See Notorious Short-Seller’s Take on Tesla and SolarCity; Do Hedge Funds Agree with Him?

Jim Chanos, the manager of Kynikos Associates, is one of the most famous short-sellers on Wall-Street, gaining popularity in the early 2000’s when he bet against Enron and WorldCom before their bankruptcies. This is why Chanos is widely followed by smaller investors and his opinion is highly appreciated. In a recent interview on “Bloomberg ‘GO’“, Chanos provided his take on the broader market, commodities, and some particular stocks. Namely, in this article we will take a look at what Chanos said about SolarCity Corp (NASDAQ:SCTY) and Tesla Motors Inc (NASDAQ:TSLA) and see if more long-oriented investors agree with him.

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Chanos said that he is short SolarCity Corp (NASDAQ:SCTY) and did not say much about his stake in Tesla, saying that he is a “potential buyer”, referring to an earlier part of the interview where he said that “to close out a short position you have to buy stock.” However, Chanos said that he believes Elon Musk plays an important role in the performance of both companies’ stocks.

“At the end of the day, […], it’s not about personalities; it’s about the business model. And SolarCity we joke is akin to that old movie “Tin Men” with Danny DeVito. They’re selling aluminum siding door-to-door. SolarCity is basically leasing you solar panels if you’re a residential customer at what we think is an uneconomic deal,” Chanos added.

The short-selling investor added that one of the issues with SolarCity Corp (NASDAQ:SCTY) is that it finances itself and currently its bonds have a yield of approximately 8%, which sets them in the ‘junk’ credit range. Moreover, as the company has a portfolio that is yielding around 7%, the company’s refinancing is at a higher rate. In an interview on CNBC in August, Chanos also stated that he is short SolarCity, calling it a “a subprime financing company,” a view that he reiterated on Bloomberg as well.

On the other hand, other investors from our database are more optimistic regarding SolarCity Corp (NASDAQ:SCTY), collectively, since 34 funds held almost 25% of the company at the end of June. They owned in aggregate $1.28 billion worth of stock, and even though the number of investors fell by two during the second quarter, the total value of their holdings appreciated from $1.02 billion at the end of March. Still, SolarCity was not the favorite solar stock among hedge funds, as more investors think that Sunedison Inc (NYSE:SUNE) is a better renewable energy stock to go long (see details).

Chanos is bullish on the installation of solar, and thinks that the segment will continue to grow and that costs will decline more. However, he said that this is “All the more reason to be bearish on the residential installers,” because they are selling power at a higher cost than the average in the U.S.

“So they’ve got to get that rate down. Solar is slightly more competitive than utilities in California for SolarCity. But it’s not cheaper than other solar providers. And that’s the crux. Other solar providers can get it to you cheaper than residentially leasing it from SolarCity.”

Even though Chanos did not disclose his position in Tesla Motors Inc (NASDAQ:TSLA), he said that he doesn’t like the company and considers it overpriced. He said that other car companies, specifically BMW, sold about the same number of electric cars in the U.S in September as Tesla did. While he believes that Tesla’s vehicles represent a great product, one of his main problems with the company is its scale.

“[…] what Tesla had is innovation and a head start in this market that other companies are now catching up to. And they have to become a car manufacturer. And becoming a car manufacturer is a lot more difficult than becoming a high tech darling,” Chanos said.

When we look at the data from the last round of 13F filings (even the last several rounds) we can see that most hedge funds think that Tesla Motors Inc (NASDAQ:TSLA) is overvalued. Only 26 funds held long positions that amassed around 4% of the company at the end of June, while many disclosed holding ‘Put’ options underlying shares of the company. Among the holders of ‘Put’ options are Ken Griffin’s Citadel Investment Group, Paul J. Isaac’s Arbiter Partners Capital Management, and Daniel S. Och’s OZ Management. The largest long position was held by Daniel Benton’s Andor Capital Management, which disclosed ownership of 1.0 million shares in its latest 13F filing.

Chanos added that another problem is that most of the technology that Tesla uses belongs to other companies. “The battery technology is Panasonic’s,” he stated. Also, to support the fact that Tesla Motors Inc (NASDAQ:TSLA) is overvalued, Chanos again compared it to BMW, which has a market cap only double compared to Tesla, but sells 2.0 million cars a year, compared to Tesla’s figures of around 50,000 cars.

Disclosure: None