Can Kandi's Electric Vehicles Keep It Up?

Kandi Technologies  (NASDAQ: KNDI  ) was one of last week's biggest winners, soaring 23% after China's State Council introduced financial incentives to promote electric vehicles.

China's government will pay $9,800 toward the purchase of all-electric vehicles, while a much larger $81,700 subsidy will be available for buyers of electric buses. The program will continue until 2015. Yes, that's more generous than the $7,500 rebate that we have in place here, but have you seen the air in some of China's largest cities? There's a reason for that unusual car ban during the 2008 Olympics in Beijing, when only half of the cars were allowed on the road on any given day to curb the smog.   

Vehicle buyers also won't have to pay until filing taxes the following year to collect these subsidies. The subsidies are being distributed to automakers on a quarterly basis, and they're passed on directly to consumers. The plan will be in place through 2015 with a clear aim of reducing the number of cars running internal combustion engines.

Kandi is an obvious winner here.

It was a lightly traded stock until earlier this year when it announced its entry into the electric sedan market. Until that point, Kandi was a small company making mostly go-karts and ATVs in China's Zhejiang province. It's still small, generating $12.2 million in revenue in its latest quarter, only $2 million of which coming from the sale of electric vehicles. However, its plan to team up with Geely Automotive to produce electric cars turned heads when the partnership's sedan was approved by China's Ministry of Industry and Information Technology in June. A month later, Kandi announced the delivery of the first 100 Kandi-Geely vehicles for a public car-sharing system in Hangzhou City.

Kandi obviously isn't the only company that will cash in as China tries to improve the air quality of its largest cities. Stateside darling Tesla Motors (NASDAQ: TSLA  ) began taking orders in China last month, in a market where LMC Automotive claims that electric cars made up just 22,000 of the 18 million cars sold last year. 

Clearly we're still in the early innings here, and the benefit will be substantial for Kandi if it does evolve into a major player. China's subsidy program will naturally make electric cars more financially feasible. It doesn't solve the "range anxiety" issue that's kept sales in check around the world, but it will put enough cars on the road to make charging solutions more viable. Isn't that what Tesla did with its growing Supercharger network of high-speed charging stations?  

Kandi shares are trading 49% higher since I singled it out last month in my "5 Stocks Under $10" column. There's plenty of risk in owning a small company that's just dipping its toes into the electric sedan market, but investors should expect wild trading swings as it grows closer to satisfying the demand for clean cars in a country that just made ownership a bit easier for the next couple of years.

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Read/Post Comments (9) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2013, at 8:30 PM, Tgar13 wrote:

    Hey in my opinion

    Range anxiety not a major issue when you

    Consider they will be building garages

    All over Hangzhou then Shanghai to rent

    To the public and have developed car share

    Programs

    The city governments will buy tens of

    Thousands of cars to fight traffic and smog

    There are 90 million rental electric bikes

    In China and they need to be replaced

    Thanks for your article one of the better ones

  • Report this Comment On September 24, 2013, at 9:41 PM, CSIHawaii wrote:

    Reading the article, you could be excused for thinking that Kandi is new to the EV business. In reality Kandi has several years of experience with a valuable patent portfolio. There are 9 pure Kandi EVs with MIIT approval and 1 Kandi JV EV with MIIT approval. Sales volume has always been low, as it has for all EV manufacturers, but with the introduction of the new nationwide subsidies the floodgates will open. Kandi is poised to become the world leader in EV manufacturing and has the manufacturing facilities already producing.

    Range anxiety will continue to be an issue for Kandi's competitors who have no infrastructure support. Kandi is in collaboration with the State Grid which has licensed Kandi's side-slide quick battery exchange system (QBEX) which enables a 1 to 2 minute fill-up. The State Grid supplies electricity to 88% of China and has started the build out of QBEX stations. The city of Hangzhou has a 20,000 EV EV lease program using only Kandi EVs which will kick start the private adoption of EVs in the city.

    Further infrastructure support comes from a commercial expansion of the public transport system, currently in Hangzhou but soon spreading to Shanghai and other cities. A company called ZZY (in which the Kandi JV has a 19% interest) is building smart charging garages all over the city to operate a car share service, like Zipcar. ZZY will use only Kandi EVs fitted with QBEX and require between 5,000 and 10,000 in the next 12 months.

    There is a lot more to tell but easier for me if you do your own due diligence.

  • Report this Comment On September 25, 2013, at 4:56 AM, bluesky64 wrote:

    Be very careful KNDI has been selling EV for 5yr and has not sold more than 400 in that time.

