Sunrun (NASDAQ:RUN) stock is plummeting lower after Muddy Waters issued a second short report on the home solar panel company, the first of which was published in July 2022. The short seller has accused Sunrun of overstating its non-GAAP subscriber count and claiming and selling tax credits based on the alleged overstated subscriber count as well.
According to Muddy Waters, Sunrun reported 724,784 subscribers as of June 30, which consist of power purchase agreement (PPA) and lease customers. However, it alleges that this figure is inconsistent with the subscriber count provided by data from the U.S. Energy Information Administration (EIA).
“As of Q2, RUN reported ~725K Subscribers. Data RUN provides to the U.S. Energy Information Agency shows only ~600K Subscribers,” said Muddy Waters. In fact, the short seller believes that the non-GAAP subscriber data is overstated by almost five quarters of subscriber additions.
Muddy Waters Issues Second Short Report on RUN Stock
Muddy Waters goes on to explain that the EIA has two sets of data for Sunrun, “Net Metering” and “Sales and Revenue.” The short seller believes that net metering is the correct metric to compare against Sunrun’s non-GAAP subscribers.
“Even using EIA’s Net Metering metric, (non-GAAP) Subscribers presents a 12.0% overstatement as of Q2 2023,” said Muddy Waters. “That’s about three quarters of (non-GAAP) Subscriber additions.” The short seller backs up this thesis by providing a data table that shows that Sunrun has consistently reported higher subscribers than EIA net metering and sales and revenue by an average of about 20%.
These factors have led Muddy Waters to question how Sunrun receives investment tax credits (ITCs). Based on the short seller’s calculations, Sunrun claimed roughly $205 million of ITCs in 2022 based on “14,390 systems that didn’t exist.”
Muddy Waters also highlights several issues from its initial short report. For example, it states that Sunrun assumes a cost of $0 for panel removal, which it is contractually obligated to perform. Muddy Waters believes that the net present value (NPV) of this cost is actually $688 million. Furthermore, Sunrun assumes no customer defaults or cancellations, while Muddy Waters estimates that the default rate is 3.75% over a contract period.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
