Investors following electric-vehicle maker Kandi Technologies (NASDAQ:KNDI) have likely become accustomed to volatility. In the last month alone shares have jumped between $16 and $20. But the stock's 5% spike today was bigger than usual. Here's the story.
China wants electric vehicles to succeed
When the stock began trading today, shares were up roughly 10% on a Bloomberg report that China would soon announce as much as $16 billion in government funding for electric-vehicle charging infrastructure and to promote demand for EVs. Bloomberg cited "two people familiar with the matter."
The policy will be announced soon, said the people, who asked not to be named because the discussions are private. The people declined to provide further details of the plan such as how long the program would last or whether the chargers would be compatible with cars made by Tesla Motors Inc.
China has big goals for transitioning to electric vehicles. By 2016, the nation wants 30% of government vehicle purchases to be electric cars. By 2020, China wants 5 million hybrids and EVs on the road. The government is already taking action, providing incentives to push EV sales, and these policies are already making a difference.
According to Bloomberg: "While sales of electric vehicles in China have lagged behind government targets, BYD, the electric automaker partially owned by Warren Buffett's Berkshire Hathaway, earlier this month cited favorable government policies for helping the company's new-energy vehicle sales to jump sixfold during the first half."
New incentives in China for charging infrastructure could help drive sales for Chinese EV manufacturers Kandi and BYD, as well as for Tesla, BMW, and Nissan -- all companies that are betting on electric vehicles as an instrumental area for growth.
Kandi is smaller than its peers, with just 141 million in revenue in the trailing 12 months and a market capitalization below $1 billion. So $16 billion aimed at promoting the EV market in China could move the needle meaningfully for the company.
Why China is key
China is the world's largest vehicle market, and EV manufacturers are looking to the market for growth opportunities. BMW and Tesla recently expressed great interest in the China electric vehicle market. In May, BMW predicted the nation would become the world's largest market for EVs in five years at the latest. Earlier this year, Tesla said China could eventually be its biggest market.
The early substantial support from China signals the government in this lucrative market is still bullish on electric vehicles. Given the size of the Chinese vehicle market, greater investment in EVs there would be good news for the overall segment. Greater adoption of EVs in China would support further demand for EV infrastructure and innovation. And given the scale of the vehicle market in China, early adoption of EVs could help the nascent industry achieve scale and drive down costs for other markets.
But despite China's interest in boosting its investment in EVs and the nature of the nascent industry, Kandi shouldn't automatically be dubbed a great investment for the long haul. With a small market capitalization and a short history of any meaningful sales, investors are likely better off looking into companies in the industry with a better track record of success.