SolarCity (NASDAQ: SCTY) reported Q1 EPS of ($1.52), $0.06 better than the analyst estimate of ($1.58). Revenue for the quarter came in at $67.5 million versus the consensus estimate of $57.7 million.

While the first quarter of 2015 was impacted by the typical seasonal slowdown, we expect a resumption in installation volume growth to new records in the second quarter of 2015 as our operations continue to scale and weather improves on the East Coast.

For the second quarter of 2015, the company expect MW Installed of 180 MW, which would represent year-over-year growth of 69% with residential growing north of 80%. While they now offer quarterly guidance on MW Installed, they reaffirm full year guidance for 920 - 1,000 MW Deployed.

For Q2 2015 GAAP revenue guidance, they expect Operating Lease and Solar Energy Systems Incentive Revenue of $70 million - $74 million as they expect higher solar electricity production in the spring months along with higher operating lease solar assets deployed to drive strong sequential and year-over-year growth. Solar Energy System and Component Sale Revenue is expected to range between $16 million and $18 million.

For earnings history and earnings-related data on SolarCity (SCTY) click here.

May 5, 2015

Dear Fellow Shareholders:

Entering 2015 with a strong start, SolarCity continued to drive significant growth in distributed solar energy deployment and create substantial value for shareholders. Bookings of 237 MW were at record levels, and installations of 153 MW surpassed our expectations and generated an estimated 11% Unlevered IRR (as defined below) and an incremental $147 million in Economic Value Creation to Equity (as defined below).

Our development engine continues to power our growth and value creation, and our existing portfolio of installed and contracted solar assets is generating a steadily growing cash flow stream. At the end of the first quarter of 2015, we had close to 218,000 customers, $3.1 billion of solar energy systems assets capitalized on our balance sheet, and $6.1 billion of Estimated Nominal Contracted Payments Remaining. Net Retained Value (as defined below)—the net present value of all net customer cash flows forecast over the 30-year lives of the systems after net debt outstanding—was $2.7 billion as of March 31, 2015.

We have accumulated a material sum of Net Retained Value in our short history to date, and we continue to create higher levels of value with our new installations in each new quarter. Based on our 2015 guidance, Net Retained Value could be growing at an annualized pace of more than $1 billion by the end of this year.

Growing Momentum in Sales and Installation Throughput

In what tends to be one of our seasonally softer periods, our sales and installation teams delivered strong year-over-year growth in the first quarter of 2015 that exceeded our expectations. We booked a record 237 MW in the first quarter of 2015, up 74% year-over-year, for a total of 891 MW over the last twelve months. We experienced increased demand across all of our product offerings and the majority of our markets in the first quarter, as more new customers embraced the opportunity we provided them to switch to distributed solar and lower their utility bills with no upfront costs.

We added close to 28,000 new customers in the first quarter, and our Estimated Nominal Contracted Payments Remaining—an approximation of the revenue our lease/PPA/loan customers are expected to generate over the remaining life of their Energy Contracts—increased by a net $1.2 billion in the period. We view the increase in Estimated Nominal Contracted Payments Remaining as a better measure of our new sales activity than reported revenue, which is recognized over the life of the 20-30 year terms of our lease, PPA, and loan contracts.

Cost Reductions on Schedule

In our tenacious focus on every cost driver company-wide, one of the biggest drivers of cost reduction has been scale benefits. Very simply, fixed costs covered by a greater number of units lead to lower average costs. Of course, the flipside means lower volumes yield higher average fixed costs. Total cost in the first quarter of 2015 declined (9%) year-over-year to $2.95 per watt, though was up 3% versus $2.86 per watt in the fourth quarter of 2014 largely due to the impact of lower fixed cost coverage from the seasonal decline in MW Deployed. Installation cost was $2.09 per watt, down (14%) year-over-year and flat vs. the fourth quarter, excellent performance given the Q/Q volume declines. Sales costs ticked up slightly to $0.59 per watt as we continued to invest in our sales strategy to significantly ramp our salesforce headcount to drive the next leg up in bookings throughout the year. G&A costs of $0.27 per watt declined (10%) year-over-year, but increased versus the prior quarter owing largely to the seasonal decline in volume this quarter. Our cost goal for 2017 remains $2.50 per watt at which level we expect to continue to generate healthy Unlevered IRRs following the scheduled reduction in the federal investment tax credit from 30% to 10% in 2017. Reconciliation of our cost per watt to our GAAP financial statements is available on the investor relations section of our website (at investors.solarcity.com).

