Why SolarCity Corp's Shares Plunged, Then Popped, Today

Bad news turned into great news for SolarCity investors today.

Travis Hoium
Travis Hoium
Aug 24, 2015 at 2:20PM
Energy, Materials, and Utilities

What: It's not often that a stock has both a 10% drop and a 10% pop in the same day, but that's exactly what SolarCity (NASDAQ:SCTY.DL) stock has done, falling as much as 15% in early trading only to climb 18% by midday. What could cause such a swing in this solar stock?

So what: The market's plunge and a 4% decline in oil prices to below $39 per barrel today had a downward effect on shares this morning. It didn't help that short-seller Jim Chanos came out publicly against the company, comparing it to a subprime lender.  

But shares turned around quickly after the market opened, helped by the Obama administration releasing a number of steps aimed at improving the market for renewable energy. An additional $1 billion in loan guarantees will be made available for distributed energy projects, SolarCity's bread and butter, and $24 million in funding will go to boost the amount of energy created from each solar panel. Individually, these projects may not have a huge impact on the industry, but they're an indication of a friendlier mood in Washington, D.C., when it comes to renewables -- and this may make it easier for SolarCity and others to maintain their access to both funding and the grid in the future.  

Now what: The market can be incredibly short-sighted on days like today, and I wouldn't be too concerned about oil prices or a short-seller, neither of which have an impact on SolarCity's business.

The Obama administration, on the other hand, could help bring favorable policies to the solar industry just as utilities are starting to formulate a strategy to fight net metering nationwide. Along with loan guarantees and new technology, it could be the kind of tailwind that SolarCity needs to keep growth going and get over the investment tax credit hump in 2017. SolarCity is still a leader in the solar space, and discounts like today's present a great time to start building a position in the stock.