Kandi Technologies Group, headquartered in Jinhua, Zhejiang Province, is engaged in the research and development, manufacturing and sales of various vehicle products. Kandi has established itself as one of China’s leading manufacturers of pure electric vehicle (“EV”) products (through its joint venture), EV parts and off-road vehicles.
We have traded KNDI before this year with a nice profit (XX). Since then, the stock has come down significantly until $3.5 mainly due to bad news related to subsidies not being paid by the Chinese government. After touching this lowest level since mid 2013, it has found some buyers and we expect more positive news will be shared shortly.
- Subsidy payments: On 9 November, Kandi reported dramatic earnings figures: Revenues decreased 87% to $6.4 million for the third quarter of 2016, compared with $50.5 million for the same period of 2015.What happened? Kandi’s primary business involves selling electric-vehicle parts to an electric-car joint venture, named Kandi Electric Vehicles Group Co., it owns with automaker Geely Automobile Holdings (NASDAQOTH:GELYF). It’s heavily dependent on subsidies provided by the Chinese government to spur the development of electric vehicles. But a big subsidy payment has been held up while the government investigates fraud allegations across the industry. As a consequence, the joint venture only sold 184 units of EV products, a 96.9% decrease compared to the same period last year.Mr. Hu Xiaoming, Chairman and Chief Executive Officer of Kandi commented as followed on the disruptive figures: “China’s central government preceded a review on the subsidies paid to all the EV manufacturers, which caused the 2015 subsidy payments remain unpaid industry-wide. The delay in subsidy payment heavily impacted the Joint Venture’s production and sales, which resulted in a significant decrease in our EV parts sales.” (https://yhoo.it/2gYh6fg)
In September, five of Kandi’s rivals were fined after investigations and removed from the list of companies eligible for subsidies. Hu said that Kandi has been working with government officials and expressed confidence that the subsidies will be paid “soon”. His initial comments to Bloomberg indicate Kandi has been subject to investigation but cleared http://bit.ly/2htNBTk.
On 29 November, KNDI announced that its wholly-owned subsidiary Kandi Electric Vehicles (Hainan) Co. Ltd (“Kandi Hainan”) received a subsidy payment of RMB 100 million (approximately USD 14.5 million*) to support its research and development expenditures for a new model of electric vehicle (http://bit.ly/2h2azmP). As this is subsidy payment is part of a particular agreement of Kandi and not its joint venture, it can however be interpreted that the release of the National subsidy subsidies to the Joint Venture could also be imminent.
- News on progress of new Factory in Hainan: In the last earnings call, they announced the following: “Our Hainan facility construction proceeds smoothly and we have started to install the equipment as scheduled. We also made progress on the designed product in Hainan’s factory. We expect this product could be well received by the market. With respect to the production license for the new energy vehicle, we have accomplished last or fundamental work. We made our endeavors in the application and hope to opt in the license within 2017.As mentioned in point 1, a second Subsidy payment was received on 29 November. This clearly indicates progress is made according to the plan. The actual product that will be made is still not disclosed and the intention is it will be licensed mid 2017, increasing the speculation that news will come out soon on some details.
- Insider buying: On 5 separate days since 23 November until 2 December, Hu Xiaoming, CEO, president and 10% owner of Kandi Technologies Group Inc. (KNDI), purchased for a total of +230K shares of the company for a total transaction of more than $1M. In the recent earnings transcript (http://bit.ly/2gyUlOu) they mentioned: “Unidentified Analyst: as a shareholder own stock at a much higher average price, I am concerned that the prices staying down for much longer, management may consider a low take out offer to take the company private, is there any reason for my concern? Kewa Luo: Okay, thank you. Currently we don’t have plans to privatize the company and I believe the stock price drop is temporary.” His previously buying was more than 5 years agoAs he bought from between $4.16 and $4.99, we can use this area as fundamental support. Not only he but also other officers bought during that period in the same price range.
- Interesting to see is that Geely, owner of the other 50% of the joint venture with Kandi, has seen a significant increase in share price namely +100%, since last summer. How come they double while Kandi were sliced in half?
With 15% of the float short, any positive news can drive the price rapidly higher like on 29 November when it spiked 11% on a day due to the subsidy news related to the Hainan facility.
Currently the bounce from the lows finds support around the $5 level and this will potentially be again supported by insider buying below this level. We will look for a breakout above the $6 level to find new resistance around the 7$.
Q4 and full 2016 financial results will be presented beginning of March which will give enough time to for some news to come out. In the End, would you spend $1M as CEO if you weren’t sure to receive the Subsidy?