While the company offered no explanation, citing an SEC-mandated quiet period, the usual reason for these kinds of changes are lack of enthusiasm from investors. To underscore that point, venture capital firm Draper Fisher Jurvetson has said it will acquire 10% of the offering and board chairman Elon Musk, also the CEO of Tesla Motors Inc. (NASDAQ: TSLA) has said he will purchase $15 million in SolarCity shares at the IPO (about 16% of the offering). Another early investor will take 300,000 shares.
The delay and the lowered price could be down to a general lack of affectation for alternative energy and related stocks. The share prices of solar PV makers have absolutely tanked in the last 18 months or so, but the low prices for solar panels is a boon to SolarCity, which installs complete solar systems.
Another reason for the delay is the outcome of an IRS review of the way SolarCity accounted for the fair market value of systems for which it received federal grants. From a recent filing:
If, at the conclusion of the audits currently being conducted, the Internal Revenue Service determines that the valuations were incorrect and that our investment funds received U.S. Treasury grants in excess of the amounts to which they were entitled, we could be subject to tax liabilities, including interest and penalties, and we could be required to make indemnity payments to the fund investors.
If the Internal Revenue Service or the U.S. Treasury Department makes additional determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our investment funds or to our fund investors and such determinations could have a material adverse effect on our business, financial condition and prospects.
The IRS has already lowered the value it assigns to systems installed in California and Arizona by a total of about $200,000 that SolarCity says it is “obligated to repay.” Even worse, a further adjustment is still possible and SolarCity presents a hypothetical case under which a devaluation of 5% would cost the company approximately $17 million. These are serious overhangs for a company that so far in 2012 has booked just $103 million in revenue with a net loss to date this year of nearly $78 million.
SolarCity virtually must go ahead with the IPO because waiting could kill its chances for a long time to come. But it will be a bittersweet occasion if the company does decide to go ahead.
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