Sohn Conference: Jim Chanos on Shorting Elon Musk, Valeant, and Alibaba

Mr. Chanos is Shorting Another Public Venture of Elon Musk

Famed short-seller Jim Chanos is also shorting SolarCity Corp (NASDAQ:SCTY), which is yet another public venture of Elon Musk. SolarCity installed more solar energy systems than any other company in the U.S last year, thanks to the company beginning to offer MyPower in the fourth quarter of 2014, under which customers were offered a 30-year loan to finance the purchase of a solar energy system. The residential solar giant “is losing money on every installation and making it up on volume”, according to the hedge fund manager of Kynikos Associates. “And that’s a problem when you have a levered balance sheet”. As a result, Mr. Chanos believes SolarCity Corp (NASDAQ:SCTY) “gets into financial trouble in 2016”.

At the beginning of this week, the rooftop solar developer announced that financial services group John Hancock Financial had invested $227 million in a diversified portfolio of residential, commercial, and industrial solar power projects, which simply means that the risk related to SolarCity customers’ possible failure to pay their bills diminishes. Mr. Chanos has criticized the company’s residential leasing model before, initially raising concerns in the summer of 2015. SolarCity shares are down by 64% in the past 12 months and are 54% in the red year-to-date. Murray Stahl’s Horizon Asset Management upped its stake in SolarCity Corp (NASDAQ:SCTY) by 79% during the March quarter to 19,097 shares.

Mr. Chanos Still Shorting Embattled Valeant

The short-seller has also been betting against shares of Canadian drugmaker Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) since March 2014 and he continues to be short Vthe company. Mr. Chanos was initially betting against the embattled drugmaker because it was employing a “roll-up strategy”, which involved buying companies to spur growth and diversify revenue streams. “Roll-ups are usually accounting-driven, and we certainly think that’s the case in Valeant”, said the short-seller back in May 2014. However, Mr. Market didn’t listen to Mr. Chanos’ words initially, as Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) shares climbed by approximately 37% in the first 12 months following his bet. Eventually, the shares of the Canadian-based pharmaceutical company started to tumble last September due to strong criticism over exploitative price gouging and questions about the practices of specialty pharmacy Philidor. Valeant shares are down by 84% in the past several months and continue to trade at depressed levels despite a series of positive news around the company, including that Perrigo Company plc Ordinary Shares (NYSE:PRGO) CEO Joseph C. Papa would take over the reins of leadership at Valeant.

Going back to Mr. Chanos’ still-short thesis on Valeant, he said that “It’s interesting because people are trying to bottom fish in this name thinking that the stock is cheap. But we think it’s anything but cheap. Everybody’s using metrics that are just as bad as Valeant’s accounting itself. And they’re excluding all of the bad stuff”, said the short-seller this week. Stockholm-based HealthInvest Partners AB, founded by Anders Hallberg and Carl Bennet, acquired a new stake of 370,000 shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) during the March quarter.

On the final page we’ll look at Mr. Chanos’ short on Alibaba.