Short KNDI. The truth hurts

October 4, 2013 | RP

As I mentioned in my last article, Kandi Technologies (KNDI) recently soared from around $5.00 to a lifetime high of $9.20 in the span of just 8 days. Just like in June, this monumental lift off came as the result of a single press release from Kandi and several promotional articles from individuals who are long the stock.

As has been the case in every instance in Kandi’s past, these gains have not held. Kandi has now declined 5 days in a row to $7.10, a very rapid decline of 23% from that recent high just days ago. Yesterday the stock closed near the day’s low of $7.02. If this rate of decline continues, then Kandi will be below $5.50 by the end of next week.

It is clear that many investors who are active in Kandi have derived the vast majority of their information from a series of highly bullish articles and from a private Yahoo message board which was created specifically by those who promote Kandi. The information presented seems to gain credibility because it appears to come from multiple independent sources.

Unfortunately, much of the information which has been disseminated on Kandi (and which has made the price soar) is 100% factually incorrect. Once again, as investors come to realize that they have invested based on inaccurate information, the stock will certainly erase its gains and go back below $5.00 once again.

The most recent example was the article published by Harris Goldman, entitled “As China Goes, So Goes Kandi”. His article has since been removed from Seeking Alpha. Fortunately, references to his comments can still be found in my last article.

The Goldman article does not appear to be the only bull piece that contains substantial inaccuracies which have boosted the share price. Going forward, I will be releasing a series of corrections to a number of very significant factual inaccuracies which have boosted Kandi’s share price in recent articles. This work is already in progress.

Unfortunately I did not save a PDF hard copy of the Goldman article, so we do not have a full permanent record of the line by line comments. However, I have now downloaded and saved copies of all remaining articles relating to Kandi so as to preserve a permanent record in the future

To be specific, Kandi bulls have misled readers about numerous things including: Kandi’s manufacturing capabilities, Kandi’s competitors, the current market demand for EVs in China and the impact of government subsidies.

On the day before the publication of the Goldman article, Kandi had traded as low as $6.60. On the day of his article, the stock rose as high as $8.60. Within 2 days, the stock hit its all time high of $9.20. This was a rise of nearly 40% in just 2 days, based off of a single article.

There is a very clear reason why the Goldman article (as with some of the others) moved the stock. Mr. Goldman made it clear that Kandi is the ONLY company which has mass capabilities and that NO ONE other than Kandi in China can compete on this type of price and volume. Mr. Goldman had incorrectly noted that Kandi already has capacity of 100,000 vehicles which will increase to 300,000.

If any of this were true, Kandi would have certainly deserved a bump up in its share price. In fact, it might actually lend some credence to the notion that Kandi is “the Tesla of China“. Unfortunately none of these statements are correct.

Fact: The EV market in China suffers from too much capacity and too little demand

The Kandi bulls have promoted the view that Kandi is the ONLY competitor in China and that demand is so strong that Kandi will be able to sell everything it can produce.

These statements are both 100% incorrect. There are hundreds of EV manufacturers in China. These are not tiny no-name companies. And they already have greater manufacturing capacity than Kandi. In addition, the prices for their EVs can be seen to be lower than Kandi’s. Their operational specs are basically identical.

In my last article, I included a link to a search on China’s Alibaba portal (in English) which showed these hundreds of competitors. But clearly from the angry emails and comments that have been written, we can see that almost no one even bothered to open the links and read for themselves. Instead, a small number of vocal Kandi bulls simply rejected my findings without even reading them.

I would strongly suggest that readers not simply rely on an interpretation of this list from either me (I am short Kandi) or from Art Porcari (Art is long Kandi). Instead, I would suggest that readers take a small amount of time to evaluate these competitors themselves.

What they will see is that there are many producers of roadworthy and street legal vehicles which derive the vast majority of their sales from entirely within China. Period.

Below is a very brief and partial selection from my Alibaba list, along with their delivery capacities. As we can see, there are numerous manufacturers in China who have greater manufacturing capacities AND lower prices than Kandi. I have included the link to the individual vehicle listings so that viewers can see for themselves that these are mostly identical to Kandi’s cars. Beyond these, there are many more.


