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SolarCity Corp (SCTY) Crashes After Chanos Reveals Short

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SolarCity Corp will need a miracle to arrest the crash in its share price after long time bear, Jim Chanos revealed that he is shorting the stock. SolarCity is already in correction mode as its stock continues to take a beating in today’s session. Jim Chanos says that the firm is a subprime finance company, burning a lot of cash, and with negative EBITDA and that there’s no escaping the bear hug for the stock in the short to medium terms.

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As at 1:05PM EDT, shares of SolarCity have dropped 8.54% to $42.97 after crashing down to a new 52-week low of $40.81 earlier in the trading session. The share price of SolarCity has crashed by more than 39% in the last one year. Conversely, it’s percent of float short interest has increased by 45.87%. In essence, SolarCity is the king of bear territory.

SolarCity and the bear hug

Jim Chanos is a bear and he didn’t hide his pessimism about the prospects of SolarCity and China at large when he said, “People are beginning to realize the Chinese government is not omnipotent and omniscient … like many of us, sometimes they don’t have a clue.” He goes on to say that the situation is much worse than you can imagine, “It’s worse than you think…Whatever you might think, it’s worse”.

Last week, a 13F filing by Soros revealed that the fund has reduced its stake in SolarCity to less than 275,000 shares. A Soros-backed fund, Silver lake Kraftwerk was one of the earliest investors in the solar energy firm. In February 2012, Silver Lake Kraftwerk invested a massive $81M in the solar energy firm. Now, Soros is reducing its stake and it appears that the honeymoon is over.

SolarCity woes might infect Tesla

Elon Musk is one of the decision-makers at SolarCity but his flair cannot save the firm right now. The last time Musk had any influence on how the shares of SolarCity were traded, the situation ended with the firm losing almost 5% of its share price. In June, Elon Musk’s SpaceX had a public failure when a Falcon 9 rocket that was on a launch mission to send supplies to the ISS exploded.

The negativity that surrounded the event had a bad effect on Musk’s other interests and SolarCity was not spared. Now, SolarCity is in the eye of the storm and it remains to be seen how the negative news will affect the shares of Tesla when the market opens on Monday.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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