Energy Production Over 1 Terawatt-Hour and Growing

At the end of the first quarter of 2015, we had 217,595 customers, up 97% over the last twelve months. We are over 20% of the way to our one million customer goal by mid-2018 with a full 3 ¼ years left, and we have even greater confidence that we will achieve it.

The value capture of each of our Customers is derived largely from the annuity-like cash flow stream of monthly payments underlying our Energy Contracts, which offer high cash margins and visibility over 20-30 years. Whether through a PPA, loan, or a lease, customer payments are effectively a function of the electricity produced by the system and the price of that electricity. Thus, the energy produced by our installed portfolio of contracted assets is largely proportional to the cash we collect and the revenue we recognize. The more energy this portfolio produces, the higher the revenue and cash we generate.

Energy Production Q1 2008 – Q1 2015

The chart above highlights not only how revenue and cash generation can be seasonal with the sun, but also how quickly the portfolio’s production of energy—and in turn cash—is ramping as we deploy more contracted MW every quarter. In the final days of the first quarter of 2015, our solar installations produced a record 5 GWh of energy in one day. This was less than one month after first crossing the 4 GWh-day mark, and we have yet to reach the highest production days of summer. As we continue to add more MW to our portfolio, we expect the revenue and cash flow run rate of our installed and contracted solar energy system assets to continue to grow significantly.

Our Estimated Nominal Contracted Payments Remaining as of the end of the first quarter of 2015 totaled $6.1 billion, up 144% year-over-year. Estimated Nominal Contracted Payments Remaining represents the sum of cash payments expected over the contracted lifetime of our lease, PPA, and loan customers. Relative to our cumulative Energy Contracts signed of 207,426, our blended average lifetime payments remaining under contract exceeds $29,400 per customer.

Our portfolio of contracted and installed solar assets that we have built since 2008 continues to outperform our forecasts. Average energy production has been running ahead of our projections at the time of install and operations and maintenance (O&M) expenses are running below our initial expectations, a solid testament to our products and partners. Finally, average customer payment performance remains better than that for prime mortgages.

Generating Healthy Returns and Economic Value in Q1 2015

SolarCity creates value like most businesses ultimately do: by maximizing cash inflows while minimizing cash outflows. Our inflows are derived from the customer payments received from the lease, PPA, and loan contracts on our installed solar energy system assets. Payments are driven by (a) the size of the system (kW installed), (b) the capacity factor—or the units of solar energy produced and sold (kWh production), and (c) the price of that energy ($/kWh)—which is largely driven by utility rates and incentives in each market. Our outflows consist primarily of the upfront investment in each contracted

system (installation , sales, and G&A) and our cost of capital, as well as a small amount of ongoing O&M and inverter replacement costs.

In short, the higher the customer cash flows under long-term contract and the lower our costs, the more value we create for shareholders. Due to the large differential and long duration of cash flows underlying our solar investments, we believe that traditional earnings measures such as operating income, earnings before interest, depreciation, and amortization (EBITDA), and earnings per share (EPS), are not the most effective tools for capturing our full expected lifetime cash flow and return on investment. While we have historically used Retained Value as the primary metric to gauge our value capture, as of this quarter we will begin offering additional detail and color around our quarterly performance to better capture the value we are creating for our equity shareholders. Going forward, we will report two key additional quarterly metrics that we believe better refine the discussion of our true operating performance and economic returns: (1) Unlevered IRR and (2) Economic Value Creation to Equity forecast from our new deployments. Both metrics are based on deployments rather than installations to more accurately reflect our true costs which are not entirely settled until they are capitalized on the balance sheet on deployment.

