SunRun And Vivint: Continuing To Stay On The Sidelines by Enertuition

Summary

• Vivint Solar and SunRun continue to use metrics that show value beyond the initial contract period when there is little evidence that customers will stay with old systems.
• The problems that SolarCity is seeing in the field with customer complaints and fires show the unknown risks to value generation.
• We continue to see no realistic possibility of long-term cash flows to justify the valuation of the lease and PPA companies.
• This idea was discussed in more depth with members of my private investing community, Beyond The Hype. Get started today »

SunRun (RUN) and Vivint Solar (VSLR) Q2 earnings do not change the thesis for either of these companies. Of these two bad businesses, on a relative basis, SunRun continues to execute better and Vivint continues to flounder.

After years of non-existent growth, Vivint is finally showing some growth this year, thanks in part to ITC step down at the end of the year. The Company's installations reached a multi-year high of 56MW with 19% y-to-y growth (image below).

In spite of the installation growth, alarmingly, the Company's cost of installations continues to increase in an industry where price reduction and cost reduction are the name of the game (see below).

What is amusing is that the Company's NPV of installed over the first 20 years of contracted life is $3.67 (see image below). In other words, the Company is promising to make, with favorable assumptions, $0.11 per watt over a 20-year period ($3.56-3.67).

The "retained value" created is almost entirely in the 10-year extension of the contract past the initial 20 years. Note that all the numbers, including the numbers in the chart below, are "gross" numbers, and, net numbers will be much worse.

Moving on to SunRun, the story is marginally better. It is better because SunRun hustles more in getting unaware customers to sign up for more unfavorable contracts with storage and does a better job of containing cost.

Compared to Vivint's $3.56 per watt, SunRun is getting the job done at $3.33 (image below).

Thanks to the lower costs, the Company has a more optimistic spin on value creation (image below).

Consequently, the Company reports more optimistic "retained value" numbers. However, note the retained value that the Company claims from Renewal compared to the contracted term (image below).

However, SunRun realizes that, increasingly, showing the Company making more money in the renewal term is not good optics. Consequently, the Company has introduced 25-year contracts now to reduce the amount of value in renewal. It is distasteful how unethical companies like SunRun, with the benefit of ITC, are getting customers to sign these increasingly longer-term contracts where the customers do not understand the consequences.

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