DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

1 July 2016Americas/United States

Equity ResearchAlternative Energy

SolarCity (SCTY)

COMMENT Rating (from OUTPERFORM) NEUTRAL [V]Price (30-Jun-16,US$) 23.93Target price (US$) (from 38.00) 27.0052-week price range 60.17 - 16.67Market cap (US$ m) 2,352.58Enterprise value (US$ m) 5,587.80*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.¹Target price is for 12 months.[V] = Stock Considered Volatile (see Disclosure Appendix)

Research AnalystsPatrick Jobin212 325 0843

patrick.jobin@credit-suisse.com

Maheep Mandloi212 325 2345

maheep.mandloi@credit-suisse.com

Jennifer Ky212 325 6608

jennifer.ky@credit-suisse.com

Tesla Acquisition - Act of Genius, Cheap Buy or Bailout? Moving to Neutral■ Price too low for SCTY in our view; could be a steal for TSLA

shareholders, but we yield to the power of Musk: On deeper reflection of the proposed acquisition of SCTY by TSLA, and discussions with TSLA shareholders, we increase our probability of a deal being consummated at, or near, the proposed terms to 60-70% despite our concerns on corporate governance along with limited strategic and financial rationale for the transaction in the near-term. As a consequence, we lower our SCTY target price to $27 and downgrade our rating to Neutral to reflect the preliminary acquisition proposal at what now equates to ~$25.9-$27.8 per share at the 0.122x-0.131x exchange ratio presenting only limited upside from current levels (the actual mechanics of the proposal are not disclosed and no definitive agreement has been reached although there is apparently unanimous support from both boards). Note that our fundamental view that SCTY is grossly undervalued remains unchanged.

■ Taking a stab at potential near-term synergies - $156m-$387m likely: TSLA is expected to disclose synergy targets once a definitive agreement is reached, assuming the strategic review being conducted by SolarCity's two-person committee allows the deal to progress as proposed. While we continue to believe there is limited strategic and financial rationale for the acquisition, at least in the near-term, we do believe there could be some realized synergies primarily from duplicative G&A cost reductions and customer acquisition benefits (although we still contend the later could be realized through a joint sales agreement instead of outright purchase). We assume 25%-50% G&A reduction saving $82-$163m/yr. Customer acquisition costs (CAC), which primarily comprises sales, commissions and other initial direct costs, could be reduced as sales channels (internal or external) are shared with Tesla and SolarCity gets access to Tesla's customer base, brand and retail presence. Continued inside…

Share price performance

SCT Y.O Q S& P 5 0 0 IN D EX

Ju l - 1 5 O ct - 1 5 Jan - 1 6 A p r - 1 6 Ju l - 1 61 0

3 0

5 0

7 0

On 30-Jun-2016 the S&P 500 INDEX closed at 2098.86Daily Jul01, 2015 - Jun30, 2016, 07/01/15 = US$52.4

Quarterly EPS Q1 Q2 Q3 Q42015A -1.52 -1.60 -2.41 -2.252016E -2.89 -2.33 -2.02 -2.242017E -2.19 -1.83 -1.66 -2.26

Financial and valuation metricsYear 12/15A 12/16E 12/17E 12/18EEPS (CS adj.) (US$) -7.78 -9.48 -7.94 -8.37Prev. EPS (US$) - - - -P/E (x) -3.1 -2.5 -3.0 -2.9P/E rel. (%) -17.3 -14.3 -19.4 -20.7Revenue (US$ m) 399.6 651.0 895.2 1,081.6EBITDA (US$ m) -481.1 -478.7 -241.1 -145.8OCFPS (US$) -7.99 -5.35 -4.27 -3.05P/OCF (x) -6.4 -4.5 -5.6 -7.8EV/EBITDA (current) -10.4 -10.5 -20.8 -34.4Net debt (US$ m) 2,257 3,235 4,382 5,509ROIC (%) -16.30 -13.51 -7.75 -6.01

Number of shares (m) 98.31 IC (current, US$ m) 3,991.80Net debt (Next Qtr., US$ m) 2,659.1 EV/IC (x) 1.1Net debt/tot eq (Next Qtr.,%) 152.3 Dividend (current, US$) -Source: Company data, Thomson Reuters, Credit Suisse estimates

1 July 2016

SolarCity (SCTY) 2

…Continued from cover

■ We estimate a 10%-30% saving in CAC which could result in a ~$0.07-0.22/w cost reduction or ~$75-$224m/yr in savings at the current volume levels. Collectively these cost reductions would enable SolarCity to reduce origination costs by ~$0.16-$0.39/w which improves the unlevered contracted IRR by 180-540 bps from 8.1% to 9.9-13.5%. This should enable SCTY to sell assets to third parties, if desired, and earn a healthy ~$0.145/w incremental margin (as buyers are currently valuing residential assets at ~8% discount rates for the contracted period of cash flows), accelerating SCTY's path to generating cash. (See Exhibit 1). Reducing system costs, in particular CAC, has been SCTY's recent challenge (See Exhibit 2) especially as SCTY seeks growth at all costs (See Exhibit 3).

