Bankrupt

Asked if Musk might not do with Tesla what Jeff Bezos has done with Amazon —which continued to be one of the the market’s best-performing stocks despite being unprofitable until very recently—Chanos rejected the idea. “This is anything but,” Chanos said of Tesla. “This is the anti-Amazon.”

The big difference between Tesla and Amazon: While Amazon may have lost money on the bottom line, it always had enough revenue coming in that it never needed to go back to the capital markets to raise outside funds since it went public almost two decades ago, Chanos said. That’s far from true for Tesla.

Tesla is going to “continue to lose lots of money,” Chanos said. “And continue to need more and more capital.”

The slippery slope of a debt-filled company

SolarCity’s value quickly evaporates and even goes negative if we just discount the company’s cash flows at an appropriate discount rate. And I would argue that the assumptions that go into the current NPV calculation are too aggressive, and the 8% discount rate is also too low.

It looks like SolarCity is desperate for cash, and the only way investors are going to give it to them is by raising the cost. That’s a slippery slope for any solar company.

This is a growing problem for SolarCity, and will become a problem for Tesla Motors if it acquires the solar installer. Debt is fuel for SolarCity’s business, and the cost of fuel is going up big time.

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