Tesla Motors Inc shares were down a fraction in pre-market trading on Friday morning after SolarCity Corp , a sister company that boasts Elon Musk as its chairman, said that its growth rates would likely slow down from here on out. At time of writing shares in the solar power firm were selling for $30.75 , down 19.73 percent from Thursday’s close.
SolarCity said that it would grow in 2016, but it is “not targeting the same growth rates that have gotten us to our current scale going forward.” That was the key line that scared away so many of those backing the firm. At the same time the firm fell short on earnings, losing $2.10, ahead of the $1.95 forecast by Wall Street. The firm also revealed lower guidance than Wall Street was looking for.
SolarCity crashes hard
SolarCity had a truly awful report on Thursday afternoon, and it was followed by a pretty harsh Wall Street reaction. On Friday morning Goldman Sachs said that it was going to downgrade shares in the firm to Neutral, down from Conviction Buy. A claim of slowing growth from a firm valued like SolarCity was always going to cause trouble.
There are those that will celebrate the market moves on Friday morning. Jim Chanos of Kynikos Associates is shorting the firm. He says that it’s not even a solar firm, it’s a sub prime lender. Chanos said “they are going to have to raise a lot of money in a model that I think has been passed over in terms of the more institutionalized and distributed model of solar.”
Elon Musk may be in trouble
SolarCity isn’t the main project in Elon Musk’s life. Though his name is tightly associated with the firm, in public he takes a much more hands off approach. His real passions are in Tesla Motors Inc and SpaceX. Today’s SolarCity collapse may give ammo to the detractors of those firms.
Tesla Motors Inc will release its earnings numbers for the three months through September on November 3. There’s a lot of things that could send shares spiraling downward, at least in the short term.
Wall Street is nervous about the future of Tesla Motors right now, and traders have every right to be. There’s a very high level of risk built into the firm. It’s going to take a long time before Tesla Motors isn’t teetering on some kind of edge.
The SolarCity Corp crash isn’t predictive of Tesla Motors’ earnings, but it may add to the anxiety facing Elon Musk and his team as they get ready to present those numbers next week.
We’ll have to wait until after the market shuts for the day on November 3 in order to see the results of the Model X delay on 2015 targets, and the result of aggressive spending on the Tesla Motors bottom line.