SolarCity Plunges After Chanos Discloses Short Position

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SolarCity Corp., the biggest U.S. rooftop solar developer, sank the most in 21 months after hedge fund manager Jim Chanos said he’s short the stock.

SolarCity slumped 13 percent to $40.99 at the close of trading in New York, the steepest decline since November 2013, after Chanos discussed his position Friday on CNBC.

Chanos, founder of Kynikos Associates LP, called SolarCity a “subprime” finance company, and suggested that SolarCity customers will be unhappy with their existing leases when they see solar panel prices decline further. Chanos had about $2.5 billion in assets at the end of February, according to a regulatory filing.

“Chanos’ position shows a lack of understanding of SolarCity’s business model,” Pavel Molchanov, an analyst at Raymond James Financial Inc., said in a phone interview. He has the equivalent of a buy on the stock. “Utility rates keep going up, and so for the SolarCity customer, it’s almost certainly going to be cheaper.”

Solar shares have been dropping in lockstep with the price of oil since June, disconnecting the stocks from expected growth in demand for solar energy, Molchanov said.

“Sentiment across the energy sector is really ugly,” Molchanov said. “But there’s nothing to indicate that solar growth will slow.”

SolarCity Chief Executive Officer Lyndon Rive said it’s a risky time to short the company’s shares because they’ve already been hammered down by a sell-off of the broader energy industry, and growth in the solar industry remains strong.

“I think it’s a high risk to take a short position in a company that’a growing 50 percent a year,” Rive said in a phone interview. “Every part of the business is operating extremely well.”

Short interest, which shows how many shares investors have borrowed to sell later if the price declines, has doubled since June to more than 30 percent of free shares outstanding, according to data compiled by Bloomberg.

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