Shares of China's Kandi Technologies Group (NASDAQ:KNDI) took a hit on Monday after it posted quarterly results. The company is trying to carve out a niche in China as an electric-car maker and a pioneer in auto sharing, and it delivered strong growth. Revenue soared 158% to $44.2 million. Operating profit more than quadrupled to $2.6 million, and Kandi's adjusted net income clocked in at $0.12 a share.
How did those numbers stack up against expectations? That's not an easy question to answer. Kandi lacks mainstream analyst coverage. The stock did sell off on Monday after the morning report -- shedding 13% of its value -- but it had also soared 41% through the four weeks ahead of the report.
Kandi's been a volatile stock, and it comes with a story. It's been called the Tesla Motors (NASDAQ:TSLA) of China, but that's far from a fair portrayal. Kandi isn't the leader of luxury all-electric sedans in China -- that would actually be Tesla itself.
Kandi started out as a producer of go-karts, ATVs, and other recreational vehicles. Its fate changed last year when it formed a 50-50 joint venture with a Geely Automotive subsidiary to make electric vehicles. The transformation has been radical. Electric vehicle parts -- battery packs, body parts, drive motors, controllers, air-conditioning units and other auto parts -- now account for 81% of Kandi's revenue. That category didn't exist as a business for Kandi a year ago.
China's air pollution is a problem, and the world's most populous nation has thrown some muscle behind the push for electric vehicles by offering subsidies and tax breaks to electric-vehicle buyers. Tesla's going to fare well in the high end of this inevitable market, but China's saving its juiciest incentives for local companies, including Kandi.
Share and share alike
For now, the biggest demand for Kandi's vehicles is coming from car-sharing programs that it has a minority interest in. It initially rolled out the Zipcar-like auto-sharing program late last year in its home turf of Hangzhou. The two-seaters fetch a little more than $3 an hour, but they're ideal for shopping trips, dates, and visiting friends and family, especially for folks who typically get by on bicycles or through mass-transit options.
Other cities are catching on. Kandi's joint venture provided 208 cars this summer for a car-sharing platform in Shanghai, and by next month it will have 1,000 cars for a new program in Chengdu.
This translates into a high ceiling for Kandi, but the risks are also high. It has been the subject of an SEC investigation since late last year. Kandi points out that it's cooperating with the SEC, but it's not offering up an estimate on the duration or possible outcome of the investigation. There are also some vocal short-sellers talking down Kandi's fortitude and prospects, including the Mark Cuban-funded Sharesleuth.
Kandi is still upbeat about its future. It pointed out in Monday's report that its business model is "beginning to gain traction in both top-line and bottom-line growth." Given this quarter's strong year-over-year growth and the upside potential for all viable makers of electric vehicles in China, it's a situation that risk-tolerant growth stock investors may want to take for a test drive.