SolarCity shares plunged today following last night’s hugely disappointing earnings report, and Chairman Elon Musk, who is the company’s biggest shareholder, has lost millions of dollars in less than 24 hours. As of this writing, the stock was down 25.53% at $28.35 per share. The stock hasn’t traded at this low of a level since the first half of 2013 when it was just picking up steam following SolarCity’s initial public offering in late 2012. Jim Chanos is out with new criticism on the stock.
As a reminder, the company’s IPO was priced at $8 per share, and shares shot up quickly immediately afterward.
SolarCity posts wider than expected loss
Last night SolarCity reported that it lost $204 million during the third quarter, which amounted to $2.10 per share compared to the Wall Street consensus of $1.95 per share in losses. Last year SolarCity lost 75 cents per share. Revenue came in at $113.9 million, beating the consensus of $111.43 per share and marking a 95.1% year over year increase
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
The solar panel installer also missed its own guidance for earnings, and management slashed their guidance for growth over the next couple of years. They said they will start focusing on saving money and lowering costs, which is why they’re slowing down their growth efforts. They cited the expiration of a federal tax credit for solar panel providers as the reason for the reduction in growth plans.
Elon Musk loses millions of dollars
Before last night’s decline, SolarCity stock was already down by almost 30%, and shares of Tesla Motors, of which Elon Musk is CEO, have also tumbled recently as investors reacted negatively to Consumer Reports‘ decision to pull its recommendation for the Model S. Tesla is scheduled to release its next earnings report on Tuesday, so more pain is possible for that the pain will continue for Musk.
SolarCity’s stock price decline today has drained more than $155 million from Musk’s pockets. If Tesla disappoints as well, then he stands to lose millions more. Of course it’s still only mere pocket change for Musk, who is the 39th richest billionaire in the U.S. and the 100th richest billionaire in the world this year, according to Forbes. The publication lists his real-time net worth as $11.8 billion.
Musk upped his stake in SolarCity in August after the stock price dipped again. It will be interesting to see if he snaps up more shares following this latest pullback.
Just how bad was SolarCity’s disappointment?
Seeking Alpha contributor Casual Analyst believes SolarCity actually did worse than it first appears. The writer doesn’t buy management’s claim that they’re purposely slowing down their growth efforts as a sort of strategy. Instead, they suggest that this was “done more out of necessity than choice.” They also think the negative trends at SolarCity “go much deeper than management commentary.”
SolarCIty installed four megawatts less than guidance called for during the third quarter, and management estimated that this was about “a day-and-a-half’s worth.” Casual Analyst notes, however, that there was an important change in guidance that makes the miss look worse than a measly four megawatts.
The writer noted that SolarCity changed the guide from deployments to installations and thus estimates that the company actually missed its guide by about 55 megawatts. Here’s a look at a chart they posted as explanation:
Casual Analyst thinks the gap between installations and deployments will only grow as the solar tax credit steps down.
SolarCity cuts guidance
Management also cut full year guidance for a total of 878 to 898 megawatts installed, versus their previous guide of 920 to 1,000 megawatts. They said expected weather events, like the El Nino pattern this year, and resetting growth expectations were the reasons for the cut, but Casual Analyst is skeptical, especially because they gave two reasons instead of just one.
And then there was the guide for next year, which was 1.25 gigawatts, which the writer noted is about half the growth rate SolarCity enjoyed this year. They summed up their viewpoint in suggesting that the company looks like “a freight train going downhill without any brakes with the train operator telling passengers that ‘everything is alright.'”
Further, they suggested that the retained value numbers given by SolarCity are “a cruel joke being perpetrated by management on investors.”
The shorts have it
Undoubtedly short-sellers like Jim Chanos of Kynikos Associates are rejoicing right now and could be cashing in on their positions with a hefty profit. Chanos has one of the largest short positions in SolarCity.
He revealed his position in August, saying that the company resembles a subprime finance company. Those comments caused the pullback in SolarCity’s share price that caused Musk to buy up some more shares.
As of mid-October, total short interest in SolarCity was at about 26 million shares with about 13 days to cover.