The Salesman Behind SolarCity

But there’s deep skepticism about the company, particularly on Wall Street where the stock rallied tenfold from its 2012 initial public offering to its peak last year although it has sold off heavily since then. Those questioning SolarCity’s business model include Jim Chanos, best known for shorting Enron before the company was exposed as a fraud, who has likened SolarCity to a subprime lender. (SolarCity calls that "ridiculous"). Investors’ biggest concern is whether SolarCity’s sales model will work long term.

And that puts the spotlight on Hayes Barnard, its chief revenue officer, a 43-year old former mortgage salesman who’s applying the hard-sell tactics he honed in the mortgage market to solar power. He joined SolarCity in 2013 after it bought his solar-power sales firm Paramount Solar for $120 million.

Once a minor celebrity in parts of California and Washington state for his ubiquitous radio and television ads for low-interest home loans, Mr. Barnard has added a new level of zealotry to the corporate culture. He raps at annual sales meetings and produces pump-up videos in which he sounds like a Hollywood version of a football coach giving a halftime speech. He introduced a company motto “One Team. One Dream.”

But as a mortgage salesman his sales tactics have also been criticized. The State of Washington’s Department of Financial Institutions accused his mortgage firm Paramount Equity of “false, deceptive and misleading advertising,” improper disclosures to borrowers, collecting unearned fees, among several other allegations that Messrs. Barnard and Rive dismissed as erroneous. Paramount did admit to using unlicensed loan originators and failing to maintain books and records, for which it was fined $389,000 by the state.

Utility Alternative

To understand what SolarCity does, it’s helpful to contrast it with the myriad companies, like Solyndra, that went bust a few years ago. Most of those companies were making solar panels or components. But when cheap solar panels began flooding out of China, their margins were squeezed to untenable levels.

SolarCity, on the other hand, aims to be more of an alternative to a traditional utility company. It installs solar panels on rooftops at no charge to the homeowner. In exchange, it locks them in to decades-long contracts requiring them to purchase the power produced by the panels at a rate below what utilities charge for dirty power.

In 2007, Mr. Musk told the U.S. Senate Committee on Environment and Public Works that SolarCity was focused on “bringing solar power to every home and business,” therefore reducing greenhouse gas emissions and slowing the rate of global warming and climate change.

SolarCity is in a foot race to accomplish its goal. At the end of 2016, a federal tax credit covering 30% of the cost of solar installations expires. Because SolarCity installs the panels on behalf of homeowners, expiration of the tax credit will raise its costs. A smaller tax credit for power-purchase agreements of the kind sold by Solar City will remain, however.

There are also signs that the millions of lobbying dollars spent by utilities to kill the solar industry are starting to pay off. On Wednesday, Hawaii’s Public Utilities Commission ended a longstanding policy of giving people with solar panels credit at retail rates for energy their panels send back to the grid. If other states like California follow suit, it could pose new challenges for SolarCity. A company spokesman said the solar industry had won most of its regulatory battles with utilities.

All of this makes Mr. Barnard’s role at the company increasingly critical. Since he took over sales at SolarCity in the fall of 2013, the company’s customers have tripled to 262,000. SolarCity says it’s on pace to reach its goal of a million customers within the next three years.

Mr. Barnard more than quadrupled the size of the sales team—including by bringing on 250 staffers he’d worked with at his previous firm, a solar power sales outfit spun out of his mortgage firm—and increased incentives for salespeople. Salaries were reduced slightly while incentive targets were raised. The more solar systems salespeople get homeowners to install, the more money they can make.

Previously, sales employees also accrued equity in the company the longer they worked there. Under Mr. Barnard, employees must recruit other effective sales staff in order to get equity, a program known as “Families Helping Families.” Mr. Barnard said the previous system gave “equity to people for showing up. It was a rest and vest strategy.”

Once a minor celebrity in parts of California and Washington state for his ubiquitous radio and television ads for low-interest home loans, Mr. Barnard has added a new level of zealotry to the corporate culture.

Burn Out

Eric Presley, a former regional sales manager at SolarCity, said Mr. Barnard’s tactics were successful in giving employees a sense of purpose. But he said that some people work themselves into the ground. “I was being driven into the nights and weekends. I was never present for my family,” Mr. Presley said. “He’s burning the candle faster. Some people thrive on it. Some people burn out,” he said.

In an interview, Mr. Barnard agreed that SolarCity demands hard work. “SolarCity is a place where A players are valued and people who are not A players are given counseling to try and get them on track. But it isn’t a place where people can simply coast,” he says.

SolarCity has also encountered its share of complaints from consumers. On online review sites like Yelp, some customers complain that SolarCity’s sales team gives them wrong information, particularly about the fees they have to pay if they sell the house before paying off the solar panels or the savings they’ll enjoy.

SolarCity says the vast majority of customers who sell their house transfer the contract to the buyer.

The Better Business Bureau reviewed 145 complaints against SolarCity in the last 12 months, up from an average of 50 complaints a year in the previous two years. A spokeswoman for the Better Business Bureau said the number of complaints is normal, considering SolarCity’s size. The company added more than 100,000 customers in the last year, according to Securities and Exchange Commission filings.

SolarCity said less than 1% of its customers complain about the service or treatment by sales staff. It points to an A + rating with the Better Business Bureau and says some of the complaints on Yelp or other review sites are fake.

Mounting Costs

Sales costs have also gone up, to $113 million quarterly from $32 million when Mr. Barnard took over. Put another way, it costs SolarCity 53 cents in sales and marketing to sell every watt of energy, compared to 43 cents when Mr. Barnard took over. He said that reflects the expanded sales team. He said the company has also put money into a revamped referral program called “Solar Ambassadors,” which lets customers refer their friends to SolarCity using a mobile app, and targeted advertising aimed at difficult-to-reach consumers who may not have considered going solar.  

Mr. Rive attributes the rising costs to the cost of marketing to reach consumers who hadn’t thought of solar previously. He adds that the increased sales costs are “terrible,” he says. “I don’t want to hear the excuses. It has to come down.”

The higher sales costs have contributed to increases in the company’s net losses, despite higher revenues. SolarCity stock has dropped by about half over the past 18 months, to around $44. Some on Wall Street believe customers will eventually sour on the product SolarCity is selling and look for other ways to save money.

It could be that SolarCity’s mission to save the world will be enough to convince customers to want to pay SolarCity instead of their utilities. But it could also turn out that customers lean toward convenience and money savings before they think about global warming.