity: Mayday! Mayday!

Reporting, analysis and commentary
by Jim Heaney, editor of Investigative Post

I have called Gov. Andrew Cuomo’s investment in SolarCity a high-risk, high-reward undertaking. The project took on an added air of risk Thursday, in light of not one, not two, but three pieces of bad news.

For starters, the company disclosed it posted a net loss of $234 million in the third quarter. That’s the biggest quarterly loss in the history of the company and brings the year-to-date losses to a staggering $537 million.

That puts SolarCity on track to lose more than $700 million for 2015, compared with net losses of $375 million in 2014, $152 million in 2013 and $92 million in 2012.

See a pattern there?

SolarCity stock prices also took a nasty tumble Thursday, prompting Business Insider to declare “SolarCity is getting nuked.”

The bad news on earnings drove the company’s stock down to $31.15 in after-hours trading. A day earlier, the stock closed at $38.34. That’s down from a peak of $84.96 in February 2014. The stock price is continuing to drop today.

See a pattern there?

Seeking Alpha, a business news website, summed up Thursday’s developments this way:

Today’s news is a major blow for SolarCity and its shareholders as the company’s seemingly limited access to the traditional capital markets prevents it from fully capitalizing on an unique 2016 business opportunity. With the business from 2017 onwards remaining a major black box as of today the risk-reward-ratio for the shares has rapidly deteriorated. Investors should sell the shares as liquidity pressures are amongst the worst issues a company will be required to deal with.

In a second post, Seeking Alpha opined that SolarCity’s finances might be even worse than they appear, declaring:

“We continue to be highly skeptical about the Company’s business model and we see several warning signs that point to a collapse of the business model.”

Jonathan Bass, a spokesman for SolarCity, told my WGRZ colleague Steve Brown in an email today that “the business is strong” and that the change in company strategy “is the right approach for the business long term and puts us in even stronger position to support the manufacturing effort in Buffalo.”

Time will tell, I guess.

If Thursday’s developments weren’t bad enough, Grist, the respected environmental news website, reported that SolarCity cashed in on tax credits intended to promote local hiring while using prison labor to produce solar panels.

Said Grist:

Here’s how the SolarCity prison saga came about. Oregon State University and the Oregon Institute of Technology teamed up a few years ago to install solar panels on their campuses, in what would become one of the largest solar installations in the state. Since the vendor, ultimately SolarCity, would own and maintain the panels, the two schools wouldn’t need to spend a penny on the project.

For SolarCity, the contract also looked like a win. Under a lucrative state program, the Oregon Department of Energy doled out $11.8 million in tax credits for the $27 million project. (SolarCity would not confirm the amount of the tax breaks despite repeated requests.) Those generous tax incentives — part of the Business Energy Tax Credit program, which ended in 2014 — came with an imperative for “job creation and retention requirements.”

For its part, SolarCity did install panels that were produced by Oregon workers. But those workers were behind bars at Sheridan Federal Prison — and instead of benefiting from a program that was supposed to pump up the regional economy, they were paid less than a dollar an hour for their labor.

The Grist report followed a story published by The Oregonian in February that was headlined “Oregon’s signature solar energy project built on foundation of false hopes and falsehoods.”

The story went on to say:

“Interviews and an examination of thousands of pages of documents show that state officials wrongly awarded millions in state tax credits, turning a blind eye to phony documents. The project also was dogged by an international trade war, a bitter corporate rivalry and a stunning twist that traded high-paid Oregon jobs for prison labor at 93 cents an hour.”

The program is under investigation. Likewise, SolarCity is one of several solar panel installers under investigation by the U.S. Treasury amid allegations the companies inflated prices to max out reimbursements from the government.

At the risk of repeating myself, do you see a pattern here?

There was more bad news Thursday for Buffalo. Cuomo announced that the Soraa plant that was supposed to be built in Buffalo is instead going to locate in suburban Syracuse. The plant will employ 420.

Soraa was going to share a portion of the Riverbend site in South Buffalo with Silevo before the latter was purchased by SolarCity. The fate of the Soraa project has been up in the air since, but the reasons stated for abandoning Buffalo don’t add up.

State officials said the larger plant being built for SolarCity – four times larger than planned for Silevo – left no room at Riverbend for Soraa. But SolarCity is occupying only 88 of Riverbend’s 184 acres. So it appears there’s plenty of room for Soraa.

Thus, state officials appear to be less than forthcoming about what had been a Buffalo Billion project. Alas, that is part of a indisputable pattern.