SolarCity Corp (SCTY) Is Just Another Form of Tesla Motors Inc (TSLA)

In fact, with its current cash burning rate (from operations alone) of $266 million a year, another request for subsidy might be just around the corner. This means that if subsidies cease, for whatever reason, operations will come to a halt.

In contrast to SolarCity and Tesla Motors Inc (NASDAQ:TSLA), First Solar, Inc. (NASDAQ:FSLR), earlier in the year, unveiled a long-term strategy of building solar power plants in developing regions where it could profit without subsidies. I believe the key to future success is to rely less, not more, on government subsidies. And that’s exactly what First Solar is doing.

Exuberant valuation

Although SolarCity’s revenue has grown handsomely, from $32 million in 2010 to $128 million in 2012, losses have outpaced this revenue growth. The bottom line shows that SolarCity’s net loss in 2012 was $64 million, up from a net loss of $38 million. And for this wonderful stream of losses, the public is willing pay 24 times sales and 17 times book value. To call SolarCty’s valuation “overly- extended” is the understatement of the year.

And Tesla is exhibiting a similar trend. In 2012, losses stood at $396 million, up from $154 million in 2010. Despite these losses, investors are willing to pay a price-to-earnings multiple of 144x, which equates to 15 times sales.

Contrast that to First Solar, which has seen its revenue nearly triple over the past five years as the company continues to cement its status as the industry’s leader. Still, despite its status as the clear leader in solar, the company sports a P/E of less than 10x, with a price-to-sales of only 1.1x.

Looking forward

The clean energy industry relies on both end-customers and the government alike. I believe that current valuations for SolarCity Corp (NASDAQ:SCTY) and Tesla Motors Inc (NASDAQ:TSLA) warrant a special warning, especially considering their mounting losses, dependency on government, and risky business model. Invest accordingly.

The article SolarCity Is Just Another Form of Tesla originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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