Figure 1: Potential Near-Term SynergiesInstallation runrate, MW 1,000

$m $/w $m $/wG&A in 2016 $ 327 $ 0.33 $ 327 $ 0.33% G&A saved 25.0% 50.0%G&A savings $ 82 $ 0.08 $ 163 $ 0.16

CAC in 2016 $ 746 $ 0.75 $ 746 $ 0.75% sales expense saved 10.0% 30.0%CAC savings $ 75 $ 0.07 $ 224 $ 0.22

Total annual synergies $ 156 $ 0.16 $ 387 $ 0.39

Unlevered IRR PotentialSavings

$mSavings

$/w

Contracted IRR w/o residual

30 yr IRR with

residuallow case $ 156 $ 0.16 9.9% 11.3%high case $ 387 $ 0.39 13.5% 14.5%

$ - $ - 8.1% 9.7%$ 50 $ 0.05 8.6% 10.2%

$ 100 $ 0.10 9.2% 10.7%

High synergyLow synergy

Source: Company data, Credit Suisse estimates

■ But wait! There could be more. There could be more from synergies from integrated systems reducing content and installation labor savings, but this will depend on Powerwall adoption. We also see some synergies in BOS and labor as the Powerwall and Solar units can potentially share the same inverter (costs ~$900 per home), and duplicated wiring and installation labor is avoided. However, not all installations will include a Powerwall (given Powerwall is already sold out for the year, and not yet economic in all markets) implying limited benefits on Labor & BOS. We could see a reduction of ~$100m in installation and hardware costs assuming 30% adoption of Powerwall with Solar (~$0.10/w cost savings or ~$600 for an average home). Every $100m in synergies can improve unlevered project IRR by ~100 bps.

1 July 2016

SolarCity (SCTY) 3

Figure 2: Customer acquisition costs have increased

2.40 2.28 2.19 2.10 2.10 2.12 1.94 1.92 1.98

0.280.23 0.18 0.17 0.22 0.20

0.23 0.21 0.23

0.510.48 0.50 0.57 0.57 0.52 0.59 0.54

0.97

$ 3.28 $ 3.03 $ 2.94 $ 2.91 $ 2.93 $ 2.85 $ 2.85 $ 2.73

$ 3.18

$ -

$ 0.50

$ 1.00

$ 1.50

$ 2.00

$ 2.50

$ 3.00

$ 3.50

$ 4.00

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Instal

l cos

t, $/w

System cost $/w Direct G&A, $/w CAC, $/w

Source: Company data, Credit Suisse estimates

Figure 3: Customer acquisition cost has varied by channel, as of 3Q15

Source: Company 2015 Analyst Day Presentation

All about long-term visionTesla's desire to acquire SolarCity stems from their vision of sustainable transportation and transitioning the world away from fossil fuels; distributed solar energy production complements their energy storage technology (Powerwall and Powerpacks launched last year) and manufacturing footprint (gigafactory is completed by YE). Decades from now, if electric vehicles adoption takes off as mainstream-priced cars are available, rooftop solar becomes cheaper than grid-purchased power even without net metering support, and if battery costs decline as envisioned, Tesla would have a full product portfolio that could seamlessly integrate to maximize the transition away from fossil fuels. Low cost storage, electric vehicles, and distributed solar are a natural fit.

1 July 2016

SolarCity (SCTY) 4

Education process required for TSLA shareholders… or perhaps a SCTY business model pivot is already contemplatedThe biggest challenge will be for TSLA's shareholders to appreciate SCTY's current model. SCTY is a balance sheet intensive model, whereby the company spends ~$3b/yr in assets and raises close to $3b/yr in outside capital, principally from tax equity and long-term debt. TSLA shareholders have voiced concern on the impact of adding $3b of debt to TSLA's balance sheet in addition to the capital market risks. SCTY only generates cash to equity if it is able to raise debt at appropriate terms against the assets being deployed; further, not building more assets if debt isn't available isn't really an option – there would be significant negative leverage given the economies realized through scale. If we present SCTY and TSLA on a pro-forma basis, the balance sheet impact is significant. On a trailing 4-quarter basis, TSLA's EPS would have improved by ~$0.23 due to dilution. See Exhibit 4 for the financial summaries of both separate companies along with the combined entity. While most of SolarCity's debt is indeed non-recourse, there is $909m in convertible debt due 2018/19/20 along with ~$105m in solar bonds due over the next two years (see Exhibit 5 for SCTY's debt breakdown).

