IT&Software

Kynikos Associates is Short the Securities of Tesla (TSLA) and SolarCity

Kynikos Associates is Short the Securities of Tesla (TSLA) and SolarCity

Looks like hedge fund manager Jim Chanos is no fan of Elon Musk, the CEO of American electric auto brand Tesla Motors Inc (NASDAQ:TSLA).

SolarCity sold $124 million in bonds last month - although $100 million were bought by Tesla CEO and SolarCity Chairman Elon Musk and his cousins, SolarCity co-founders Lyndon and Peter Rive.

Chanos described his case against the electric automaker and solar power company at the Delivering Alpha conference sponsored by CNBC and Institutional Investor. "Again, this is puzzling to any student of corporate governance".

Chanos' firm ran a Z-score, a score that predicts bankruptcy for a company, for the merger.

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Asked if Musk might not do with Tesla what Jeff Bezos has done with Amazon amzn -which continued to be one of the the market's best-performing stocks despite being unprofitable until very recently-Chanos rejected the idea. Tesla's stock was trading down about 1.5% early Tuesday afternoon.

To illustrate that risk, Chanos pointed to a section of a recent Tesla securities disclosure, in which it says that SolarCity approached it asking for a short-term loan-but Tesla's board said no, and sent SolarCity to borrow elsewhere.

In addition, Tesla needs to raise "a lot" more capital either by the end of 2016 or beginning of 2017, Chanos said. He described SolarCity's business model as "just plain uneconomic". "This is anything but", Chanos said of Tesla.

The short-seller believes that the combined entity could have capital spending of about $1 billion per quarter and persistent need to tap capital markets. "The bottom line is that Tesla, which was slightly above the red line, puts itself well under the red line by buying SolarCity", he said. "We figured they would make loans, or SpaceX would make more loans", he explained.


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