SolarCity Corp (NASDAQ:SCTY) is just an eight-year-old company but SunPower Corporation (NASDAQ:SPWR) has been in the business for about 29 years. SunPower has gone through two major acquisitions, solar pricing crash, some early pivots and a difficult solar market to reach where it is today. In contrast, SolarCity came with a disruptive business model and captured 26% of the U.S. residential solar market. The Elon Musk-backed company has emerged as a serious challenger to SunPower, says Katie Fehrenbacher of GigaOm.

SolarCity SCTY

SolarCity reaped the benefits of falling panel prices

SolarCity built its business by funding and installing solar panels on rooftops. The company raised money from banks, and paid the upfront cost of installing solar panels on the customer’s roof. Customers pay the company the cost of electricity over about 20 years or more. It’s a win-win for SolarCity as well as customers, who pay less than they were paying to the local utility. The San Mateo-based company won about 110,000 customers by eliminating the initial cost barrier.

Solar panel prices declined dramatically in the past four years. It has directly benefited SolarCity because the company could obtain panels at lower cost to install. But that badly hurt SunPower, which was more involved in the panel manufacturing. Looking at the benefits of this business model, SunPower jumped into the solar financing and installation business. The San Jose-based company launched its solar leasing program in 2011, which has been a bright spot for the company during tough times in the panel manufacturing.

SunPower and SolarCity now operate in many of the same businesses

In terms of revenues, SunPower is about 15 times bigger than SolarCity, mainly due to its manufacturing business. It generated $2.51 billion in revenues with a net income of $95.5 million in 2013. SolarCity incurred a net loss of $152 million in the same period. Solar panel prices have no stabilized after witnessing a drop for years. That’s a good thing for SunPower, but not great news for SolarCity. SunPower is now operating at full production capacity, and is building a new factory in the Philippines.

SunPower recently raised $220 million from Bank of America Merrill Lynch to boost its residential solar leasing business. But the biggest twist in their rivalry came when SolarCity announced the acquisition of Silevo for $200 million, and unveiled plans to build a 1GW panel manufacturing plant in New York. Elon Musk said that the only way for SolarCity to grow rapidly was to produce its own panels.

Now SunPower and SolarCity operate in many of the same businesses. They are both innovative and smart companies. So, it will be interesting to see which one emerges as the market leader in the fast growing U.S. solar market.