I want you to know that I appreciate your contributions to this thread. Pls don't go away.
I was wondering how you came up with $0.20/W cost savings. Personally I'm worried that any cost savings will be eaten up by a reduction in profit margins. In their efforts to achieve 1.25GW they will have to offer more competitive pricing and it will be hard to reduce things like cost of sales. Their competitor's costs are likely dropping just as much as SCTY's.
Sure I will stay on as long as this is an intellectually stimulating exercise that this is.
About that $0.2/W savings estimate:
We don't have any guidance from management on that one for 2016. There is only this remark in the shareholder letter "We remain on target for our cost goal of $2.25 per watt in 2017." This certainly includes the expected savings of $0.20/W from the Bufffalo factory panels. We now know there will be no panel production in 2016. So excluding that, the projection is $2.45/w cost in 2017. Purely taking the numerical average of cost/w in four quarters of 2015 we get $2.85/W. So just doing a linear interpolation from 2.85/W in 2015 to 2.45/W in 2017 gives 2.65/W in 2016.
Another way to look at it, the $0.2/W represents 7% cost declines. Last year it was 5% decline. So 7% is no too far reaching.
Competition: This is a loaded topic. SC pitches itself as competing with utilities and is in fact planning on raising the rates in tandem to increase in utility rates. As long as this pitch against utilities works, we can assume cost savings accrue to shareholders. But I don't know how long this will work. It seems like SC identified niche demographics where the house-hold income is very low that they don't have enough taxes to capture tax-credits, but these folks are somehow homeowners and have good credit scores. You have to wonder, if SC is primarily targeting really old, retired people. What happens if people die before contracts expire? Hopefully nothing bad to SC. I don't know the intricacies of it. Nevertheless the size of these niche markets is unknown. So when buying SCTY stock, market wouldn’t want to pay too much for the future growth. There are way too many risks, business model risk, a very dynamic regulatory changing landscape, unknown potential market size.
In any case, my exercise was to assess cash-flow/debt pressures. So in that sense, regardless of profitability, we are just purely concerned with costs because costs go out as cash-flows fully upfront. Is that sustainable is the question. So lower the costs better it is to answer that question.
This is infact the very reason why I cringe when people bring in powerwalls as a positive thing for SC. No, not necessarily. That simply increases the cost, outgoing cashflow, up-front. Which is bad, very bad for this business model.
