SolarCity Corp (NASDAQ:SCTY), which only debuted in December, is also up nearly 250%.
What’s happening?
All this is happening in the absence of real results. SunPower Corporation (NASDAQ:SPWR) is not yet profitable and showed minimal growth between 2011 and 2012, sales rising from $2.374 billion to $2.417 billion. It lost $3.01 per share during 2012, and another $0.46 per share during the first quarter of this year. That’s movement in the right direction, but what’s keeping SunPower Corporation (NASDAQ:SPWR) afloat is that it’s majority-owned by Total, a French oil company. Take away its continuing investment and you might have a different picture.
First Solar’s figures are better. The company has now been profitable for four straight quarters, and it has accelerating growth, with sales of $2.766 billion in 2011 and $3.368 billion in 2012. The company looks to be on-track to beat that figure for 2013, as its sales of $755 million were more than 50% higher than the same period a year ago. The amount of cash on hand is steadily rising, yet it’s still selling at an Apple-like 10.77 times earnings.
SolarCity Corp (NASDAQ:SCTY), which sells and finances panels instead of making them, should not be evaluated based on the earnings statement, which is always going to show short-term losses as it seeks sales and growth. Instead, investors are looking at assets that have grown about 50% in the last year, to almost $1.5 billion, and a declining debt-to-assets level, spurred on by the rising stock price.
What will happen
What will happen here is more important than what is happening. SunPower Corporation (NASDAQ:SPWR)’s optimism is driven by its high-efficiency polysilicon panels, which offer more than twice the efficiency of low-cost Chinese rival’s. First Solar, Inc. (NASDAQ:FSLR)’s relative pessimism is driven by the fact that it uses Cadmium-Telluride (CdT) technology, where efficiency is improving more slowly. SolarCity Corp (NASDAQ:SCTY) is thought to be on the “right” side of solar transactions, that is to say, the side selling panels and generating demand.
Ed Fenster, the CEO of privately-held SunRun, competes directly with SolarCity Corp (NASDAQ:SCTY) and sees the market changing rapidly. When the 30% federal tax credit is included in a deal, a rooftop solar panel now costs less than electricity bought from the grid in 10 states, and that’s going to increase fast.
The problem for the industry lies in installation and permitting costs. Some 80% of an installation’s costs come after the panels are purchased. Countries like Germany and Australia, which have streamlined the permitting and installation process, have much lower “fully-burdened” costs and are thus more profitable for those selling panels.
Never mind the utilities
What about utilities trying to change net-metering contracts and trying to burden rooftop solar owners with the costs of maintaining their facilities?
Fenster says that has been a standard industry argument since 1995. There have been about 155 instances where utilities have opposed net metering or tried to charge for it, but they’ve lost every time, even in states like Idaho and Louisiana where conservative politics prevail.
This is really about who owns the capital, he said. “In most places where solar is viable, if you have 100 million in assets you can earn $10 million in profit. Each time someone puts up a rooftop solar system it reduces the need” for investment, reducing their ability to grow. That, plus the lower per-panel costs of installing and permitting a scaled solar installation, are why companies like First Solar, Inc. (NASDAQ:FSLR), which specialize in building and selling such installations to the utilities, are doing so well.
What comes next?
While grid costs are increasing, solar costs are decreasing, so more-and-more places will reach “grid parity” over time. By the end of the decade, the whole U.S. will find it can make its own power for less than it would cost to buy that power from a utility.
Another promising avenue is the use of Corning Incorporated (NYSE:GLW) WillowGlass as a backplane for CdT panels, the market First Solar, Inc. (NASDAQ:FSLR) dominates. Polysilicon advocates have been selling the “flammability” of CdT for years, saying it’s too risky for rooftop installation. Glass may make it possible for CdT to be used in shingles, becoming self-installing. This could cut the costs of rooftop solar in half, at a stroke.
But there are other changes taking place as well. On-grid storage is becoming important, not only so utilities can deal with intermittent power sources but so they can “clean” the power they deliver for computers, which are using more-and-more of the power utilities generate. SolarCity Corp (NASDAQ:SCTY) is already offering storage with its installations, and that opportunity will increase as new storage technologies, like graphene, come online.
When you buy a solar stock, in other words, you’re basically buying hope. The industry’s reality today is much more hopeful than it was, and less hopeful than it will be. But it’s still built on hope. If you prefer buying results to hope, your best bet is First Solar, Inc. (NASDAQ:FSLR). If you prefer hope, buy SunPower Corporation (NASDAQ:SPWR). If you think the channel will dominate, then SolarCity Corp (NASDAQ:SCTY) is the stock for you.
The article How Fast Will the Solar Market Shift? originally appeared on Fool.com.
Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dana 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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