A couple weeks ago when I used the term 'Junior Forensic Analyst school' I was actually thinking of Chanos as the prototypical forensic analyst. Huh.
That said, I think he is dissimulating on his reasons for this short. It's not the 'subprime' that he mentions in the clip below, he is smart enough to know the ins and outs of SolarCity's financial statements to know that's not the case.
Nor is it the 'falling cost of solar' argument he makes.
I think that is the hedge fund equivalent of the magicians misdirection move.
Rather it is pure and simple a numbers game:
1) the cost-of-funds/net interest margin problem that can come up when you're borrowing short and lending long, exacerbated by the potential for rising rates and potential credit downgrades of SCTY and/or the paper making up the ABS'.
2) Current negative cash flows: $138 mil on an operating basis and total free cash flow of negative $1.39 Billion. Per quarter.
3) A business model that doesn't even start to work without the assumption that grid electricity prices escalate at 4.8% per year for the next 20 years.
Even in California the increases since 2008 have 'only' been 3.5%/yr. and 2.17%/yr. since 1990.
From CNBC:
