Time to Ride Ener1 Again

| About: Ener1 Inc (HEV)

When Ener1 (NASDAQ:HEV) chairman and CEO Charles Gassenheimer appeared on CNBC in November to discuss how his company will benefit from Democrat and Republican cooperation on energy policy, the stock got a nice 4% pop on the day.

Last week, HEV announced a major joint venture deal with China’s number one automotive components company Wanxiang, earning $10B in annual revenue. HEV will build cells and lithium ion battery packs for electric vehicles and hybrid electric and electric buses. The stock opened up about 7%.

But the real fireworks began once Gassenheimer made his (now obligatory?) appearance on the CNBC set to discuss the deal. By the time Mark Haines made the intro, he announced the stock was up 13% on the news. In a flash (20 minutes or so), the stock went from $3.90 to $5.90 for a 60% gain from the previous day’s close. I sold my HEV holdings at $4.77 into this rush, only to regret selling. By the close of trading I was relieved, as HEV settled all the way back down to $4.20.

A week later, HEV has continued to drift downward. At one point Tuesday, the stock had completed a roundtrip to last week’s post-deal open. I decided to get back on board HEV at these prices. Since HEV did not make new 52-week highs with last week’s move, I am willing to discount the possibility that the tremendous surge upward, followed by the equally vicious fade, represents a blow-off top. Note well that the surge last week was so large, plenty of headroom exists for future rallies anyway. Moreover, the strong fundamental nature of this news makes me optimistic that positive momentum will resume in due time.

HEV experiences a huge blow-off of buying pressure

HEV experiences a huge blow-off of buying pressure

*Chart created using TeleChart

I think this deal is extremely important for HEV, involving a long-term partnership and commitment to success:

The Chinese government, anticipating the environmental and oil demand impact of potentially hundreds of millions of new vehicle purchases by a burgeoning middle class, has set an annual production goal of 500,000 hybrid or all-electric cars and buses by 2012.

The new venture – Zhejiang Wanxiang Ener1 Power System Co., Ltd – will use Wanxiang Electric Vehicle’s existing 553,000-square-foot facility in Hangzhou. The joint enterprise is expected to achieve annual cell manufacturing capacity of 300 million Ampere hours (approximately 40,000 electric vehicle battery packs) annually by 2014…

…Wanxiang Electric Vehicle will have a 60-percent equity stake in the joint venture. The company will contribute property, plant, equipment, and customer relationships, including State Grid, SAIC Motor, Dongfeng Motor, Guangzhou Auto and Yutong. As part of its 40-percent stake, Ener1 will provide intellectual property, engineering, manufacturing and technical expertise.

HEV did not release financial details or new guidance as a part of this announcement, but I believe the company has gained access to a tremendous source of additional revenues that make the company worth much more than its current price.

Be careful out there.

Disclosure: Long HEV