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SolarCity Aims to Cut Marketing Costs as Competition Heats Up - Wall Street Journal

September 25, 2016
By Cassandra Sweet Updated Sept. 22, 2016 3:05 p.m. ET

Cash-strapped SolarCity Corp. SCTY 2.83 % istryingto cut marketing costs amid competition from smallerupstarts using cheapersales tacticssuch as paying Uber drivers to pitch solar panels to passengers.

Big solar companies such as SolarCity and Vivint Solar Inc. VSLR 2.03 % have been engaged in a fierce battle to amass market share, analysts say, and have spent heavilyon old-fashionedadvertising, telephone and door-to-door canvassing, and booths at retail outlets to acquire new customers.But the companies are spending more than they are taking in, and the costs are proving hard to sustain.

SolarCity spent $751 million in 2015 on sales, administrativeand researchcosts, 88% more than its annual revenueof $400 millionand the $399 millionit spent the previous year. Through June, it had spent $438 million this year, 42% more than its revenue of$308 million.Its cash declinedto $146 million onJune 30from $421 million a year earlier.

Seeking to survive as a stand-alone company until its proposed merger with Tesla Motors Inc., TSLA 0.49 % SolarCityhas begun selling more solar panelsto homeowners for cash, rather than its traditional business of leasing the panels and retaining ownership. It is also planning to sell outside investors more shares in the panels that it owns.

Earlier this month, SolarCityraised $305 million through one such cash equity transactionwith Quantum Strategic Partners Ltd., the hedge fund of billionaire investor George Soros.Last month, it sold $100 million of bonds to its chairman, Elon Musk, who is also Teslas chief executive, and SolarCitys two top executives.

Cutting costs is also a crucial part of its plan.SolarCity has stopped buying television ads but is still advertising on the internet, selling door to door and setting up booths at Home DepotInc. HD -0.75 % and Best BuyCo. BBY -1.25 % stores. Its sales and marketing costs should drop further after its planned merger with Tesla Motors, when the combined companywouldsell panels at Teslas auto showrooms, said Chief Executive Lyndon Rive.

We had a lot of headwinds that hit us this year, Mr. Rive said, noting that Nevada regulators last December terminated lucrative state incentives for rooftop solar, dealing a major blow to home solar companies.

Another challenge: Competition from smaller solar installers, who are using lower-cost methods to reach people.Online marketplaces such as Project Sunroof, a unit of Alphabet Inc. GOOGL -0.12 % s Google, connect homeowners with installers and other online networks, such as Pick My Solar and PowerScout, which solicit bids from local installers to help consumers get the best local deal.

Regional and smaller firms supplied about 48% of the home solar market earlier this year, up from 47% at the end of 2015, according to GTM Research.

One such online network, Geostellar, is testing an unusual sales tactic:using Uber and Lyft drivers to sell panels to riders.

The privately held company has enlisted about 50 drivers inNew York, Boston, San Francisco, Los Angeles, Washington, Dallas and Miami, who can snag commissions that start at about $1,000 per sale of solar systems.Home solar systems averageabout $18,840 per six-kilowatt array, according to GTM.

Geostellar Chief Executive David Levine said the method is showing promise: drivers have generated about 220 salessince June.

I dont feel like Im selling something. Im giving them information and showing them the savings potential with solar,said Quin Yowell, 51,who drives part-time for Uber and Lyft to supplement his income at Whole Foods WFM -0.52 % in the Washington, D.C., area.

Mr. Yowell,who has soldthreesystemsso far,said he doesn't bother passengers who are talking or texting on mobile phones, or otherwise seem occupied.

Uber and Lyft declined to comment.

Big marketing spending is unusual for a consumer technology that most customers buy after hearing about from a friend, neighbor or family member, said Hugh Bromley, an analyst at research firm Bloomberg New Energy Finance.

Home solar companies with a high-cost business model could face a death spiral of rising costs and lower sales as growth slows, he added.

Bloomberg New Energy Finance is predicting 0.3% growth in the homesolarmarket in 2017, due to a nationwide drop in conventional power prices and reductions in statesolarincentives.

GTM Research and theSolarEnergy Industries Associationpredict 19% growth next year, down from an expected 23% increase in residential installations this year and a 66% jump in 2015.

Were not yet hitting the point where growth stops entirely, but the curve is undeniably slowing down, said Shayle Kann, senior vice president at GTM.

SolarCityhas lowered its forecast for the volume of panels it plans to install this year to 900 to 1,000 megawatts, down from 1,250 megawatts earlier this year.

Corrections & Amplifications:

Geostellar is using Uber and Lyft drivers to sell solar panels to riders. An earlier version of this article misspelled Geostellars name. (Sept. 22, 2016)

Write to Cassandra Sweet at cassandra.sweet@wsj.com

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