Shares of China's Kandi Technologies (NASDAQ:KNDI) soared 36% yesterday on news that China had approved the company's first electric sedan.
If you had never heard of Kandi until yesterday's pop, you're not alone. This is a small company that makes smaller electric vehicles, go karts, ATVs, and even tricycles in China's Zhejiang province. Revenue in its latest quarter grew just 2% to only $14.7 million. It is profitable, and that's a good thing, but let's not kid ourselves here. The only reason that Kandi charged higher yesterday -- on a whopping 18.7 million shares of trading volume -- is that Tesla Motors (NASDAQ:TSLA) shares have nearly tripled over the past three months.
It's easy to sell Kandi as the Tesla of China, even though reality paints a far different picture.
Kandi has teamed up with car manufacturer Geely Automotive to parlay its electric vehicle know-how into passenger cars, and the first full-sized sedan -- JL7001BEV -- has been approved by China's Ministry of Industry and Information Technology.
That's great news, but would anyone really care if Tesla wasn't so hot these days?
After all, we still don't know if China will warm up to electric cars and overcome the "range anxiety" of the niche. We don't know how many people will be able to afford the electric cars that are substantially more expensive to make than vehicles with internal combustion engines.
The need is there. Anyone that saw the smog-filled panoramas during the Beijing Olympics can attest to the desire for cleaner cars on the crowded roadways. However, we still don't know if it will work. More importantly, we don't know if Kandi and Geely will form the cool company in this field.
Tesla isn't the only company making electric cars in the U.S. these days. Most of the leading automakers now have some skin in the game, even though the early adopters haven't fared nearly as well.
General Motors (NYSE:GM) is rejoining the S&P 500 -- likely tomorrow -- as a testament to its revival, but it's certainly not the handiwork of its plug-in Chevy Volt. GM has had to idle production of the costly Volt a couple of times as demand failed to keep up with supply. Even offering ridiculous lease deals didn't allow GM to live up to its original goal of moving 60,000 Volts last year. GM sold just 1,607 Volt cars last month, less than it sold a year earlier.
GM is actually one of the lucky ones. Fisker Automotive is teetering on bankruptcy.
There may very well be some legitimate reasons to buy Kandi, especially for its growing and profitable business that is currently in place. However, there are so many things that would have to go right for Kandi with this new electric sedan to truly earn the "Tesla of China" crown that it's little more than a dangerous speculation until the fervor settles down.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.