Figure 4: TSLA before and TSLA+SCTY financials, Q1 and TTMIn $m, except EPS TSLA SCTY TSLA & SCTY

1Q16 TTM 1Q16 TTM Q1 TTMRevenues $ 1,147 $ 4,253 $ 123 $ 455 $ 1,270 $ 4,708Gross profit $ 253 $ 916 $ 13 $ 110 $ 266 $ 1,026Opex $ 1,395 $ 2,673 $ 227 $ 846 $ 1,622 $ 3,519Net income ($ 282) ($ 1,017) ($ 25) ($ 62) ($ 307) ($ 1,079)EPS - diluted ($ 2.11) ($ 7.59) ($ 0.25) ($ 0.64) ($ 2.10) ($ 7.36)EBITDA ($ 92) ($ 360) ($ 158) ($ 549) ($ 249) ($ 910)

CFO ($ 250) ($ 642) ($ 193) ($ 812) ($ 443) ($ 1,454)CFI ($ 234) ($ 1,475) ($ 466) ($ 1,876) ($ 700) ($ 3,351)CFF $ 715 $ 2,053 $ 638 $ 2,419 $ 1,354 $ 4,472

Cash $ 1,442 $ 413 $ 1,855Other current assets $ 1,798 $ 423 $ 2,221Long-term assets $ 5,952 $ 7,123 $ 13,075Total debt $ 3,120 $ 3,075 $ 6,195Other liabilities $ 5,059 $ 3,162 $ 8,221Shareholder equity $ 970 $ 886 $ 1,856

Diluted Sharecount 133.9 99.9 146.6

Source: Company data, Credit Suisse estimates, Thomson Reuters

1 July 2016

SolarCity (SCTY) 5

Figure 5: SolarCity's Debt Breakdown - $1.5b in recourse debt, $1.6b non-recourse project debtSCTY Debt as of 3/31/2016, in millions Unpaid Unused

Principal BorrowingBalance Capacity Interest Rate Maturity Dates

Recourse debt:Secured revolving credit facility $ 375.0 $ 0.7 3.7%-5.8% December 2016 - December 2017Vehicle and other loans $ 20.7 $ - 2.5%-7.6% April 2016 - June 20192.75% convertible senior notes due in 2018 $ 230.0 $ - 2.80% November 20181.625% convertible senior notes due in 2019 $ 566.0 $ - 1.60% November 2019Zero-coupon convertible senior notes due in 2020 $ 113.0 $ - 0.00% December 2020Solar Bonds ($90m due in 2016, $15m in 2017) $ 216.6 $ - 1.1%-5.8% April 2016 - January 2031

Total recourse debt $ 1,521.3 $ 0.7

Non-recourse debt:Term loan due in December 2016 $ 112.5 $ - 3.90% December 2016Term loan due in December 2017 $ 30.2 $ 13.9 3.80% Dec-17Term loan due in January 2021 $ 152.4 $ 7.6 4.10% Jan-21MyPower revolving credit facility $ 113.7 $ 126.3 3.3%-5.8% January 2017Revolving aggregation credit facility $ 562.2 $ 87.8 3.7%-3.9% December 2017Solar Renewable Energy Credit Term Loan $ 15.0 $ - 9.90% Apr-17Solar Asset-backed Notes, Series 2013-1 $ 45.1 $ - 4.80% November 2038Solar Asset-backed Notes, Series 2014-1 $ 63.7 $ - 4.60% Apr-44Solar Asset-backed Notes, Series 2014-2 $ 190.2 $ - 4.0%-Class A, 5.4%-Class B Jul-44Solar Asset-backed Notes, Series 2015-1 $ 120.5 $ - 4.2%-Class A, 5.6%-Class B Aug-45Solar Asset-backed Notes, Series 2016-1 $ 52.2 $ - 5.3%-Class A, 7.5%-Class B Sep-46Solar Loan-backed Notes, Series 2016-A $ 185.0 $ - 4.8%-Class A, 6.9%-Class B Sep-48

Total non-recourse debt $ 1,642.5 $ 235.7 Total debt $ 3,163.8 $ 236.3

Source: Company data

One option that may occur – or may already be in the works – is for SolarCity to shift away from the asset ownership model and instead shift to become an originator – sign contracts, build systems, sell them to third-parties – effectively becoming an EPC company. Under this model SCTY's financials would look a lot better – likely GAAP Earnings positive and FCF positive this year. The challenge, however, is third-party capital is not widely available at favorable terms given it is a nascent asset class that has yet to go through a credit cycle or demonstrate long-term performance. We may already be seeing glimpses of this transition, as SCTY's new loan product results in an outright asset sale to a third party (e.g. privately held Mosaic) instead of being held on SCTY's balance sheet.