Name Annual Capacity City Price
Zhangjiagang Haowin New Energy Technology Co. 120,000 Shanghai Inquire at Alibaba
Jinan Qingong International Trade Co. 104,000 Qingdao $6,400-$8,600
Guangfeng Xiaoni Trading Im. And Ex. Co. 96,000 Tianjin $3,500-$4000
Guangdong Yatian Industrial Co. 72,000 Guangzhou $7,000-$7,650
Shandong Bidewen Power Technology Co. 60,000 Qingdao Inquire at Alibaba
Shangdog Shifeng Co. 50,000 Qingdao Inquire at Alibaba
Shandong Wina Green Power Co. 50,000 Shangdong Inquire at Alibaba
Jinan Allied International Trading Co. 30,000 Qingdao $8,000-$9,000

Until my recent article, Kandi’s promoters continued to make the claim that Kandi is the ONLY such manufacturer in China simply because US investors did not know otherwise. Of the EV makers that sell in China almost none of these companies trade on US stock exchanges. The only ones that do (such as BYD and Geely) tend to be Hong Kong listed and trade on the pink sheets. The EV makers in China typically market themselves only in China. As a result, the vast majority of US investors are entirely unaware of the presence of numerous competitors.

But the Kandi promoters have repeatedly claimed to have performed countless hours of “due diligence” over the span of multiple years. The words “due diligence” appear numerous times throughout their articles as assurance to readers about the thoroughness of their work.

Yet the information on competitors is easy to find for anyone who looks.

Author Tom Konrad (who was long the stock) lost a number of friends when he expressed some caution on Kandi. This was true even though he maintained a (reduced) position as a long. Unlike some of the more unrepentant bulls, Tom made sure to highlight the fact that Kandi does have competition from some of the largest EV manufacturers in China. Tom specifically highlighted Chery Automotive, Shandong Shifeng Group, and Hebei Yu Jie Ma. Tom recently noted that he sold his Kandi stock as soon as it hit $7.00.

Point #1: It is inconceivable that such thorough “due diligence” from the Kandi perma-bulls would have failed to uncover the existence of hundreds of nearly identical competitors who have massive production capacity in China. Yet until my last article, these facts were denied.

Point #2: The claim that Kandi is somehow unique (“the Tesla of China”) is therefore based on information that is 100% inaccurate. Yet this inaccurate claim has now been made dozens of times.

Clearly the points above illustrate that there supply of EVs is far greater in China than the Kandi bulls have stated. But of equal importance, it is also the case that demand is far lower than the bulls have stated.

We can see that many of the bull arguments posted include the fact that China has targeted 500,000 EVs by 2015 and 5 million by 2020. Some have cited the “10 Cities and 1,000 Vehicles” program which has been promoting EVs via subsidies in 25 cities (including HangZhou). This program which includes subsidies has been in place since 2009.

The Kandi promoters have emphasized these impressive facts to indicate that there will be tremendous demand for EVs in China. This information, coupled with the incorrect information that only Kandi can supply them, has led investors to the conclusion that Kandi will soon be worth a tremendous fortune. People who read the bullish articles on these subjects, but who fail to do their own research, are then fully convinced. When the articles come from multiple authors, it lends even greater credibility.

But the reality for Kandi and for the EV market in China is far different than what is being consistently preached by the Kandi promoters. In fact, the reality is entirely consistent with the results we see from Kandi’s financial statements. It is also consistent with the share price reactions we have seen from the few Chinese EV makers who trade on foreign exchanges. It is also quite consistent with the unanimous view expressed by independent media channels and Chinese automotive experts.

The only people telling us otherwise are a small number of individuals who happen to own Kandi stock.

In July of 2013 (just 3 months ago), the WorldWatch institute put out a research piece entitled: “China’s Electric Vehicle Development Failing to Meet Ambitious Targets”

The report states clearly that

Although these ambitious targets are developed and supported by the central government, they seem overly optimistic and unattainable given the current situation. According to the China Association of Automobile Manufacturers, only about 20,000 new energy vehicles (EVs, hybrid-electric vehicles (HEVs), and PHEVs combined) were sold in 2011 and 2012, meeting only 4 percent of the 2015 target.