In the first quarter of 2015, new MW Deployed under Energy Contracts were forecast to generate an Unlevered IRR of 11%. This represents a blended average of both commercial and residential leases and PPAs, as well as our MyPower loan product. MW Deployed in Q1 2015 yielded weighted average contract terms of (1) Year One energy production of 1,412 kWh/kW, (2) Year One energy price (including performance based incentives (PBIs) of $0.13/kWh as well as solar renewable energy credits (SRECs) generating ~$3 million per year over the contracted period of up to five years (though ignoring any potential future value beyond the contracted period), and (3) average annual escalator of 2.2% offset in part by an assumption of (0.5%) performance degradation. Based on our total cost of $2.95/W, gross project investment in our Q1 2015 deployments was $407 million. After upfront rebates and customer prepayments of $16 million and tax equity investment of $209 million, our net expected investment in Q1 2015 deployments was $183 million. Our MyPower product does not utilize tax equity, but the tax equity investment structures used for our leases and PPAs in the quarter were scheduled to receive a blended average of 30-40% of customer cash flows (after O&M) for 6.7 years and 5% thereafter. Net of these tax equity distributions, the unlevered cash flow forecast from our Q1 2015 deployments is forecast to average $18 million annually over the 6.7 year life of tax equity, $24 million in the post-tax equity period through Year 20 and $30 million thereafter. Our Unlevered IRR is based on the forecast of unlevered cash flow over the 30 year expected lives of the systems and includes a 10-year renewal assumption for our lease and PPA contracts.

Though we do not expect to raise all of our expected project debt financing until subsequent quarters, we ultimately expect to raise a total of $188 million in long-term debt financing on our Q1 2015 deployments over the next 12 months and thus generate $5 million in Year One cash with no upfront equity investment. Applying expected terms of the long-term debt financing (73% advance rate and 4.5% interest rate), we

forecast our Q1 2015 deployments to generate net cash flow to equity of $5 million during the life of tax equity, rising to an average of $9 million during the post-tax equity period and $30 million after Year 20. Applying a 6% discount rate to these net cash flows to equity forecast over the 30-year system lives, our Q1 2015 deployments are forecast to generate $147 million, or $1.07 per watt, in Economic Value Creation to Equity.

Net Present Value of Forecasted Value from Energy Contracts After Net Debt Equals $2.7 Billion

The present value measure of the unlevered net cash forecast from our cumulative portfolio of Energy Contracts, which we call Gross Retained Value totaled $3.1 billion at the end of the first quarter of 2015. Gross Retained Value is based on unlevered cash flows and is thus an enterprise value measure. Net Retained Value to equity excludes all debt financing, including solar asset-backed loans, aggregation and MyPower facilities, Solar Bonds, and our revolving debt outstanding—net of cash—on our balance sheet. Net Retained Value for equity shareholders was $2.7 billion as of March 31, 2015. In simpler terms, if we stopped booking new customers at the end of the first quarter and experienced no subsequent cancellations of booked contracts, we estimate our total net cash flows over the next 30 years are worth $2.7 billion for equity shareholders after the repayment of all debt.

GAAP Cash Flow and Project Financing

Our portfolio of installed lease, PPA, and loan solar energy assets generates a core stream of contracted cash flow that is not only recurring but also growing every year due to annual escalators. Nevertheless, our consolidated GAAP cash flow in any given period tends to be driven less by the underlying cash flow of the installed assets and far more by development cash flows related to investments and financing of new MW Booked and Installed every period.

Each of our contracted systems generates cash flow that generates positive returns over the project’s life, but it requires significant upfront investment to realize that return. Every time we sign a new customer, we fund the cost to install a new system. Essentially, we must fund our cash cost per watt to create a MW Booked and turn it into a MW Deployed. Our strategy is to cover as much of our investment in new MW development as possible with both net cash generated from customer payments and financing cash flows. Based on our current cost structure, we target positive cash generation in year one from each new residential installation through the use of both tax equity partner investment and supplemental project financing such as non-recourse asset-backed debt securities and aggregation facilities.

