What happened
Shares of several up-and-coming Chinese electric-vehicle makers were trading lower on Monday, after a prominent short-seller accused another Chinese electric-vehicle company, Kandi Technologies (KNDI 3.06%), of recording revenue it hadn't earned.
Here's where things stood for these three companies as of noon EST, relative to their closing prices on Friday.
- Li Auto (LI -1.68%) was down about 7%.
- NIO (NIO -0.48%) was down about 4.6%.
- XPeng (XPEV) was down about 9.7%.
So what
Hindenburg Research, the short-selling firm that blasted electric-truck start-up Nikola (NKLA -3.23%) in September, turned its sights on Kandi in a report released on Monday morning.
Simply put, Hindenburg alleged that Kandi greatly exaggerated its sales over the last year by recording revenue from "sales" that were actually transfers to affiliated companies. Given that Kandi recently raised $100 million from U.S. investors who were relying on those revenue numbers, the allegations could have serious consequences if proven.
NIO's sleek, upscale vehicles are a far cry from Kandi's small and cheap cars -- and NIO's finances are also much more solid. Image source: NIO.
As with its scathing report on Nikola, Hindenburg's report included enough evidence to ensure that its allegations would be taken seriously by investors, and they were: Kandi's stock was down about 20.4% as of noon EST.
What does that have to do with Li Auto, NIO, and XPeng? I think the allegations against Kandi might have reminded U.S. retail investors that they don't really know a whole lot about these other companies, all of which have seen their stocks run up sharply in 2020.
Now what
While allegations of financial shenanigans are nothing new for Kandi -- among other things, the company had to write off about $3 million in government subsidies in 2016 after similar "sales" to affiliates -- those allegations don't necessarily reflect on the three companies here.
It isn't easy for U.S. investors to follow Chinese companies like these, but all three do go to some lengths to provide information in English, in the usual formats for financial statements, and to make news and product information accessible.
The allegations against Kandi should be a reminder to auto investors that one should know what one owns, even when the companies are Chinese -- but there's no direct reason for concern about any of these three companies in today's news.
