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Why SolarCity Corp's Shares Plunged 23% in August

By Travis Hoium – Sep 9, 2016 at 1:15PM

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Could SolarCity Corp's buyout be in trouble after a big drop in the stock?

Image source: Getty Images.

What happened

Shares of solar installer SolarCity Corp (SCTY.DL) dropped 22.6% in August, according to data provided by S&P Global Market Intelligence, as the company's sale to Tesla Motors' (TSLA 1.18%) starts to look less likely.

So what

The story of SolarCity is linked directly to Tesla Motors these days, since the auto company is in the process of buying the solar company. Tesla is offering 0.11 shares of stock for each share of SolarCity, and as a result the stocks should be trading in tandem. Since the beginning of August, however, Tesla stock has been dropping, and SolarCity is dropping even more -- meaning investors aren't confident the deal will go through at all.

SCTY Chart

SCTY data by YCharts

Now what

There are a number of problems facing SolarCity today, and they're converging as Tesla investors prepare to vote on the buyout. The cost to sell solar systems is rising, financing costs are going up, and SolarCity is burning through hundreds of millions of dollars in cash with past financing sources drying up.

As SolarCity's stock falls, it looks less likely the sale to Tesla Motors will go through. Otherwise the shares would be trading together. But the bigger concern is SolarCity's uncertain future given the business' fundamental weakness, which should be investors' biggest concern today.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends SolarCity and Tesla Motors. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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