NEW ENERGY: Oil Saps Solars, Car Hopes Fuel LeTV

Bottom line: Emerging details are giving more credibility to LeTV’s new electric car initiative, while solar shares look oversold on plunging oil prices and should rebound later this year.

LeTV soars on new EV details

Mixed signals are coming from China’s green energy sector, where a newly turbocharged LeTV (Shenzhen: 300104) is getting a lift on details about its new electric car initiative that includes ties to a technology supplier of US superstar Tesla (Nasdaq: TSLA). But solar panel makers are moving in the opposite direction, with shares of several reaching or approaching all-time lows over concerns that demand will plummet due to low oi prices. I seldom give direct stock buying advice, but in this case I honestly don’t understand the reasons for this sudden plunge and would strongly consider buying some of these shares that seem quite undervalued right now.

Let’s start our new energy story with LeTV, which is recently trying to rebrand itself by its Chinese name Leshi as it ventures out of its core online video business. LeTV’s shares have rallied more than 15 percent over the last 4 trading days, as media reported that its charismatic young chief Jia Yueting has checked out of a Beijing hospital where he was being treated for an unspecified illness. (Chinese article)

But investors also seem to be getting more excited about an electric vehicle (EV) initiative that Jia announced in December. (previous post) I previously commented that the program seemed a bit far removed from LeTV’s core online video business, but now a new report is providing details that are giving the move some more credibility.

Most intriguing was the disclosure that LeTV has become the second largest shareholder in US company Atieva Inc, which has done EV design and engineering work for Tesla, as well as Audi and General Motors’ (NYSE: GM) Chevy Volt. (English article) LeTV invested in Atieva last year, together with another Chinese affiliate of the recently listed BAIC Motor (HKEx: 1958). The report doesn’t specify what stake LeTV bought, but says the BAIC affiliate purchased 25 percent, making it the US company’s largest shareholder.

The report further states that LeTV has been working on its electric car development for the last year, and that the effort will soon be spearheaded by Lyv Zhengyu, who is joining LeTV from a senior management position at Japanese luxury car brand Infiniti. All of this shows that LeTV’s EV efforts are more advanced than anyone may have previously realized, and it is indeed pumping some serious resources into the effort.

LeTV’s soaring shares contrast sharply with the solar panel makers, whose stocks seem to be tumbling by the day as oil prices sag to multi-year lows. Leading the downward charge is ReneSola (NYSE: SOL), whose shares have lost more than three-quarters of their value from last year’s highs and are now trading near all-time lows last seen by many companies 2 years ago.

Rival Yingli (NYSE: YGE) has also lost three-quarters of its value from a high last year, and is reapproaching an all-time low. Two other big players, Trina (NYSE: TSL) and Canadian Solar (Nasdaq: CSIQ), are faring slightly better, both down around 50 percent and still well above their all-time lows.

Some form of correction was needed for this group, as many saw their shares soar too quickly after the sector began to emerge from its prolonged downturn nearly 2 years ago. But the fall in oil prices seems somewhat irrelevant to this group, since any panels they sell now wouldn’t become operational solar plants for at least 1-2 years. By then oil prices may rebound. And even if they don’t, current government incentives in many countries force power companies to buy solar energy from anyone who produces it at inflated rates, regardless of other market factors. For those reasons, this current sell-off looks way too overblown, and I do expect we’ll see the solar shares come back with some strong gains later this year.

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