SolarCity's Organizational and Operational Design

The evolution of SolarCity's operating plan over the past eight years has been a model of

adaptability, process innovation, and gradual vertical integration. From day one, SolarCity

adopted an unconventional approach to the solar power industry. Rather than focusing on the

research, development, and manufacturing of solar panels themselves, as did many competitors

in the solar market as of 2006, the company chose to tackle the implementation problem. Though

photovoltaic technology had become well-developed by the time of SolarCity's founding, panels

were being incorporated into the energy grid at a snail's pace, in large part because of their

prohibitive upfront cost to consumers. By acquiring solar panels from manufacturers and then

streamlining the financing, installation, monitoring, and maintenance considerations that faced

potential customers, SolarCity began to carve out a niche in California and work towards its goal

of "creat[ing] the most compelling energy company of the twenty-first century by delivering

cleaner, cheaper power through distributed generation." This discussion outlines specific

strategies and operations SolarCity has adopted while working towards this objective,

specifically addressing its consumer-facing outlook, supply/value chain, financial demands, and pivotal developmental milestones.

Cultivating a Supply & Value Chain

While the specifics of SolarCity's supply chain have morphed from year to year, it is structured

around a few basic organizational principles. The company has gradually built a network of

operations centers, which constitute the backbone for customer relations and on-site installation and upkeep. Each of these centers maintains a fleet of bright green, logo-equipped vehicles that typically access sites within a hundred-mile radius. In keeping with SolarCity's environmental values, the fleet consists of green models such as the Toyota Prius. Prospective and existing

users may communicate with SolarCity through the nearest operations center, and free

consultations (which include an evaluation of a site's existing power usage and the viability of

adding a solar panel system) are offered to potential customers. SolarCity places a premium on

cultivating an enthusiastic, courteous, and driven workforce: the company earned Accredited

Business status with the Better Business Bureau within one year and to this day maintains an A+

rating. High regard amongst clientele is essential to generating word-of-mouth buzz, and this factor complemented the overall efficiency of SolarCity's infrastructure as the company

quickly claimed a significant share of the solar market.

The purchasing and distribution of solar panels and accompanying mounting equipment is,

obviously, a key aspect of SolarCity's functioning. Instead of designing and manufacturing

energy systems from scratch, the company chose to seek out available products representing the

best combination of performance and price, create an inventory through front-end purchases, and assimilate components when constructing new solar energy systems. In order to maintain

flexibility and avoid future quality control risks, SolarCity did not extensively attach itself to

single vendors. That being said, the company is willing to partner with vendors whose product is

especially outstanding; FirstSolar, with its high-performance thin-film panels, were an exclusive partner for a stretch beginning in 2008. A stock of panels, mounts, tools, and wiring is

consolidated at warehouses and later circulated to individual operations centers, eventually being

transported to installation sites by the aforementioned fleet of service vehicles.

While maintaining an efficient supply chain of physical products and services, SolarCity has

consistently sought to also add value throughout its process with several software-based steps. In this regard, the company benefitted from Lyndon and Peter Rive's past experience in software

development. From SolarCity's fledgling years onward, automated data analysis of potential

solar installation sites allowed for quick feasibility assessments and provided projections of

energy production and overall savings to potential customers. Meanwhile, their SolarGuard

software represented a state-of-the-art means of perpetual system monitoring, ensuring consistent panel functioning and giving users a mechanism to track minute-by-minute energy consumption/generation and financial savings: SolarCity would later upgrade SolarGuard and

introduce other trademarked softwares. After a successful takeoff in 2006 and 2007, and with a

proven operations scheme in hand, 2008 would become the year in which SolarCity began to

entrench its competitive advantage and expand upon its commercial, organizational, and CRM

tactics.

Filling Customer Needs & Reaching Developmental Milestones

Even with the joint Federal Tax Credit and CSI program, the upfront cost of purchasing a solar

energy system remained prohibitive to the majority of homeowners and organizations alike. In

April 2008, SolarCity innovatively addressed this problem by introducing SolarLease, a program

through which photovoltaic panels are leased to consumers rather than sold outright. This was

the first offering of its kind by a solar installer and further distinguished SolarCity from its

competitors while solidifying its customer-friendly image. Later in April, the company initialized

a trial run in which buyers could have a solar energy system installed without any down payment

whatsoever. Through this program, customers would begin saving money from day one. Though

users would still pay electric bills to the local utility, mainly due to power use when

panel-produced energy is unavailable, the sum cost of a reduced bill and a monthly lease payment (starting at $90 for a 3.2 kW system and escalating with system size) represented a

reduction from the original utility bill. SolarLease and the $0 down option allowed SolarCity to

access a much larger consumer pool and soon became the company's signature, but its

implementation did not come without notable challenges. In order to make this strategy

financially viable, SolarCity was forced to incorporate into its operating plan a greater

dependence on external funding.