More risks than just an auto company. Tesla shareholders also have to appreciate that SolarCity introduces a very different set of risks, namely (1) capital market risk, addressed above, (2) consumer credit risk from the 1,975 MWs /~395k systems deployed to-date, (3) regulatory risks – including net metering and solar subsidies. Without net metering capability whereby consumers can sell energy back to the utility at favorable rates, rooftop solar would only be economic in a handful of states. Without the 30% investment tax credit, rooftop solar's potential market declines by more than half. The credit is in effect until 2023 (assuming projects commence by YE 2021), (4) a lot more opex. SCTY had 15,273 employees as of December 2015, presence in 20 states with >85 distribution centers, and spends $962m/yr in total opex (2016E).

Corporate governance challenges remain, but both companies doing all that is possible to address. We, along with most SCTY shareholders we have spoken with, are frustrated by the weak corporate governance. While the company is taking all the steps they can at this point, by excluding Elon Musk and Lyndon Rive from voting along with the more recent recusals on the board, and by calling for a vote from TSLA shareholders (not required to do so since only ~10% of shares are being issued), many remain frustrated by the inherent conflicts of interest that arise because of familiar ties, former employment, and VC investments (see Exhibit 6). SolarCity has taken recent steps, forming a special committee to evaluate the proposal and options, comprised of two independent board

1 July 2016

SolarCity (SCTY) 6

members (Directors Kendall and Pfund). Despite the recusals from voting and formation of the special committee, many are still frustrated by the board discussions that have already taken place, with interested parties having the ability to influence the discussions. We are not accusing either party of malfeasance, but rather, point to the nearly impossible task of having a board decision that is not influenced by interested parties. Apparently, according to the public conference call last week hosted by Tesla, both boards have already unanimously agreed to the acquisition.

Figure 6: Significant Board ties

Source: Bloomberg News (http://www.bloomberg.com/news/articles/2016-06-27/family-and-money-tie-solarcity-board-to-prospective-buyer-tesla)

1 July 2016

SolarCity (SCTY) 7

Increasing probability of deal consummation at current terms (or close) to 60-70%: While our initial predictions that many TSLA shareholders would be frustrated by the deal seems to be well founded (TSLA shares declined 10.5% immediately following the announcement), further conversations seem to suggest a growing willingness to bless the deal regardless of the merits. In addition to a growing appreciation of the potential long-term synergies, along with the gradual education process of TSLA shareholders about SCTY's balance sheet strategy, TSLA shareholders do not want to alienate themselves from Elon Musk by voting against the deal, nor do they want Musk's aura of invincibility to be damaged by shareholders not standing behind his decisions that have been successful thus far. Many are willing to look past Tesla's increased execution risk if management is distracted by the SCTY integration because of their strong support for Musk's long-term vision of the company. Also note that a failed deal could be negative for both companies – SCTY could face near-term capital challenges if their access to capital raising is remotely impaired during the pending acquisition and TSLA's aura of invincibility could suffer if shareholders oppose management decisions.

Shareholder analysis – supports what's in best interest of TSLA, not necessarily SCTY: We conducted a shareholder overlap analysis to better determine the economic interests of voting parties. Recall Elon Musk and Lyndon Rive have recused themselves from voting and it will be up to the disinterested shareholders to approve the acquisition (if a definitive agreement is reached – which seems inevitable since there is already unanimous agreement on the boards of both companies). Looking at the shareholder structure for the two companies, investors who own both the stocks currently represent ~56% of total outstanding shares in TSLA, and 45.6% in SCTY. 8.7% of TSLA shareholders own TSLA only, and 5.4% of SCTY shareholders own SCTY only. Elon Musk owns 19.4% of TSLA and 22.5% of SCTY. Other insiders own 0.5% of TSLA share and 10% of SCTY shares. Of particular interest, Fidelity's large $12.4b OTC Portfolio run by Gavin Baker, wrote in the Q1 shareholder letter that they would effectively support the acquisition of SolarCity: "We remain fans not just of Tesla products, but of the concepts and potential future partnerships behind the company. We foresee fruitful synergies between say, Tesla and SolarCity – or any company that can benefit from superior battery technology." As of Q1, this fund owns 2.13% of TSLA and 7.34% of SCTY and represents ~21% of FMR's total ownership (by $) in both companies.