While our current financial strategy targets positive Year One cash generation from our portfolio by funding each installation’s costs with the requisite financing, our reported GAAP cash flow is typically negative in a given period owing simply to the difference in timing of investing and financing cash flows. While we consume cash in the development and working capital investment for each new installation, we often will not receive all of the expected project financing for a few quarters subsequent to the installation. The impact of this timing deficit is magnified during periods of high growth because higher MW investment requirements in one quarter will only be offset by financing of a lower level of MW from prior periods. To help better quantify the future cash to be generated from debt, we will begin reporting the potential pipeline of debt financing from our contracted solar assets as “Financing Receivables” (as defined below).

As of March 31, 2015, cash, cash equivalents, and short-term investments totaled $575.8 million. Cash and investments declined $66.8 million over the prior three months largely on this differential in timing of investing and financing cash flow. Total investing cash outflows were $316.8 million—including $16 million in capital expenditures for our manufacturing facilities. Total operating cash outflows were $171.3 million

driven largely by $72.3 million in working capital investment, as well as continued development investment in sales, general and administrative expenses. Financing cash flows (excluding equity issuances and options exercises) totaled $426.7 million, offsetting only a portion of the $488.1 million in total operating and investing cash outflows largely due to the timing of debt financing, as we do not expect to fully debt finance our Q1 investment for another quarter or two. Assuming expected leverage ratios, we estimated over $665 million of Financing Receivables at March 31, 2015.

The capital markets not only remain healthy but are broadening for us, as we make continue to make progress in the solar asset-backed loan market and as our new Solar Bonds channel continues to gain traction (most recently with a $90 million investment from SpaceX). Undeployed tax equity capacity as of May 4, 2015 was 624 MW, which along with our $200 million MyPower revolving credit facility, provides us with ample financing for our 2015 needs. We also recently closed on a new $500 million non-recourse aggregation facility that is a first-of-a-kind in that it not only provides drawdowns upon installation (rather than as much as 90 days later) but is also a revolving credit facility that provides greater financing visibility than we have yet achieved with any aggregation facilities to date.

Q1 2015 GAAP Operating Results

For the first quarter of 2015, total GAAP revenue was $67.5 million and increased 6% compared to the first quarter of 2014. GAAP operating lease and solar energy systems incentive revenue was $54.8 million in the first quarter of 2015, up 88% year-over-year largely on growth in cumulative MW Deployed. Solar energy system sales and components revenue was $12.7 million. This includes MyPower solar loan revenue, which was not material in the first quarter of 2015 as it is recognized as customer payments are received over the life of the 30-year contract.

Operating lease and solar energy incentive gross margin was 41% including the impact of $4.3 million in amortization of intangibles. Solar energy system sales and components gross margin was (6%) due in part to the impact of upfront losses on projects recognized under the percentage of completion method, larger low margin commercial projects, and other one-time period costs. When solar energy system sale volumes are low enough, the allocation of indirect overhead (such as warehouse and fleet) costs will yield negative GAAP gross margins even though we target positive cash margins for all of our system sales.

Total GAAP operating expenses were $147.4 million, or $126.5 million excluding non-cash amortization of intangibles and stock compensation expense. Sales and marketing expenses grew 85% year-over-year to $86.7 million—including $6.7 million in non-cash amortization of intangibles and stock compensation expense—largely due to a 90% increase in our sales force over the last twelve months. G&A expenses of $48.7 million grew 47% on an increase in headcount, and R&D expenses grew 530% year-over-year to $12.1 million.

Non-GAAP earnings per share (EPS) was ($1.52). Please see below for an explanation and reconciliation of non-GAAP EPS and adjusted non-GAAP EPS.

Establishing Q2 2015 Outlook and Reaffirming Guidance for 2015 MW Deployed

While the first quarter of 2015 was impacted by the typical seasonal slowdown, we expect a resumption in installation volume growth to new records in the second quarter of 2015 as our operations continue to scale and weather improves on the East Coast.

