Jim Chanos Explains Why He's Short SolarCity But Still Bullish On Solar Energy

• Jim Chanos appeared on CNBC on late Thursday.
• The founder of Kynikos Associates explained why he is short SolarCity Corp SCTY but still bullish on solar energy as a whole.
• So, let’s take a look into why he believes this and what his short picks are.

Jim Chanos, founder of Kynikos Associates, was recently in the spotlight for his short position in SolarCity. On late Thursday, he appeared on CNBC to talk about some of his energy shorts, including SolarCity. But, why is he bearish on the solar stock if lawmakers agreed this weak to extend investment tax credits beyond 2016 – for five more years?

The SolarCity Short

According to the expert, the ITC was evidently good news for the industry. However, he continued, it was not such good news for SolarCity. “Unfortunately, it’s not a technology company,” he explicated. “It’s a finance company. And they own the panels, so the ITC… they keep and they farm it for their equity, but the deal to actually residential customers is not a great deal,” he continued, adding that shareholders did not get a great deal either.

SolarCity’s return on capital stands around 7 percent, he went on to expound. “And, even with the movement of the stock far this week, the company’s bonds yield more than 7 percent,” he assured. “So, the company is burning about $5 million a quarter. So, all this ITC extension is going to do is allow them to keep burning hundreds or millions of dollars per quarter,” Chanos added. “I wish I could borrow more” stock to short SolarCity, he concluded.

A Wider Look Into Solar – And Electric Vehicles

Investors should understand that Chanos’ view on SolarCity does not mean he is bearish on the overall solar industry. In fact, he believes “solar is going to be rolled out much more quickly than people think;” however, this works against the residential solar model, and thus, against SolarCity (and other companies knocking on your door) and its customers.

The investor then went into an issue that he considers is “really fascinating.” We are soon going to see a connection between solar and electric vehicles, he stated. “In fact, we are going to get automakers… we are going to transition their fleets much more to electric” – and this prediction includes companies like Ford Motor Company F and BMW. “There’s published reports about BMW saying that perhaps the whole fleet might be electric by 2025.”

Tesla Motors Inc TSLA was avant-garde, trend setting. However, major manufacturers are now switching their fleets to electric, Chanos assured. “And, imagine a world in which most of the vehicles are electric, and yet they are powered off the grid by natural gas and solar,” he concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.