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Big Alternative Energy Short of 2012 Takes One Day to Work

Updated from 3:16 p.m. ET to include company statement, analysis from Morningstar.

NEW YORK ( TheStreet) - Well, that was fast.

The analyst who was synonymous with the big, and very profitable, solar stock short of 2011 made a new alternative energy short call on Monday, and it's already working.

Yesterday Gordon Johnson of Axiom Capital launched coverage of shares of battery maker Polypore (PPO) -- a play on the electric car market - with a sell rating and a $26 price target, representing 54% downside from its opening price on Jan. 30.

On Tuesday, shares of Polypore fell by 30%.

Johnson, who had a longtime and very vocal short in 2011 on First Solar (FSLR), laid out some similar themes in his call on Polypore: Aggressive insider selling of company stock by top executives suggests shares are overvalued, and massive overcapacity about to hit the industry will lead to multiple contraction in shares of Polypore.

Johnson benefited from some good timing as well.

On Tuesday, Asian battery giant LG Chem, which supplies the lithium ion battery for GM's (GM - Get Report) Volt, announced that it is investing $480 million in capacity additions, including lithium ion battery separator capacity. LG Chem plans to begin commercial production of its first stage of battery separator capacity in August 2012, and is targeting having a second production facility online in 2013.

Polypore makes the separators that are critical in regulating the flow of ions in batteries, including the lithium ion batteries now being developed for the electric car market, and LG Chem has been a customer of Polypore for its Volt batteries.

The LG Chem announcement is the real reason for the run on Polypore shares, though it is related to Johnson's larger argument about looming overcapacity.

On a fundamental basis, Johnson writes "the 'hype' surrounding electric-vehicle sales has contributed to an unsustainable increase in separator capacity relative to the market size." The dynamic is misunderstood by investors, and that creates a market dislocation/shorting opportunity, the analyst argues.

The LG Chem investment in separator capacity adds to the existing issue, or as Johnson said on Tuesday, "anecdotally, this seems to suggest a material customer of PPO's is now making the product that it was buying from PPO prior. At risk of stating the obvious, this is not a positive leading indicator."
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