A prominent short-selling firm has alleged that Chinese electric-vehicle maker Kandi Technologies (KNDI -2.08%) falsified revenue by recording transfers to affiliated companies as sales. 

Hindenburg Research, the short-seller whose allegations against electric-truck start-up Nikola (NKLA -0.34%) led to the departure of Nikola's founder and a federal investigation, released a report on Monday alleging that a large percentage of Kandi's reported sales have actually been transfers to affiliated companies. 

If true, that would mean that Kandi has reported revenue that it did not actually generate.

A Kandi K23, a small Chinese-made electric hatchback.

A Kandi K23 being recharged. Kandi recently launched an effort to sell its electric cars in the U.S. Image source: Kandi Technologies.

Here are the key allegations in Hindenburg's report:

  • An on-site inspection showed that the reported address of Kandi's largest customer, representing about 55% of sales in the last 12 months, is a tiny building next to Kandi's factory. The customer shares a phone number with a known Kandi subsidiary.
  • That tiny building previously housed another entity used by Kandi in a 2015 scheme to collect unearned electric-vehicle subsidies from the Chinese government by exaggerating its sales, Hindenburg said. Kandi was forced to write off about $3.3 million in subsidies in late 2016 as part of a settlement with the Chinese government. 
  • Another customer, representing about 9% of the last year's sales, was once wholly owned by Kandi. 
  • Kandi's days of sales outstanding, a measure of the timing of revenue collection, is far higher than most peers' -- suggesting that it may be booking revenue that it can't collect.

Kandi has long been dogged by questions around its financial reporting and business plan. As the Hindenburg report notes, the U.S. Public Company Accounting Oversight Board revoked the registration of Kandi's longtime Hong Kong auditor in 2016, after finding that the auditor had overlooked signs of potential fraud in Kandi's accounting. 

At press time, Kandi had not yet responded to the allegations.