What happened

Shares of Chinese electric-vehicle maker Kandi Technologies (NASDAQ:KNDI) fell sharply on Wednesday morning. As of 11:45 a.m. EST, Kandi's shares were trading at $3.97, down 10.7%. 

So what

Kandi's third-quarter earnings report was released before the bell, and it was a disaster. Revenue fell over 87% to just $6.4 million, and it lost almost $600,000 after making $2.3 million a year ago. 

What happened? Kandi's primary business involves selling electric-vehicle parts to an electric-car joint venture it owns with automaker Geely Automobile Holdings (OTC:GELYF). It's heavily dependent on subsidies provided by the Chinese government to spur the development of electric vehicles. But a big subsidy payment has been held up while the government investigates fraud allegations across the industry. 

The joint venture's latest model is the Global Hawk K17A, an affordable electric hatchback with a claimed range of 151 kilometers. Image source: Kandi Technologies. 

As CEO Hu Xioming explained on Wednesday:

China's central government preceded a review on the subsidies paid to all the EV manufacturers, which caused the 2015 subsidy payments remain unpaid industrywide. The delay in subsidy payment heavily impacted the JV Company's production and sales, which resulted in a significant decrease in our EV parts sales.

The investigation has already borne fruit. In September, five of Kandi's rivals were fined and removed from the list of companies eligible for subsidies.

Now what

Hu said that Kandi has been working with government officials and expressed confidence that the subsidies will be paid "soon" -- but he didn't give a timetable. Meanwhile, he said, the company is working on new models for 2017 and gearing up for an initial public offering of the joint venture. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.