Tesla (TSLA) or Solar City (SCTY)–which to choose

TSLA and SCTY are terrestrial companies run by Elon Musk.  TSLA makes electric-powered cars; SCTY generates electric power with solar cells.

what they have in common

Both are publicly traded.

Both are speculative stocks, in the sense that assessing their value involves projecting results far into the future.

Both are trying to transform staid industries that have been around for a long time.

Both are big users of capital.

Both face substantial regulatory barriers to their success.

–For TSLA, it’s the regulations in many states that prohibit a car manufacturer from selling its products direct to the consumer.  Instead, the carmaker has to use an independent dealer network.

–Because at present they generally have no ability to store power on-site, SCTY clients generally sell the power generated by their solar panels to the electric utilities and purchase power from the grid as they need it run their electrical devices.  Utilities would, naturally, like to buy at 2 and sell at 4.  Regulations, however, force them to trade both ways at the same price, but only so long as solar is a tiny percentage of their business.  In addition, electric utilities are the ones who inspect any local power storage batteries that a household/firm may install.  The utilities aren’t falling all over themselves rushing to do this.

I have small positions in both.

how they differ

Personally, I find SCTY the more conceptually interesting company.

On the other hand, I feel much more comfortable with TSLA.

Why?

It isn’t the industry or the capital structure.

It’s the gigantic battery factory that Musk is in the process of building.

Both TSLA and SCTY can be seen as different ways to create demand for highly sophisticated batteries.  Both are certainly radically dependent on having cutting-edge battery technology.  Arguably, batteries are the main source of value in the products of either firm.

But who owns the battery factory?  TSLA.  To me, this means that Elon Musk’s main economic interest likes in TSLA, not SCTY.  History says an investor wants to have his money in the same place as the entrepreneur he’s betting on.

 

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