1 July 2016

SolarCity (SCTY) 8

Figure 7: Shareholder structure at the two companies shows lot of overlap

Figure 8: Top 40 accounts by $ owned in the two entities combined are TSLA holders

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

TSLA share SCTY share

Owns both Owns TSLA only Owns SCTY only

Elon Other insiders Others

$ 18,480 $ 16,538

$ 2,699

$ 1,701

$ 127

$ -

$ -

$ 5,000

$ 10,000

$ 15,000

$ 20,000

$ 25,000

Total Top-40

Owns both Owns TSLA Owns SCTY

Source: Company data, Credit Suisse estimates, Thomson Reuters Source: Company data, Credit Suisse estimates, Thomson Reuters

1 July 2016

SolarCity (SCTY) 9

Figure 9: TSLA – Top 40 Shareholders (excluding Elon Musk, Insiders)

Ownership %Position, mm

sharesAmount

owned, $mm Ownership %Position, mm

sharesAmount

owned, $mmTotal Amount

owned, $mFidelity Management & Research Company 11.2% 16.3 $ 3,459 14.8% 14.6 $ 349 $ 3,808Baillie Gifford & Co. 8.2% 11.9 $ 2,532 0.3% 0.3 $ 7 $ 2,540T. Rowe Price Associates, Inc. 5.1% 7.4 $ 1,565 0.1% 0.1 $ 2 $ 1,566CTC myCFO, LLC 3.1% 4.5 $ 960 5.1% 5.0 $ 120 $ 1,080The Vanguard Group, Inc. 3.0% 4.3 $ 916 4.3% 4.2 $ 101 $ 1,017Jennison Associates LLC 2.5% 3.6 $ 763 0 0 $ - $ 763Morgan Stanley Investment Management Inc. (US) 2.1% 3.0 $ 635 1.6% 1.6 $ 38 $ 673BlackRock Institutional Trust Company, N.A. 2.0% 2.9 $ 615 2.1% 2.1 $ 50 $ 665Goldman Sachs & Company, Inc. 1.9% 2.8 $ 600 0.4% 0.3 $ 8 $ 608Capital World Investors 1.9% 2.7 $ 578 0.3% 0.2 $ 6 $ 583Columbia Threadneedle Investments (US) 1.3% 1.8 $ 389 0.0% 0.0 $ 0 $ 389State Street Global Advisors (US) 1.2% 1.7 $ 369 0.8% 0.7 $ 18 $ 387Baron Capital Management, Inc. 1.0% 1.4 $ 301 0.0% - $ - $ 301TIAA Global Asset Management 0.9% 1.4 $ 287 0.2% 0.2 $ 6 $ 293Capital International Investors 0.9% 1.3 $ 274 0 0 $ - $ 274PRIMECAP Management Company 0.8% 1.1 $ 239 0 0 $ - $ 239Invesco PowerShares Capital Management LLC 0.7% 1.0 $ 222 0.2% 0.2 $ 5 $ 227JP Morgan Asset Management 0.7% 1.0 $ 220 1.9% 1.9 $ 45 $ 265J&P (China) Capital Management Co., Ltd. 0.6% 0.9 $ 199 0.3% 0.3 $ 6 $ 205Capital Research Global Investors 0.6% 0.8 $ 172 0.3% 0.2 $ 6 $ 178Credit Suisse Securities (USA) LLC 0.5% 0.8 $ 160 0.1% 0.1 $ 2 $ 162Norges Bank Investment Management (NBIM) 0.5% 0.7 $ 157 0.3% 0.3 $ 6 $ 163Mitsubishi UFJ Trust and Banking Corporation 0.5% 0.7 $ 150 0 0 $ - $ 150Gilder Gagnon Howe & Co. LLC 0.5% 0.7 $ 138 0.9% 0.8 $ 20 $ 158American Century Investment Management, Inc. 0.4% 0.6 $ 134 0.0% - $ - $ 134Zevenbergen Capital Investments LLC 0.4% 0.6 $ 132 0 0 $ - $ 132Geode Capital Management, L.L.C. 0.4% 0.6 $ 132 0.4% 0.4 $ 10 $ 141Andor Capital Management, L.L.C. 0.3% 0.5 $ 106 0.0% - $ - $ 106Northern Trust Investments, Inc. 0.3% 0.5 $ 101 0.2% 0.2 $ 5 $ 106Susquehanna Financial Group, LLLP 0.3% 0.4 $ 94 0.2% 0.2 $ 5 $ 100BNP Paribas Securities Corp. North America 0.3% 0.4 $ 89 0.2% 0.2 $ 4 $ 93Morgan Stanley Wealth Management 0.3% 0.4 $ 87 0.5% 0.5 $ 13 $ 100HHR Asset Management, LLC 0.3% 0.4 $ 82 0 0 $ - $ 82Deutsche Asset Management Americas 0.3% 0.4 $ 80 0.5% 0.5 $ 12 $ 92New York State Common Retirement System 0.3% 0.4 $ 78 0.2% 0.2 $ 4 $ 82BlackRock Investment Management (UK) Ltd. 0.2% 0.4 $ 76 0.0% 0.0 $ 0 $ 76Morgan Stanley & Co. LLC 0.2% 0.4 $ 76 0.7% 0.7 $ 16 $ 92Legal & General Investment Management Ltd. 0.2% 0.4 $ 74 0.0% 0.0 $ 0 $ 74Managed Account Advisors LLC 0.2% 0.3 $ 67 0.2% 0.2 $ 6 $ 73Sumway Development Ltd. 0.2% 0.3 $ 61 0 0 $ - $ 61

