Chanos Says First Solar's Shine Is Dimming Considerably
Noted short seller and sometimes uber-bear Jim Chanos of Kynikos Associates spoke at the Ira Sohn Conference yesterday, and said that the alternative energy sector, particularly wind and solar, are shorts, and he gave a rather scathing review of First Solar (NASDAQ: FSLR).
Chanos said that alternative energy companies do not yet solve the world's energy problems, and still need tons of government help to compete. They are not economically efficient, as evidenced by the massive government subsidies, and there are new technologies needed to become more cost efficient. These technologies are not around the corner, according to Chanos.
Chanos said that wind is 50% more expensive than natural gas, and solar is four times more expensive, based on today's current costs. Lower natural gas prices is killing wind and solar, and without massive changes, their fates may be slowly dying.
Chanos also said that the "green job" you hear about, are not high value added jobs, but rather a bailout to the construction industry. Most of the jobs are installers, not something that is of a high value add. He also questioned the environmental benefits, as solar and wind need lots of land. The byproducts of the solar panels are very hazardous, and the wind farms have ecosystem changes, and have even resulted in bird migration.
He took a look at wind installations, which rose until last year. His short play for wind was Vestas Wind Systems. The company has declining returns on capital, it's laying off people, and has arguably questionable accounting. The company will also see huge competition from China and the U.S. He thinks the company will be under considerable financial constrain.
Chanos went on to talk about solar, and that he was most excited about shorting solar. Solar modules are falling in price, and there was a new leg down in modules yesterday morning. China is getting into solar in a major way, and the country will keep cutting costs until its uneconomic for everyone. Some members of Chanos' team just back from China, and the companies there are increasing capacity, even to the tune where it does not make sense economically.
In 2008, Spain represented 40% of total solar demand, Germany had 50% of demand in 2009, but that fell to 40% last year. Italy also represents 25% of demand, and considering the problems Italy and Spain are having, solar's fate may go with it.
First Solar, according to Chanos, has questionable technology issues, and the company is guiding negative free cash flow in 2011. Its technology is second rate, which is causing the business to deteriorate. It suffers from operational issues, balance sheet deterioration, and has been not as successful as it wanted in growing revenue outside of Europe.
Company management is selling shares, and is shuffling, so Chanos advised the audience to heed their warnings.
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