What happened

Last week, Chinese automotive battery maker CBAK Energy Technology (NASDAQ:CBAT) announced a deal that verged on the transformative. In a tie-up with Kandi Technologies (NASDAQ:KNDI), CBAK plans to sell $120 million worth of batteries to the Chinese electric-car maker next year alone -- quadrupling its revenue in a single year. Investors were elated, and CBAK shares soared, but the enthusiasm was short-lived.

Yesterday, CBAK shares stalled and fell 1.5%. Today, they're crashing down another 9.4% as of 11:45 a.m. EST.

Chinese flag superimposed on a stock market chart

Image source: Getty Images.

So what

So what changed about CBAK to cause investors to suddenly abandon their faith in the company? Actually, it wasn't anything about CBAK that changed -- but something about its partner.

Yesterday, you see, short-seller Hindenburg Research released a short report on Kandi Technologies that essentially accused the company of inflating its sales by reporting sales to affiliates as if they were sales to customers. Indeed, according to Hindenburg, 55% of Kandi's sales over the past year went to its next-door neighbor, a tiny factory that is in fact a Kandi subsidiary, and not to unaffiliated customers at all.

Now what

If Hindenburg's allegations are correct (Kandi denies them, but Hindenburg has a good track record of accurate reporting, and was arguably the key reason GM called off its investment in Nikola last month), then there's reason to doubt that Kandi will be needing $120 million worth of car batteries from CBAK next year. In fact, there's reason to doubt Kandi will even exist next year.

If that happens, CBAK will need to find itself another customer -- and traders will need to find themselves another momentum stock to ride.

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.