    There product is not being expected in the market place sales have decreased for yrs all while trying to market there ev. Know this as well there are more than 50 other ev mfg. I am not saying short I'm saying this pump on short squeeze will run out of air and when it falls it will be fast. Read there sales figure in there qtr. report.

  • Report this Comment On September 25, 2013, at 7:17 AM, Tgar13 wrote:

    This is a false statement Blue Sky

  • Report this Comment On September 25, 2013, at 7:27 AM, wordjunkie wrote:

    I would not trust any of the Kandi PR. They've been touting this 20,000-car EV rental program for two years now. We were told they would be delivered in the fourth quarter of 2012. Now here it is the fourth quarter of 2013 and still no cars. You can't trust anything they say.

  • Report this Comment On September 25, 2013, at 9:50 AM, mmang1 wrote:

    The delay was due to the delay in subsidies. Kndi has sold more than 400 EV's in this year alone. Please read the 10k, now that subsidies have been announced expect sales in regards to their car share program (EV Garages), and private purchase. If sales don't materialize that would be cause for a stock price decrease, however, to this point they have managed to execute everything on their end. Infrastructure takes time to build out and they have managed to get it in place. The 4th qtr should be very telling.

  • Report this Comment On September 25, 2013, at 2:00 PM, OKIEDO wrote:

    Rick, I don't mean to be abrasive however I can't help but conclude after reading your Fool piece that you have not done much in the way of research on KNDI. It looks like you just did a "once over" with any research you expended on this article. You appear to infer by the title of your article that Kandi may not be able to "keep it up". If you are referring to production capability then you must not know that one of its existing factories has a capacity for producing 100,000 vehicles a year and that a second KNDI factory has a 30% greater capacity than the first factory... and that isn't considering the capacity for Kandi-Geely vehicles. You do know that Geely is one of the

    "Big Three" automotive producers in China, don't you? So much for any argument about limited production capacity, eh Rick? Now about that statement you made concerning this doesn't solve the range anxiety issue that keeps sales in check around the world (reference EVs). Do you have any idea about QBEX, any idea about how the PRC government and Provincial goverments are developing a China wide infrastructure of recharge stations and integrating that with a crescendo increase China wide in Photovoltaic energy production, any idea about Car Sharing and Vertical Garage rental facility development in China specific to the use of Kandi vehicles? If you are equating Kandi QBEX with the technologically inferior Tesla battery exchange or the 2nd rate Nissan Leaf battery exchange method then you haven't done your home work on KNDI and State Grid of China... but then again your article already proves that you haven't researced the subject of your article. I used to be a teacher in a distant life and if I were grading your article I would probably send it back with an "F" and comment that it was either plagerized or "dry lab produced". I might give you a second chance to go back and rewrite it only after you put some time in on actual research. By the way, your statement that China's government will pay $9,800 toward the purchase of all electric vehicles is false and misleading. The PRC did not just reinstall the previous type of alternative vehicle subsidy that it had back in 2012. The new subsidy is set up in tiers depending on the range of the individual EVs with those achieving maximum range entitled to the full $9,800 equivalent amount, but lesser amounts for EVs with shorter range... so it is NOT TRUE that "all electric vehicles" produced in China will get $9,800 in PRC subsidy. You don't mention Provincial subsidies in place in being developed as additional subsidies depending on the particular Province. You don't mention that PRC subsidy will decrease 10% in 2014 and 20% in 2015. You do make a statement that subsidies may put more EVs on the road to make charging solutions more valuable, when in fact the PRC, State Grid, Kandi and the Provinces are working in different ways to build the infrastructure... actually initiating that build up before and in anticipation of an increase in EV Chinese domestic sales and in concert with that expected increase rather than in response to an increase in EV sales. Your article doesn't do justice to all of the extensive planning and infrastructure development already done and ongoing by the PRC, the Provinces, State Grid and KNDI. Next time, Rick, remember the cardinal advice, "Gospel" if you will, for authors: 1st know your subject!! Said in other language: If you can't cook.... stay out of the kitchen, Rick.

  • Report this Comment On September 26, 2013, at 8:57 AM, captainccs wrote:

    OKIEDO, great review. Thanks. The ignorance surrounding Kandi is vast but it's what makes the shares affordable. By the time everyone catches on the shares will be as expensive as TSLA.

    Yes Rick, Kandi can keep it up and more.

  • Report this Comment On September 26, 2013, at 6:07 PM, demonroach wrote:

    Very attractive investment.

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