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Why Jim Chanos Went Short On SolarCity

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Why Jim Chanos Went Short On SolarCity

Shares of SolarCity Corp (NASDAQ: SCTY) plunged to a new 52-week low of $40.81 on Friday after Jim Chanos, a notable short selling hedge fund manager, told CNBC he has a short position in the stock.

Shares of SolarCity continued flirting with the $40 mark Friday afternoon – approaching levels it hasn't seen since October 2013.

According to Chanos, SolarCity is merely a "subprime financing company" as opposed to industrial solar names like Sunedison Inc (NYSE: SUNE). The hedge fund pro appears to be unconcerned with the fact that SolarCity is the largest U.S. rooftop solar developer.

"You basically lease the panels from SolarCity and they collect the lease payments. So in effect, if you put on the panels, you have a second mortgage on your home," Reuters quoted Chanos as saying. "You hope it's an asset but in many cases, it turns into a liability."

Chanos also added that SolarCity is burning a lot of cash and has a negative EBITDA. He added that this is a "scary" combination in the current environment.

Chanos isn't the only short seller with looking to profit from a decline in the stock. According to data compiled by Bloomberg, short interest in the stock has doubled since June to more than 30 percent of free shares outstanding.

Chanos Also Talks China

Chanos also discussed his thoughts on China. He told CNBC: "it's worse than you think. Whatever you might think, it's worse." In fact, China's slowdown has returned fear to the trading floor but China's stock market performance shouldn't be the main focus of investors.

Chanos continued that investors should pay more attention to how declining GDP growth in China (and the consumer reaction) affects American companies, rather than focusing on the performance of the Shanghai composite index.

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