TSLA SCTY

Source: Company data, Credit Suisse estimates, Thomson Reuters

1 July 2016

SolarCity (SCTY) 10

Figure 10: SCTY – Top 40 Shareholders (excluding Elon, Insiders)

Ownership %Position, mm

sharesAmount

owned, $mm Ownership %Position, mm

sharesAmount

owned, $mmTotal Amount

owned, $mFidelity Management & Research Company 14.8% 14.6 $ 349 11.2% 16.3 $ 3,459 $ 3,808CTC myCFO, LLC 5.1% 5.0 $ 120 3.1% 4.5 $ 960 $ 1,080The Vanguard Group, Inc. 4.3% 4.2 $ 101 3.0% 4.3 $ 916 $ 1,017BlackRock Institutional Trust Company, N.A. 2.1% 2.1 $ 50 2.0% 2.9 $ 615 $ 665JP Morgan Asset Management 1.9% 1.9 $ 45 0.7% 1.0 $ 220 $ 265Morgan Stanley Investment Management Inc. (US) 1.6% 1.6 $ 38 2.1% 3.0 $ 635 $ 673DBL Equity Fund - BAEF II, L.P. 1.6% 1.5 $ 37 0 0 $ - $ 37Founders Fund 1.0% 1.0 $ 24 0 0 $ - $ 24Gilder Gagnon Howe & Co. LLC 0.9% 0.8 $ 20 0.5% 0.7 $ 138 $ 158State Street Global Advisors (US) 0.8% 0.7 $ 18 1.2% 1.7 $ 369 $ 387Bank of America Merrill Lynch (US) 0.7% 0.7 $ 17 0.1% 0.2 $ 42 $ 59Morgan Stanley & Co. LLC 0.7% 0.7 $ 16 0.2% 0.4 $ 76 $ 92Guggenheim Investments 0.6% 0.6 $ 14 0.0% 0.0 $ 7 $ 21Morgan Stanley Wealth Management 0.5% 0.5 $ 13 0.3% 0.4 $ 87 $ 100Deutsche Asset Management Americas 0.5% 0.5 $ 12 0.3% 0.4 $ 80 $ 92Coatue Capital, L.L.C. 0.5% 0.5 $ 11 0 0 $ - $ 11First Trust Advisors L.P. 0.4% 0.4 $ 10 0.1% 0.1 $ 17 $ 27QVT Financial LP 0.4% 0.4 $ 10 0 0 $ - $ 10Geode Capital Management, L.L.C. 0.4% 0.4 $ 10 0.4% 0.6 $ 132 $ 141Water Street Capital, Inc. 0.4% 0.4 $ 9 0 0 $ - $ 9Allianz Global Investors U.S. LLC 0.4% 0.4 $ 9 0.0% 0.0 $ 5 $ 14Goldman Sachs & Company, Inc. 0.4% 0.3 $ 8 1.9% 2.8 $ 600 $ 608Baillie Gifford & Co. 0.3% 0.3 $ 7 8.2% 11.9 $ 2,532 $ 2,540Barclays Capital Inc. 0.3% 0.3 $ 6 0.1% 0.1 $ 25 $ 31Norges Bank Investment Management (NBIM) 0.3% 0.3 $ 6 0.5% 0.7 $ 157 $ 163J&P (China) Capital Management Co., Ltd. 0.3% 0.3 $ 6 0.6% 0.9 $ 199 $ 205Capital World Investors 0.3% 0.2 $ 6 1.9% 2.7 $ 578 $ 583Capital Research Global Investors 0.3% 0.2 $ 6 0.6% 0.8 $ 172 $ 178Managed Account Advisors LLC 0.2% 0.2 $ 6 0.2% 0.3 $ 67 $ 73Generation Investment Management LLP 0.2% 0.2 $ 6 0 0 $ - $ 6TIAA Global Asset Management 0.2% 0.2 $ 6 0.9% 1.4 $ 287 $ 293Zürcher Kantonalbank (Asset Management) 0.2% 0.2 $ 5 0.0% 0.1 $ 12 $ 17Northern Trust Investments, Inc. 0.2% 0.2 $ 5 0.3% 0.5 $ 101 $ 106Susquehanna Financial Group, LLLP 0.2% 0.2 $ 5 0.3% 0.4 $ 94 $ 100Invesco PowerShares Capital Management LLC 0.2% 0.2 $ 5 0.7% 1.0 $ 222 $ 227Whittier Trust Company 0.2% 0.2 $ 5 0.0% 0.0 $ 0 $ 5Dimensional Fund Advisors, L.P. 0.2% 0.2 $ 5 0.1% 0.1 $ 15 $ 20Quantitative Investment Management LLC 0.2% 0.2 $ 4 0.0% 0.0 $ 0 $ 5Quentec Asset Management LLC 0.2% 0.2 $ 4 0 0 $ - $ 4Active Niche Funds S.A. 0.2% 0.2 $ 4 0 0 $ - $ 4

