JinkoSolar Dims, Then Shines, with U.S. Export Restrictions and Power Storage Tie-Up

Key Takeaways:

•      JinkoSolar’s shares have come under recent pressure from potential U.S. import restrictions on the company and some of its Chinese peers

•      JinkoSolar recently formed a strategic alliance with battery giant CATL, but investors may be waiting for more details to determine the deal’s significance

By Thomas Zhang

Day traders looking to make a quick buck from shares of leading Chinese solar panel maker JinkoSolar Holding Co. Ltd. JKS have had plenty of news to trade on lately, both for long buyers and short sellers.

The latest news cycle dates to mid-August when word began to circulate that solar panels from China were being detained by U.S. Customs as the administration of President Joe Biden cracked down on alleged labor abuses involving Chinese manufacturers.

The warning first came to light when Canadian Solar Inc. CSIQ, another major producer, revealed that four of its China-made sample modules being shipped to the U.S. were held up due to an issue involving where some of their component materials came from. Canadian Solar later said it believed all solar modules from China were being detained by U.S. Customs.

The next day, industry observers told media that Jinko also had around 100 MW of product detained by US border agents, and that the company might scale back U.S. shipments while the customs inquiry was in process. That marked a major setback, since the company generated 28.7% of its revenue last year from North America, according to its latest annual report.

Both companies’ shares suffered in the resulting solar storm. Canadian Solar’s stock lost 13.7% in just three days after the news broke, accelerating a decline that pre-dated the news. Jinko followed a similar pattern. Its stock was also falling before the news, and dropped another 14% in three days after that.

Shrewd short sellers may have made some quick money if they picked up on earlier signals that such a move might be coming.

The U.S. Senate passed a bill in mid-July banning products from China’s controversial Xinjiang region. That move came about a month after the U.S. banned imports of Chinese panels that may have used raw materials from Xinjiang-based Hoshine Silicon Industry Co., a dominant supplier of a key material used to make such panels.

That move could have affected almost all Chinese panel makers, since it’s very hard for them to prove that their products don’t contain any material supplied by Hoshine, analysts said. But while widely publicized, those bans had little effect on Jinko’s stock price until last month’s confirmation that its panels had been held up in customs.

Instead, investors may have been focused at the time on Jinko’s first-quarter results released on June 25, which showed the company’s solar module shipments rose 33.7% year-on-year, sending the stock nearly 14% higher that day.

The momentum grew the next trading day when Jinko said one of its main subsidiaries had applied for a listing that could raise 6 billion yuan ($928 million) on China’s STAR Market, a 2-year-old stock exchange in Shanghai targeting high-growth companies. That news sparked a massive one-day 23% jump for Jinko’s shares, even as the Xinjiang-related storm clouds were starting to form.

Such secondary “homecoming listings” have become all the rage among U.S.-listed Chinese companies amid current tensions between the two countries. China-based listings also generally bring much higher valuations for companies than nearly identical listings in the U.S.

Jinko’s New York-listed shares currently trade at a price-to-earnings (PE) ratio of 25, which may look high but is actually far lower than China-listed peers that enjoy an average PE of 64. Trina Solar, which delisted from the U.S. in 2017 and relisted in Shanghai in June last year, now enjoys a PE of 77 – roughly triple Jinko’s. JA Solar, which delisted from the U.S. a year after Trina and relisted in China in late 2019, has a similar PE of nearly 75.

Good News?

Following word of the recent U.S. Customs detention of its panels, Jinko may have thought it had some good news for investors with its announcement last week of a tie-up with Contemporary Amperex Technology Co. Ltd. (CATL), China’s top maker of lithium ion batteries used in electric cars and also increasingly for storing excess power generated at solar and wind plants.

Companies like Jinko are putting increasing effort into development of power storage facilities to help solve one of the biggest obstacles keeping solar energy from overtaking traditional fossil fuels. That obstacle centers on the fact that solar plants produce copious electricity during the day but none at night – creating headaches for grid operators unless they can store excess energy generated during peak production times for use at night.

While the CATL news sounded good, it failed to light a fire under Jinko’s stock.

That could be because the cooperation is still at very early stage. Jinko’s statement spelled out several possible areas the two companies might work together, without giving much detail. Those areas centered on achieving carbon neutrality in the industrial chain, and business development of products that combine solar and power storage technology.

In discussing the tie-up, Jinko’s CEO Chen Kangping mentioned CATL’s “advanced patented technologies in the field of energy storage and innovative models,” shedding some light on the direction the alliance is likely to go. JinkoSolar is good at producing solar panels, but lacks technology to store the electricity generated by those panels.

By comparison, CATL is now widely considered a top player in China’s energy storage business. Its half-year results released late last month showed its energy storage business soared more than eightfold year-on-year, becoming CATL’s second largest revenue contributor. Some observers believe the company could achieve huge growth in the next few years through future collaborations like the Jinko tie-up.

On a more macro level, energy storage has become a hot topic in China’s industrial strategy in the past year with strong government backing. In July, China’s state planner and its National Energy Administration jointly released a guideline on energy storage development. That move set a goal of having energy storage facilities with total installed capacity of more than 30 million KW by 2025, a more than eightfold increase from 3.8 million KW installed in 2020.

CATL’s status as a leader in the energy storage business could make the latest tie-up a smart move for Jinko, even if the stock-buying bulls don’t realize that just yet. If that’s indeed the case, we may have to wait a little longer to see how the strategic collaboration develops.