Friday, October 30, 2015

Pray For Elon Musk: SolarCity Drops 21% (SCTY)

On second thought, Elon can take care of himself. Instead, pray for the P.R. guy.
The headline at ReCharge is pretty funny:
SolarCity pivots to slower growth mode
I'm thinking Chanos is amused.

Oddly enough, following on the Enron post immediately below, here's our August 21 post, "SolarCity's CEO When Told Jim Chanos Is Shorting His Stock: "First I've ever heard of the guy" (SCTY)":
Oh dear.
Oh dear, oh dear, oh dear.
SolarCity's CEO is an ahistorical idot. 
I mean we're all idots from time to time but most of us at least try to conceal our idot-hood from the freakin' media!...
That was followed the next day by Chanos' version of turnabout-is-fair-play:

SolarCity: Jim Chanos On Elon Who? (SCTY)
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.
Do click through for the video, it too is pretty funny.
*Referencing this post: "Elon Musk's SpaceX Has Been Buying Up Elon Musk's SolarCity's Bonds (SCTY)"

Here's the latest from The Street:
SolarCity Corp (SCTY) Earnings Report: Q3 2015 Conference Call Transcript
Suffice to say the numbers are awful and the market is not buying the excuses.
Here's the 10Q.

More to come.
The stock is currently down $7.90 (21.00%) at $30.12.
Here's the chart action for the last 10 months. The last print is way over in the bottom right corner:
SCTY SolarCity Corporation daily Stock Chart