The current reality in China is that people aren’t buying electric vehicles simply because they don’t want them. Clearly some of this is related to price. The bulls have stated clearly that the recently announced subsidies will help that.

But the recent subsidies were actually a renewal of subsidies that have been in place for years. During that time, and despite the subsidies, EV sales have been miniscule.

According to a report from McKinsey.

Government-sponsored subsidies have failed to stimulate consumer demand. For example, while EV buyers in Shenzhen were offered some of the highest subsidies in the country (e.g. RMB 120,000 per vehicle for BEV passenger cars), automakers sold only about 600 BEVs there by 2011.

Beijing based Jack Perkowski has over two decades of experience as an expert in China’s auto industry. He formerly ran a joint venture which invested over $100 million in Chinese auto parts JVs. In June 2013, Mr. Perkowski wrote an article in Forbes entitled “The Reality Of Electric Cars In China“.

He notes that:

recent meetings that we have had with most of China’s local car assemblers confirm that none are counting on electric vehicles for any meaningful amount of growth anytime soon…. BYD , the poster child for electric vehicles in China, is also de-emphasizing electric vehicles. … Due to their intellectual appeal, hype for electric vehicles has always gotten ahead of the realities of market demand. In China, this is once again proving to be true. just put out an article last week in response to the latest Chinese subsidy news entitled “Even the Chinese government can’t command progress on electric cars“.

According to Quartz:

Beijing hasn’t given up on the race to dominate electric cars. But scant sales have turned China away from focusing on wheels on the road right now….About three years ago, the US and China both announced ambitious aims to capture the global electric car market by putting, respectively, 1 million and 500,000 electrified vehicles on their roads by 2015. Today, neither country is on track to reach these numbers-instead, the US has 130,000 electrics andChina a paltry 40,000…. But analysts doubt the renewed subsidies will finally trigger a buying binge

Those who are reading this article can feel free to completely disregard my views. After all, I am short the stock and therefore biased. However…

Point #3 : US investors need to ask themselves why so many independent experts such as Bloomberg, McKinsey, WorldWatch, Perkowski and Quartz, are all so bearish on the EV market in China. Likewise, they need to ask themselves why the only parties who are wildly bullish happen to be a small handful of investors who also happen to own stock in Kandi ?

There are a number of very common sense and logical reasons why EV sales continue to be so poor in China. For these same reasons, most experts do not see a substantial rise in EV sales any time soon.

Because these EV makers have competed on price, the quality of the vehicles is undeniably very low. This should be visible from the pictures of Kandi’s cars which are available on line. The dozens of competing low speed, low priced vehicles are also nearly identical.

The drive train for an electric vehicle is actually fairly pricey. Yet the cost of the whole vehicle is only around $10,000. Readers need to use their common sense to decide if one can actually manufacture a high quality automobile for just a few thousand dollars.

I recently test drove a Kandi vehicle which sold for around $10,000. It was not horrible, but quality was clearly an issue. When I drove it, the glove box kept falling open. The windows are old fashioned crank style windows which do not open easily. The seats vibrate a lot. There is a loud whirring noise when driving. It is not the end of the world. But it is also not a vehicle that many people would likely choose to drive – at any price – if they have any alternative.

But keep in mind that Art Porcari has also test driven a Kandi car and he continues to tell us all that Kandi is set for near term greatness. He is also long the stock and stands to benefit from the rise in its share price.

Kandi, Geely and many other manufacturers have had EVs on the market for years. The “10 Cities” program has been promoting EVs since 2009. Yet in the past two years, a grand total of only 20,000-40,000 vehicles has been sold – by all manufacturers combined ! This is during a time when the subsidies werealready in effect.

The reason why Kandi itself only sells a few hundred of these EVs is because most people are not interested in driving such a low end vehicle. We have already seen that cutting the price does not really boost sales when it is a product that people just don’t want. People need to keep in mind that the vehicles made by Kandi have absolutely nothing in common with a high end vehicle like Tesla.

