Tesla (TSLA 2.92%) and SunPower (SPWR -7.86%) are two of the leading renewable energy stocks in the world despite their vastly different sizes. Tesla is the industry's leader in electric vehicles and has a large battery business, while SunPower is an industry leader in residential and commercial solar deployment.

Investors shouldn't get caught up in the size of each company's operation, but rather focus on the potential for growth each stock has. Today, Tesla has a market cap of $420 billion and SunPower is worth just $1.9 billion. And that size difference is a big reason why I think SunPower has more upside potential long-term. 

Roof with solar panels on a cloudy day.

Image source: Getty Images.

What investors are buying

Below is a chart of the market cap and price to sales ratio of Tesla and SunPower. You can see that Tesla has a much higher valuation and multiple. This gives an idea of what kind of growth is already priced into Tesla's stock. Investors clearly think the future is bright. 

TSLA Market Cap Chart

TSLA Market Cap data by YCharts

SunPower's price to sales ratio will go up now that it has spun off Maxeon Solar Technologies, but Tesla still has a much higher ratio. 

Investors need to consider what the growth opportunities for each company are and how much capital that growth will require. 

Tesla is a capital intensive business

Tesla is, at its core, a manufacturing company. It manufactures batteries, cars, and even energy storage systems and uses technology to differentiate that manufactured product. It takes capital to make those products, and Tesla needs to generate a return on that investment. But you can see below that its return has been only about 1%. 

TSLA Net PP&E (Quarterly) Chart

TSLA Net PP&E (Quarterly) data by YCharts

SunPower's return isn't better at this point, but this is where SunPower's spinoff of its capital intensive manufacturing business is a key to the comparison of these two companies. 

SunPower is going capital light

SunPower's business has long been built on manufacturing the most efficient solar panels on the market. It developed residential and commercial solar solutions to fuel solar panel installations and even built a large utility-scale solar business. But over the last few years it's shed the utility-scale solar business and now its spinning off the manufacturing business

What's left is a company that provides tools to developers in North America. Not only does SunPower have an exclusive agreement to sell industry-leading efficiency Maxeon solar panels, it provides quoting tools, hardware design, and monitoring technology to the dealers and installers that it works with. It's trying to become a technology company in the middle of the residential and commercial solar business rather than a manufacturer. 

If the strategy works, SunPower could generate software-type margins and nearly unlimited growth with very little capital investment. And it has more going for it than just residential and commercial solar installations. With energy storage growing across the country, SunPower is tying together hundreds of these storage systems to bid into competitive electricity markets with what's known as a virtual power plant. And long-term that could be the kind of asset that allows SunPower to grow for decades to come. 

SunPower has more potential as an investment

We are just starting to see what SunPower can become now that it's a residential and commercial focused solutions provider in the solar industry. And with an asset light model it could potentially grow earnings rapidly over the next decade as the company scales. 

Tesla, on the other hand, has much more downside risk because it's already priced for perfection. Any missteps or viable competitors and the stock could falter. I just don't see the upside in Tesla than I do with SunPower and that's why SunPower is a better stock today.