With SolarLease and a $0 down offering, SolarCity garnered a new value proposition: to, as

phrased by former CFO David White, "allow users to pay less for clean energy than they did for

electricity." An appealing proposal, sure, but someone has to cover the front-end costs of

purchasing the PV system itself and getting it up and running. Without year-to-year profits, it was essential for SolarCity to enlist extensive financial backing. Elon Musk's resources and

connections were invaluable during the company's startup phase, but as SolarCity became a

heavyweight in the clean energy market, collaborators with even deeper pockets were in demand.

US Bancorp has contributed a series of funds, starting with the nations largest solar-related tax equity fund in 2009 and amounting to over $500 million as of today. Bank of America Merrill

Lynch, Goldman Sachs, Credit Suisse, and Google were each enlisted for hundreds of millions in

backing. After becoming the nation's largest residential solar power provider by the end of 2008

and successfully integrating into its operating plan a strategy for the continual stockpiling of

financial backing, SolarCity was well-equipped to work its way closer to the goal of becoming "the most compelling energy company of the twenty-first century."

From 2008 onward, SolarCity adapted its operating plan to include proactive capitalization on

the huge untapped opportunity in targeting large corporations, government entities, and NGOsgroups whose resources and available rooftop space dwarf that of homeownersfor large-scale solar projects. A 650 kW installation at eBay's headquarters in May 2008 opened these

floodgates for SolarCity. The company aggressively set its sights on enacting as many

comparable projects as possible. After starting with ventures like a 100.8 kW installation at an

Intel facility, a 222 kW system at the National Bank of Arizona, and a 394 kW project at

Montana Farms, by 2010 SolarCity had built up enough reputation and resources to initialize

megawatt-scale undertakings. WalMart first welcomed solar energy onto its roofs in April 2010, and SolarCity completed over 5 MW of projects with the company in the following

years. Forward-thinking local governments like those of Sacramento and Lancaster, by whom SolarCity was contracted for 1.9 MW and 2.5 MW worth of installations, also seized the

opportunity to go green and save money without the burden of upfront expenses. Clusters of

schools were targeted by SolarCity as the company struck deals with numerous districts to place

panels on buildings and carports, generating a total of over 10 MW. By the end of 2010, the sum

capacity of SolarCity's installations had surpassed 58 MWan impressive feat that can be largely attributed to the company's savvy mobilization of customer bases beyond the residential

market.

After becoming firmly established in both the residential and organizational marketplace,

SolarCity broadened the root aspirations of its operating plan. The company embraced a

mentality of expansion on three levels:

1) geographic expansion throughout California and into other states

2) market expansion into other sustainability sectors

3) commercial expansion through acquisitions, partnerships, and product development

By building operations centers in previously unaccessed locations and acquiring smaller solar

companies with an established presence in regions foreign to SolarCity, the company tightened

its grip on the California market and made inroads to the east and north. First opening up shop in

Arizona, Oregon, and Colorado, SolarCity set an operational goal of expanding to multiple new

zones each year and is now active in 15 states (including Washington D.C.) from Hawaii to New

York. This geographical expansion is complemented by growth into areas of the sustainability

market beyond solar power. Having noted the construction and ventilation inefficiencies present

in a disproportionate number of buildings, in 2010 SolarCity began offering full-scale home

energy audits and followed with the Home TuneUp program, which would rectify heating,

cooling, and electrical issues while saving customers 10-50% on energy costs. In coordination with the ongoing advent of electric vehicles, the company introduced a corridor of EV charging

stations along Californias Highway 101 in 2009, and today partners with ClipperCreek in building public and private charging stations.

SolarCity chooses to aggressively seek acquisitions while developing partnerships with

companies and organizations able to procure a massive volume of system installations. This

approach, which catalyzes SolarCitys perpetual optimization of existing products and processes, is integral to the companys accelerated growth and exploitation of emergent opportunities. Acquisitions of other solar companies and equipment suppliers enable SolarCity to quickly gain

a presence in new regions and vertically integrate its operations. For example, the company

bought out groSolar and CleanCurrents LLC in its conquest of the East Coast. The purchase of

Zep Solar granted SolarCity direct control over panel-mounting design and manufacturing, while acquiring Building Solutions introduced an instant improvement over the existing in-house energy efficiency monitoring software. SolarCity was the first company to market contracts to

large-scale home developers, partnering with Shea Homes, Taylor Morrison, and more than 30 other homebuilders to install photovoltaic energy systems on thousands of rooftops. In

accordance with this tactic, SolarCity announced the SolarStrong project in 2007. With eventual

costs of over $1 billion, SolarStrongs objective is bold: to bring solar power to over 120,000 homes at military base communities across the country within the next five years. Collaborating

with the Lend Lease Group funding from the federal government, and Bank of America Merrill

Lynch, SolarStrong will result in over 370 MW of power when completed.