For the second quarter of 2015, we expect MW Installed of 180 MW, which would represent year-over-year growth of 69% with residential growing north of 80%. While we now offer quarterly guidance on MW Installed, we reaffirm our full year guidance for 920 - 1,000 MW Deployed.

For Q2 2015 GAAP revenue guidance, we expect Operating Lease and Solar Energy Systems Incentive Revenue of $70 million - $74 million as we expect higher solar electricity production in the spring months along with higher operating lease solar assets deployed to drive strong sequential and year-over-year growth. Solar Energy System and Component Sale Revenue is expected to range between $16 million and $18 million.

Operating Lease and Solar Energy Systems Incentive Gross Margin is expected to range between 46%-50% (or 52%-56% excluding the impact of approximately $4 million in amortization of intangibles). Driven largely by an increase in sales investment, we expect Operating Expenses of $170 million - $177 million (including between $20 million and $25 million in non-cash amortization of intangibles and stock compensation expense). In turn, Non-GAAP Loss Per Share (before Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests)* is expected to range between ($1.60) – ($1.70).

Looking Ahead to a Brighter Future with the Next-Generation Distributed Grid

All in, with strong momentum to kick off the year giving us growing confidence in our near-term outlook, we close our quarterly shareholder letter with a glimpse of our longer-term vision of the future for SolarCity, energy consumers, and the electric grid as a whole.

Over the last two months, we have launched two new product offerings that we expect to be some of the most important we’ve ever introduced with material ramifications for our service, our customers and ultimately grid infrastructure and energy management: Residential Home Storage and the Microgrid.

Ever since the first large scale central power station began operating in the United States in 1882, electric power generation has essentially utilized the same design principle. As the electric grid was built out over the ensuing decades, it has depended upon the same infrastructure and technology, but for a few upgrades and updates every few years. Since then, the combustion engine supplanted horse-drawn carriages, refrigerators eliminated the need for ice box deliveries, and wireless phones replaced the telegraph, but the foundation of the underlying electric grid and the utility business model really haven’t changed much at all. For over one hundred years, power generation and distribution has been in the hands of a monopoly power founded upon an infrastructure built around a centralized power plant and the transmission lines, substations, and distribution networks that carry power to the end user.

This grid was unquestionably an effective and powerful tool for electrifying the country and world initially—especially at the time it was built—but it faces some inexorable shortcomings: it’s inefficient and costly to maintain and upgrade, is prone to sudden and lasting disruptions, and is overly dependent upon dirty and polluting fossil fuel combustion. Technology advancement has opened up new possibilities to overcome those challenges through distributed energy resources—namely solar, storage, and smart inverters—which together we have assembled into a unique microgrid offering, a powerful and more efficient solution to energy management and infrastructure.

By innovatively connecting these distributed energy resources, SolarCity will not only be able to generate energy on site but also be able to store and manage it. We will be able for the first time to make the clean energy we produce available on demand. Not only will this provide us an unparalleled tool to balance generation and load and overcome all technical limitations to higher solar penetration, but it will also enable ancillary support and services for the grid such as voltage and frequency regulation. Just as the internet and email has vastly improved the cost and efficiency of communication, the advent of cost-effective storage combined with solar has the potential to usher in a new era for energy: One powered by a distributed grid that fosters competition, promotes consumer choice, is more resilient and reliable, and most importantly we believe is the cleanest and least costly option. With our new residential home storage and microgrid service offerings, we are at the vanguard of this transformation.

We have come a long way since our founding just a few years ago, and we have an even more exciting future ahead of us. Even with the extraordinary growth of the past few years, we have scarcely begun to penetrate the national and international markets for distributed generation. With the recent introduction of battery storage and microgrids, we look forward to bringing our technology systems and unique service and financing solutions to help redesign the power grid infrastructure for the next century.

We thank all of our customers, employees, advocates and shareholders for their continued passion and support. We are squarely focused on ensuring that this journey we are embarking upon together will not only be epic, but ever more rewarding.