Many experts have criticized Tesla’s Motors’ (TSLA
) $2.6 billion planned purchase of SolarCity (SCTY
) as an unwise bailout of one Elon Musk-controlled company by another.
You can add legendary short seller Jim Chanos to the list. The proposed deal is “crazy,” he said on CNBC Tuesday. If Tesla goes through with the acquisition, the electric car company will turn into a "walking insolvency," he said earlier Tuesday at an investment conference. “The synergies are questionable at best."
Chanos, head of Kynikos Associates is putting his money where his mouth is. He has shorted both stocks at least since spring.
A merged company would face some major financial issues, including a cash-burn rate of $1 billion per quarter, Chanos said. "To burden your own balance sheet and cash flow statement to, in effect, bail out shareholders at SolarCity strikes us as just the height of folly," he said at the conference.
Tesla already is hemorrhaging cash and faces steep competition in the electronic car market. The company must raise "a lot" of capital by the beginning of 2017, Chanos said.
Wall Street analysts didn’t offer commentary on Chanos’ remarks. But Cowen analysts share at least some of his skepticism about the potential Tesla-SolarCity hook-up. “Tesla needs a lot to go right in order to successfully navigate its transition into a sustainable energy company,” they wrote in a report last week.
A total of 17 analysts have issued ratings on Tesla over the last 30 days, and just four were positive. Their median share price target was $223, up 13 percent from $196.93 Wednesday.