TSLASCTY

Source: Company data, Credit Suisse estimates, Thomson Reuters

Unclear impacts to competitive landscapeSome fear that the combination of SCTY & TSLA will distort the residential solar industry landscape and harm other residential solar companies (eg Sunrun, Vivint Solar, SunPower), others argue that SolarCity would be a more rational actor if combined within a larger organization and less beholden to meeting street expectations for MW growth and cost/watt declines on a quarterly basis. We are still undecided.

■ Potentially positive: Less beholden to quarterly metrics such as MW growth, cost/watt and retained value (who even knows what KPIs will be reported by TSLA), potentially SCTY reduces their growth and focuses more on generating cash flow by increasing their mix of system sales, shedding high-cost customer acquisition channels, and focusing on the synergy potential with TSLA's customer base and retail presence. Further, SCTY's installer fleet could be partially utilized for installing PowerWalls or home charging systems,

■ Potentially negative: SCTY's capital constraints are lifted as part of TSLA, allowing the company to accelerate growth. The combined financials permit SolarCity to be less focused on quarterly costs/NPV metrics (again, potentially no longer even disclosed), allowing more aggressive market pricing and deteriorating the competitive landscape. As integrated Solar+Storage products are brought to market in the coming years, SolarCity's product portfolio is differentiated as other solar companies may not have the same level of access to TSLA's batteries (and certainly not as an integrated system).

1 July 2016

SolarCity (SCTY) 11

Figure 11: SCTY/TSLA deal flow

SCTY forms committee to study proposal TSLA forms committee for diligenceCommittee members Committee membersDonald Kendall not yet announcedNancy Pfund

1 month 2-3 weeks

SCTY board votes TSLA board proposes who can vote who can voteDonald Kendall Brad Buss - Former SCTY CFOJohn Fisher - VC investor (TSLA/SCTY) Robyn DenholmNancy Pfund - VC investor (TSLA/SCTY) Stephen Jurvetson - VC investor (TSLA/SCTY)

Kimbal Musk - Elon's brotherIra Ehrenpreis - VC investor (TSLA/SCTY)

Deal finalizedSEC disclosures filed

1-2 months

SCTY shareholder vote TSLA shareholder votestructure structurerecused (only Elon Musk) 22.5% recused (only Elon Musk) 19.5%other insiders 10.0% other insiders 0.5%owns SCTY & TSLA 45.5% owns TSLA & SCTY 56.0%owns SCTY only 5.4% owns TSLA only 8.4%

Source: Company data, Credit Suisse

1 July 2016

SolarCity (SCTY) 12

Companies Mentioned (Price as of 30-Jun-2016)SolarCity (SCTY.OQ, $23.93, NEUTRAL[V], TP $27.0)SunPower Corp. (SPWR.OQ, $15.49)Sunrun (RUN.OQ, $5.93)Tesla Motors Inc. (TSLA.OQ, $212.28)Vivint Solar, Inc. (VSLR.N, $3.07)

Disclosure AppendixImportant Global Disclosures I, Patrick Jobin, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for SolarCity (SCTY.OQ)

