What happened

Shares of Chinese electric-car maker Kandi Technologies (KNDI -5.58%) jumped nearly 18% in early trading on NASDAQ Thursday before retracing to something more like a 4% gain as of 10:30 a.m. EST.

Investors reacted positively to the company's announcement that "one of its subsidiaries" will sell 3,000 model K23 electric cars to "an operating company in its ride-sharing alliance."

Man examines a stock chart superimposed on a Chinese flag

Image source: Getty Images.

So what

The news certainly sounds positive. According to Kandi, it's developing a program with the cumbersome title "300,000 government-accredited pure EVs within 5 years." A 3,000-car sale into that program seems to represent a 1% down payment on the program -- and a promise of great growth to come.  

But here's the thing -- and here, I suspect, is the reason Kandi isn't holding on to its gains today: A Kandi subsidiary selling cars to Kandi's own "ride-sharing alliance?" That sounds a lot like Kandi is moving metal around, basically in-house -- one Kandi affiliate selling to another. Therefore, it doesn't seem to say much about Kandi's ability to sell electric cars to unrelated parties.

Now what

In fact, if you read between the lines a bit, today's announced "sale" actually seems to reinforce arguments raised by Kandi short-seller Hindenburg Research last month. In that report, Hindenburg alleged that 55% of the company's "sales" last year went to a single Kandi subsidiary -- making them related-party transactions similar to what Kandi seems to be describing today.

Granted, even sales to a related party, which is a ride-hailing company, could ultimately benefit the company if the ridesharing market takes off for it. But as far as a material announcement of Kandi succeeding in expanding its sales, I suspect this isn't that.

And this, in a nutshell, is why the stock's price gains are evaporating today.