Famed short seller Jim Chanos was on a stock picking panel at the CNBC Institutional Investor Delivering Alpha Conference in NYC.
Here’s what he said:
“I want to talk about what is not too boring, the world of Elon Musk.”
Specifically, Chanos is talking about Tesla merging with SolarCity.
“Just to underscore … what kind of damage this merger will do to Tesla shareholders we ran a Z-score.”
A Z-score is a predictor of bankruptcy.
“The bottom line is that Tesla, which was slightly above the red line, puts itself well under the red line by buying SolarCity … The combined SolarCity and Tesla, which we think will have a cash burn of a$1 billion a quarter, will constantly need access to capital markets.”
Chanos argued that SolarCity’s model is just uneconomical — and he’s made this argument before — yielding no value to Tesla at all.
“To burden your own balance sheet with the kind of business … strikes us as the height of folly.”
When the SolarCity board was approached to do a bridge loan for SolarCity Tesla “punted,” said Chanos.
“Yet they’re going to buy the equity at a premium. Again this is puzzling to any student of corporate governance.”