SCTY.OQ Closing Price Target Price Date (US$) (US$) Rating 25-Jul-13 40.09 R * 27-Oct-13 58.03 52.00 O 28-Oct-13 56.98 75.00 24-Jul-14 72.16 93.00 07-Aug-14 75.71 97.00 23-Sep-14 60.40 R 25-Sep-14 63.04 97.00 O 06-May-15 60.13 99.00 29-Jul-15 58.05 105.00 29-Oct-15 38.07 90.00 21-Dec-15 55.09 124.00 10-Feb-16 18.63 89.00 02-May-16 29.55 62.00 09-May-16 22.51 38.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price SCTY.OQ

1- Jan- 14 1- Jul- 14 1- Jan- 15 1- Jul- 15 1- Jan- 16 1- Jul- 160

50

100

150

200

REST RIC T EDO U T PERFO RM

3-Year Price and Rating History for SunPower Corp. (SPWR.OQ)

SPWR.OQ Closing Price Target Price Date (US$) (US$) Rating 31-Jul-13 27.65 28.00 N 30-Oct-13 31.85 29.00 27-Apr-14 34.18 35.00 13-Jan-15 26.57 35.00 O 28-Jul-15 25.66 32.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price SPWR.OQ

1- Jan- 14 1- Jul- 14 1- Jan- 15 1- Jul- 15 1- Jan- 16 1- Jul- 1610

20

30

40

50

N EU T RA LO U T PERFO RM

1 July 2016

SolarCity (SCTY) 13

3-Year Price and Rating History for Sunrun (RUN.OQ)

RUN.OQ Closing Price Target Price Date (US$) (US$) Rating 31-Aug-15 11.88 20.00 O * 21-Dec-15 13.40 35.00 10-Mar-16 7.15 21.00 02-May-16 7.97 18.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price RUN.OQ

1- Sep- 15 1- Nov- 15 1- Jan- 16 1- Mar- 16 1- May- 16 1- Jul- 164

14

24

34

44

O U T PERFO RM

3-Year Price and Rating History for Vivint Solar, Inc. (VSLR.N)

VSLR.N Closing Price Target Price Date (US$) (US$) Rating 27-Oct-14 13.74 21.00 O * 17-Mar-15 12.23 22.00 24-Jul-15 15.85 16.50 N 16-Mar-16 3.62 6.00 14-Apr-16 3.01 5.00 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price VSLR.N

1- Jan- 15 1- May- 15 1- Sep- 15 1- Jan- 16 1- May- 162

7

12

17

22

O U T PERFO RMN EU T RA L

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activitiesAs of December 10, 2012 Analysts’ stock rating are defined as follows:Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

1 July 2016

SolarCity (SCTY) 14

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings DistributionRating Versus universe (%) Of which banking clients (%)Outperform/Buy* 56% (39% banking clients)Neutral/Hold* 34% (18% banking clients)Underperform/Sell* 10% (40% banking clients)Restricted 0%*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.htmlCredit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Target Price and RatingValuation Methodology and Risks: (12 months) for SolarCity (SCTY.OQ)

Method: Our $27 Target Price and Neutral rating reflects the preliminary acquisition proposal at what now equates to ~$25.9-$27.8 per share at the 0.122x-0.131x exchange ratio

Risk: Risks to our price target of $27 and Neutra rating for SCTY include the pending acqusition proposal, increased competition, regulatory changes for net metered energy and utility rates, interest rates, energy rates, solar panel prices, and IRS and US treasury department investigations.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (SCTY.OQ, RUN.OQ, VSLR.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.Credit Suisse provided investment banking services to the subject company (SCTY.OQ, RUN.OQ, VSLR.N) within the past 12 months.Credit Suisse provided non-investment banking services to the subject company (RUN.OQ) within the past 12 monthsCredit Suisse has managed or co-managed a public offering of securities for the subject company (SCTY.OQ, RUN.OQ, VSLR.N) within the past 12 months.Credit Suisse has received investment banking related compensation from the subject company (SCTY.OQ, RUN.OQ, VSLR.N) within the past 12 monthsCredit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SCTY.OQ, RUN.OQ, VSLR.N) within the next 3 months.Credit Suisse has received compensation for products and services other than investment banking services from the subject company (RUN.OQ) within the past 12 monthsAs of the date of this report, Credit Suisse makes a market in the following subject companies (SCTY.OQ, SPWR.OQ).As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (RUN.OQ).Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (SCTY.OQ, RUN.OQ, VSLR.N, SPWR.OQ) within the past 3 years.As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.Principal is not guaranteed in the case of equities because equity prices are variable.Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

1 July 2016

SolarCity (SCTY) 15

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1 July 2016

SolarCity (SCTY) 16

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