Jim Chanos is one of the most popular short sellers in the investment industry. He established Kynikos in 1985, with short selling as the guiding principle of the investment firm. In his latest takedown on China during CNBC’s “Halftime Report”, Mr. Chanos called the current slowdown in the Chinese economy “worse than you think.” The investment manager disclosed his doubts about the economy in 2010, while calling China “one large construction site.” He mentioned some of his short bets as well, including one new short that caught our attention, on SolarCity Corp (NASDAQ:SCTY). Chanos called it a “subprime financing company in effect,” as the firm provides solar panels on lease. He further called upon the negative EBIDTA of the firm and the rate at which it is burning cash.
While disclosing his viewpoint on the working model of SolarCity Corp, Mr. Chanos said, “And the residential model, I’d like to point out – SolarCity is really a subprime financing company in effect. You basically lease the panels from SolarCity. They put them on your house and they collect the lease payments. So in effect, if you put on the panels you have a second mortgage on your home because you hope it’s an asset, but in many cases it turns into a liability.”
SolarCity Corp (NASDAQ:SCTY) has had a difficult year so far, with its shares declining by 19.04% year-to-date. The solar energy company announced its second quarter financial results on July 29, reporting net revenue of $102.80 million and a diluted loss per share of $1.61. Its loss came out higher than the Thomson Reuters consensus estimate of a loss of $1.57 per share, over revenues of $90.16 million. Those results sent its shares up for a short period, before s strong bearish sentiment on the solar industry swept the market in August and took its toll on the stock. Despite its declining share price, the smart money aside from Chanos, was slightly more positive on SolarCity Corp (NASDAQ:SCTY) during the second quarter. 34 hedge funds held positions worth $1.28 billion on June 30, with the aggregate holdings increasing by 25.50% in comparison with the previous quarter. The shares of SolarCity were up by 4.43% during the second quarter.
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The insiders of SolarCity Corp were optimistic on its stock, with two insider purchases in 2015. Brad W. Buss, the Chief Financial Officer of SolarCity, purchased 6,000 shares of the company on June 15, when shares were trading much higher than their current levels.
Karthik Sarma’s SRS Investment Management led the pack of hedge funds holding positions in SolarCity Corp (NASDAQ:SCTY) at the end of the second quarter, reporting ownership of 8.0 million shares with a market value of $428.40 million. Canyon Capital Advisors, led by Joshua Friedman and Mitchell Julis, came in at number two, with an equity position of 3.03 million shares valued at $162.29 million. Passport Capital and Fir Tree Partners were among the other primary shareholders of the solar company, having 2.84 million shares and 1.86 million shares in their equity portfolio, respectively.
Robert Pitts’ Steadfast Capital Management initiated a new position in SolarCity Corp (NASDAQ:SCTY) of 1.15 million shares valued at $61.65 million during the second quarter. Think Investments and Point72 Asset Management also initiated long positions in the company. Among the hedge funds selling off their entire stakes in the solar panel leasing company, were JAT Capital Management, led by John Thaler, and Michael Hintze’s CQS Cayman LP. Balyasny Asset Management and Soros Asset Management were among the hedge funds trimming their stakes in SolarCity Corp (NASDAQ:SCTY) during the second quarter.