Public Visibility

SolarCity seeks to differentiate itself through efficient advertising. One of the main issues with

the implementation of solar energy equipment is misinformation in the eyes of the public.

According to a SolarCity spokesperson, Everyone knows that solar power is better for the environment than fossil fuels, but most people don't realize that it can be less expensive than

electricity from the grid. Through intensive research, SolarCity is able to save its customers as much money as is possible with current technologies. They know that is what matters most, and

as they have stated: in our advertising we focus on what consumers care about most: dollars and cents.

Visibility is another issue in the solar energy industry. In 2011, San Jose State University

conducted a study that found that 63 percent of Americans are unable to name a single company

that provides solar energy grids in residential homes. Tapping into this growing market is

extremely viable, and by providing accurate information, SolarCity seeks to grow rapidly. While

Vivint, their main competitor, has gained visibility through door-to-door sales, SolarCity focuses mainly on telephone sales and direct marketing to advertise their products and services.

SolarCity's sales and marketing methods have contributed enormously to the company's growth

and the efficacy of its operating plan. Always in touch with the consumer perspective, they have

managed to recruit a multitude of individuals and organizations into sharing their goal of

establishing solar power as the world's foremost clean energy source. SolarCity is shrewd

whenever it explores a new venture. For example, the $0 down option was first announced as a

100-day offer. This approach protected SolarCity from painting itself into a corner while

incentivizing consumers to enter the solar market; similar time-sensitive methods are often employed when SolarCity ventures into a new region or market sector. The company also seeks

to generate press and endear itself to the general public through donations to TV shows like

Extreme Makeover Home Edition and to groups affected by natural disasters such as Hurricane

Katrina and Superstorm Sandy. More recently, SolarCity announced its Give Power

Foundation, through which it will donate solar energy systems and battery setups to schools

without electricity access. Humanitarian efforts like these provide valuable boosts to SolarCitys brand image.

Looking Forward: The Next Five Years

As of today, SolarCity holds the American solar industry's largest market share by a wide

margin. It is safe to say the company achieved each of its goals for the first five years of

operation. In the third quarter of 2013 they oversaw one-third of all new residential solar installations in America. Its stock prices continue to balloon, having increased almost tenfold

since their IPO just fourteen months ago. Still, the company has yet to turn a profit in a given

year and faces challenges from insurgent competitors. Without patent protection of its business

model, other companies are free to adopt a full-service approach and emulate the SolarLease program, while the advantage derived from its effective, user-friendly software is not as

exceptional as it once was. As mentioned earlier, the looming 2016 decision on an extension of

the federal solar Investment Tax Credit poses a serious threat to the economic viability of the

SolarLease program. All that being said, the next five years of SolarCity's journey seem to hold

much promise.

One main reason that SolarCity should remain optimistic going forward can be attributed to a

simple yet reliable conceptit is not the idea but the execution that matters most in determining a company's success or failure. On this front SolarCity continues to wield a sustainable

competitive advantage. With a nationwide chain of operations centers, a reliable supply chain,

partnerships with a diverse set of complementary companies, a high-functioning management team, numerous large long-term projects underway, and a steady stream of financial backers,

SolarCitys infrastructure seems to be almost bulletproof, and it will be difficult for rival companies to compete with such a well-organized and proactive entity moving forward.

SolarCitys stated goal for the next five years is to reach the million-customer markan ambitious but achievable objective. The company will continue to expand into new states while

increasing the density of its operations centers in currently-occupied regions, allowing them to access an ever-widening base of potential customers. Just as importantly, SolarCity intends to open up more and more collaborations with home developersthereby allowing them to ensure domain over thousands upon thousands of system installations without having to market directly

to individual homeowners. With a similar emphasis on large-scale partnerships, SolarCity will seek additional contracts with governmental organizations and utilities. As of today, the

companys sights remain set on dominating the American solar market, but it would not be surprising to see them take on international ventures, especially if the high-performance battery production plant being built in cooperation with Tesla fulfills its potential. Were SolarCity able

to introduce solar energy systems that are effectively time-independent as a result of these

batteries, the company would garner a formidable advantage both domestically and abroad.

SolarCity seems intent on progressing further towards vertical integration and financial

independence and will continue to acquire companies, akin to Zep Solar, that can be assimilated

into the companys supply chain and operating plan. Meanwhile, their Common Assets crowd-sourced funding experiment could revolutionize the means by which future solar projects are

financed and seen to completion.

Alex Robertson

March 2014