Who is Kandi Technologies Group (KNDI)?
Published June 24, 2013
On June 5 (June 4 in the USA) a Chinese vehicle manufacturer named Kandi Technologies Group, Inc. which is listed on Nasdaq (KNDI) issued a press release announcing that their first pure electric sedan jointly developed by Kandi and Geely had received Chinese government approval and purchasers would be eligible to receive government EV subsidies. Within a week Kandis stock price doubled, from $3.73 on June 3 to $7.85 a week later.
All of this started less than a week after Tesla Motors Inc. hit its high of $110 after rising from $38, a nearly 3X increase in less than 2 months. Could Kandi be a case of investors looking for a Chinese version of Tesla?
The press release issued by Kandi was a little misleading. The JL7001BEV listed in the press release is not a sedan in the American use of the word, it is a hatchbackÂ . In fact, it is little more than an electric conversion of a Geely Panda, which has been called a copy of a Suzuki Alto and a Toyota Aygo and cannot be sold under the Panda name outside China because it infringes on the Fiat trademark. There is no way the Kandi JL7001BEV will ever be a competitor with Tesla Model S, despite what some KNDI promoters may say.
Who is Kandi Technologies Group, Inc.? They are a shell company purchased in 2007 to take Zhejiang Kandi Vehicles Co., Ltd. public in a reverse takeover merger. Unlike other Chinese reverse takeovers, Zhejiang Kandi Vehicles is a real company manufacturing ATVs, UTVs, Go Karts and the two passenger Coco neighborhood electric vehicle. The Coco is a fiberglass knockoff of the Mercedes Smart car powered by lead acid batteries with a top speed of 50 miles per hour. Kandi Vehicles exports more than 80% of products to the United States and Europe . Their USA distribution network consists of 17 distributors in 12 states.
The JL7001BEV is not manufactured or sold by Kandi Technologies Group, it assembled and sold by Zhejiang Kandi Electric Vehicles Co., Ltd. a 50:50 joint venture between Zhejiang Kandi Vehicles Co., Ltd. and Shanghai Maple Guorun Automobile Co., Ltd. (a 99% owned subsidiary of Geely Automobile Holdings Ltd. (Hong Kong Stock Exchange, Stock Code: 175)). But as noted above the core vehicle technology is owned (albeit copied?) by Geely. All Kandi is doing is buying chassis from Geely and converting them to electric vehicles. Kandi Vehicles is based in Jinhua, Zhejiang province, not far from where the headquarters of Geely are located. In other words they are a geographically convenient partner.
Geely makes out great in this joint venture: they profit once when they sell the chassis to Kandi Electric Vehicles and then take half the profits again when Kandi Electric Vehicles sells the vehicle to the customer (government?). So why has Geelys stock not doubled? In fact Geely started from HK$3.77 on June 3 and fell to HK$3.64 on June 13, losing 3.4% of its value.
And what about this approval the Kandi JL7001BEV received? Well back in 2010 the Ministry of Finance, Ministry of Science, the Ministry of Industry and Information Technology and the National Development and Reform Commission got together to issue the Notice On The Private Purchase Of New Energy Vehicles Subsidy Pilot which offered subsidies for new energy vehicles purchased by individuals. Except that this pilot program ended in 2012 and as of today there are no national subsidies to encourage private individuals to purchase electric vehicles in China.
So while Kandi gained approval to be added to a long list (with over 200 vehicles), as of today there are no national government incentives to be had. According to the China Association of Automobile Manufacturers the end of state subsidies has caused sales of electric vehicles to private individuals to almost stop altogether. Another small detail left out of the Kandi Technologies Group press release. And yet somehow the stock doubles in price.
The problem with companies which are taken public by reverse takeover is that they often end up with related party shareholders who were able to buy substantial numbers of shares cheaply ($0.15 six months before the IPO) and promote the stock. When Kandi made their reverse takeover 40% of the stock was owned by Stone Mountain shareholders. This means that a considerable portion of KNDI shareholders never invested in Kandi and their only interest is to sell their shares at the highest price possible for an incredible profit. They are not investors, they are speculators.
While omissions from the June 5th Kandi press release may be innocent, it seems Kandi has a habit of making mistakes And Kandi Vehicles has a USA subsidiary so command of the English language should not be an excuse. These mistakes allow others to take advantage of a misleading press release and promote the stock.
For six months prior to the June 5 press release the market evaluated KNDI and agreed on a rather stable price between $3.50 and $4.00. This despite repeatedÂ promotion on SeekingAlpha.com by a shareholderÂ with a vested interest in pumping the price. These articles compare Tesla with Kandi, luring the interested Tesla investor and are riddled with glaring mistakes (Geely is nowhere close to the #1 passenger car position in China). Wait a few weeks. You should find KNDI trading back around the sub $4.00 range.