It’s been a tremendous year for entrepreneur Elon Musk. Of course, he’s the co-founder and CEO of Tesla Motors (TSLA) … and TSLA stock is up a sizzling 320%.
But Elon Musk is also the co-founder and chairman of SolarCity (SCTY). Its gain? Well, SCTY stock is up a bit more: 373%. In all, the combined market cap of Tesla and SolarCity is over $22 billion! Yes, Elon Musk knows how to create value.
But success for both companies was far from guaranteed. With TSLA, there were several points when the auto maker could have imploded, especially during the financial crisis. But Elon Musk is not only super smart, but persistent. Defeat is simply not an option.
Even with SCTY, Elon Musk & Co. have faced challenges. When SolarCity came public a year ago, there was a big cut in the stock price to drum up demand.
As of now, though, SolarCity and Tesla Motors look to be in ideal positions, with both poised to grab a nice chunk of massive market opportunities. But which one — SCTY stock or TSLA stock — is a better investment? Let’s take a look:
TSLA Stock – The Cool Factor
Over the years, it seems that electric or hybrid cars had to look … well … not so good (let’s face it, the Prius really is ugly). But with Tesla Motors the strategy has been to make uber cool designs. As a result, the Tesla Model S sedan has benefited from word-of-mouth marketing. And if anything, the company has become synonymous with cool — which has certainly boosted sales and TSLA stock.
But for a startup to break into the hugely competitive — and capital-intensive auto market — Elon Musk realized he had to reinvent the playbook. To this end, he has been rolling out solar charging stations. And yes, the partner is SCTY.
Plus, TSLA also has its own dealerships, which are generally in malls. The company also makes it easy to buy cars online.
In terms of the vehicles themselves, TSLA was smart to develop standardized powertrains, which allow for more efficiency and faster production. Something else: there are extensive patents on the technology.
However, the big potential for TSLA stock is its Model E, which is expected to have a lower price point ($30,000 to $35,000). With this, Tesla Motors should substantially increase its revenues and became a true competitor to traditional operators like Ford (F), GM (GM) and Toyota (TM).
SCTY Stock – A Sunny Outlook
SCTY is another example of the innovative thinking of Elon Musk. At the core of SolarCity is a compelling business model, where consumers do not have to pay large upfront fees for the installation of solar panels (these can easily be over $30,000). Instead, SCTY requires the signing of 20-year leases, which spread out the payments.
Not only does this encourage consumers to buy, but also provides for a long-term recurring revenue stream for SolarCity — something SCTY stock holders definitely like. What’s more, the company can then use this to raise money on Wall Street to finance the installations.
But SCTY is more than just about solar power systems for homes. The company has also leveraged its infrastructure for large customers. Just some include Walmart (WMT) and Intel (INTC). These companies realize that there are big-time savings from solar energy.
Plus, the costs of solar energy have fallen on a consistent basis over the years because of new improvements in the underlying technologies, and because of the benefits of increased scale. All in all, it looks like that trend will continue for some time, which should help to bolster margins for SolarCity and keep SCTY stock climbing.
The Verdict – TSLA Stock or SCTY Stock?
There’s no doubt that Elon Musk will go down in history as one of the greatest entrepreneurs. He may even eventually reach the status of someone like Apple’s (AAPL) Steve Jobs. Consider that Elon Musk not only built SCTY and TSLA but also PayPal, which is a huge driver for eBay (EBAY). Oh, and he also is the mastermind of SpaceX.
As a result, when it comes to SCTY stock vs. TSLA stock, it is not an easy choice. Again, both have staged big rallies and have nosebleed valuations. SolarCity stock is trading at 30 times sales and Tesla stock is at 11 times sales.
In the near-term, though, SCTY stock may be the better bet. After all, the revenue model is a bit more stable because it is recurring. For Tesla Motors, there can be much volatility. Demand can easily fall, and there have also been supply issues. In the latest quarter, TSLA failed to meet expectations and the result was a big drop in the Tesla stock price.
There have also been concerns regarding the safety of the Tesla Model S (there have been three Tesla fires so far). And while German regulators cleared the Tesla of safety defects, the NHSTA verdict is still out.
In light of all this, I would pick SCTY stock over TSLA stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.