Risk/Reward Rating: Negative
The year is 2312, human beings inhabit Mercury in a city on tracks always gliding along the surface of the planet to stay in the shadow of the sun so as not to be incinerated. This is the setting for 2312, a science fiction novel by Kim Stanley Robinson. An excerpt from the “Prologue” will set the stage for a review of Sunrun (Nasdaq: RUN). This is an unusual introduction for stoxdox, however the sunwalkers can be seen as an analogy when thinking about Sunrun’s business model. On another note, I highly recommend this book to sci-fi fans.
The sun is always just about to rise. Mercury rotates so slowly that you can walk fast enough over its rocky surface to stay ahead of the dawn; and so many people do. Many have made this a way of life. They walk roughly westward, staying always ahead of the stupendous day. Some of them hurry from location to location, pausing to look in cracks…But most of them are out there to catch glimpses of the sun.
But the sunwalkers know the time, so they wait and watch—until—a flick of orange fire dolphins over the horizon and their blood leaps inside them. More brief banners follow, flicking up, arcing in loops, breaking off and floating free in the sky. Star oh star, about to break on them! Already their faceplates have darkened and polarized to protect their eyes.
The orange banners diverge left and right from the point of first appearance, as if a fire set just over the horizon is spreading north and south…The spill to left and right keeps spreading, farther than seems possible, until it is very obvious one stands on a pebble next to a star.
Time to turn and run! But by the time some of the sunwalkers manage to jerk themselves free, they are stunned—trip and fall—get up and dash west, in a panic like no other.
Company Overview
Sunrun was founded in 2007 with the vision to create a planet run by the sun. The company’s mission is to provide customers affordable solar energy and storage along with a best-in-class customer experience. The Sunrun value proposition is to remove the high initial cost and complexity of cash solar system sales and installation expenses in the residential market while streamlining system maintenance and financing for its customers. As a result, the crux of the Sunrun business model is providing a financing and service solution for long-term (20-25 years) solar energy system contracts in the residential marketplace.
The company itself can be thought of as a middleman or residential solar platform as it coordinates and services all aspects of the solar power lifecycle for residential customers. To execute this business model, the company relies on numerous third parties for all aspects of the solar systems: financing, products, installation, and maintenance work. Sunrun remains the responsible party for the lifetime performance of the systems and the liabilities that may arise over the long-term customer contract. This creates long-term unquantifiable risks for the company that are not well understood given that widespread residential solar systems are still a young market with limited historical performance and depreciation data.
In summary, the company is providing long-term financing and servicing solutions for capital-intensive solar energy systems while relying on third parties to perform on its behalf. A review of Sunrun’s recent financial performance through Q2 of 2021 will illuminate the challenges faced by its business model and the reason why I view Kim Stanley Robinson’s sunwalkers of Mercury as a great analogy of the company’s business model.
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