Where Werner thinks SunPower’s biggest lead in the future lies is in its business model, which will be a differentiator going forward. The company has the largest dealer network in the world, it can offer lease financing through these markets, and its majority owner Total will allow it to borrow at a lower cost of capital than smaller competitors.
When we look at the residential space where SunPower is in direct competition with SolarCity Corp (NASDAQ:SCTY) the company’s big advantage is efficiency and cost of capital. SunPower estimates that a 1% lower cost of capital will add $0.40 per watt of residual value to its lease installations. That small difference is very significant considering SunPower Corporation (NASDAQ:SPWR) estimates $1.75 per watt in residual value and SolarCity Corp (NASDAQ:SCTY) estimates $1.25. Whoever lowers borrowing costs can capture this value; it’s the backing from Total that Werner thinks will help it generate more value than SolarCity Corp (NASDAQ:SCTY).
It’s the combination of these factors that no one else in the industry can compete with and that’s where Werner thinks SunPower’s true competitive advantage lies.
Is C7 going to be a hit?
Where SunPower doesn’t have a discernible lead is in the utility space. This is where First Solar has generated a clear-cut lead over solar competitors with its thin film modules and long history of installations, which lowers capital costs. SunPower is trying to answer with a product called C7, which concentrates the sun’s light seven times on each solar cell. So when will we see progress on this front?
Image credit: SunPower Media Relations
Werner thinks it will be one to one and a half years before we see major traction for C7. What we should expect to see this year is more project signings, although these will take time to generate significant revenue. He was very excited about was a joint venture in China with Tianjin Zhonghuan Semiconductor, Inner Mongolian Power Group, and Hohhot Jinqiao City Development Company to manufacture and deploy C7 projects. This venture gives SunPower a foothold in China, a rapidly growing market that’s difficult for U.S. companies to compete in.
C7 should also be ideally suited for new solar markets like Saudi Arabia and Africa, and it’s likely similar joint ventures will form in these areas. This could allow SunPower Corporation (NASDAQ:SPWR) to leverage cell capacity, build C7 locally (some countries have local requirements), and even lower investment necessary to expand.
In short, C7 isn’t a hit yet but over the next year we should see progress.
More to come
I’ll be back later this week to cover the discussion Werner and I had about leasing and the company’s competition with SolarCity.
The article 4 Burning Questions for SunPower’s CEO originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower and personally owns shares and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, Long Jan 2015 $15 Calls on SunPower, and Long Jan 2015 $25 Calls on SunPower. The Motley Fool recommends Total SA. (ADR).
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