A separate reason is far more practical. Anyone who has lived in China knows that parking in any major city in China is very similar to trying to park in the middle of Manhattan – or worse. It is extremely difficult and absurdly expensive. This should be intuitive when one considers that the population of Beijing is over 20 million. The population of Shanghai is over 40 million. That means that the population of Shanghai is greater than the entire state of California – crammed into a single city. It is greater than the population of New York, Los Angeles, Chicago, San Francisco Boston and Seattle – combined ! And that is just one city. Likewise, China has dozens of cities with populations greater than 5 million.

What is the point ? The point is that people who can’t afford $10,000 for a car can also not afford to drive or park a car at any price in China. Many US investors are clearly unaware that in a country of 1.6 billion people, the vast majority of people do not live in single family homes with an attached garage. They live in large high rise buildings which do not come with their own garage space. If you gave them an EV for free, they would still have no place to park it. Nowhere !

Those who can afford a home with a garage in China are typically not inclined to buy a noisy low speed vehicle with crank windows and no amenities. Those who cannot afford a garage have no interest in owning a car at all.

These notions are not my opinions. They are facts which are frequently expressed in the Chinese media. One example can be found in an article entitled:

Dying for a Spot: China’s car ownership growth is driving a national parking space shortage

Individual readers can come up with their own explanations for the very poor EV sales. But the fact remains that there has been virtually no demand for low priced, low speed EVs in China from consumers.

I am not saying that Kandi will not sell any vehicles. I am saying the best case scenario is dramatically less than what the Kandi bulls are promoting. It is clear that Kandi and the dozens of other major EV makers will hope to sell the low cost, low speed vehicles to taxi and other public transportation systems.

WorldWatch agrees with this, saying:

As a result, more than 80 percent of the so-called “energy-saving and new-energy vehicles” (EVs, HEVs, PHEVs, fuel cell vehicles, and other energy-saving conventional vehicles)across the 25 pilot cities were purchased for public transportation service rather than private use, showing a weak market demand for these types of vehicles among private consumers.

Likewise, McKinsey shares this view, stating:

In addition, government subsidies and incentive policies have proven to be far more effective at stimulating the purchase of EVs for public fleets than they have been at stimulating private consumer demand.

The HangZhou agreement with Kandi was announced in 2012 but material sales have yet to occur. At some point in time, if material sales actually materialize, this will be a good start for Kandi. Kandi may therefore be able to sell several thousand vehicles over the next few years. But this is categorically different than the predictions of $2 billion in sales from Mr. Goldman or even $100 million in near term sales from Mr. Porcari.

While there may ultimately be demand for even more LSVs from various taxi and public transport companies across China, it must also be remembered that there are potentially hundreds of companies – with massive over capacity in production – who are vying for this same business.

Point #4: Kandi bulls have projected massive sales figures by simply assuming that demand is there for 100% of what Kandi can produce. Yet despite ongoing subsidies and incentives for the past 3 years, only 20,000-40,000 EVs have been sold across all of China by all EV makers combined.

Question: Did Kandi move due to “news” or hype ?

Whenever there is any news which applies to EVs in China, Kandi’s promoters begin trumpeting the development as being a massive catalyst for Kandi’s near term profits and share price. So far this gambit has worked well, and the share price shows sharp jumps (but which only last for a few days).

We saw this sort of hype in June when Kandi announced its inclusion on the MIIT approved vehicle list. The problem with this news is that it applied to hundreds of other vehicle manufacturers and thousands of other models. No other EV manufacturer saw their stock surge even though they were included on this list too. In fact, no one else even bothered to announce this “news” because it was a non-event. Yet Kandi’s share price quickly doubled to $8.50. It was also interesting that the official list had been published in China weeks before Kandi chose to announce it for themselves. Kandi delayed the promotion of this news until it was much closer to issuing $26 million in stock.

This latest “news” in September was that China had codified its subsidies for EVs. Again, this was trumpeted as a major and transformational development for Kandi and the stock soared to $9.20 on the back of Mr. Goldman’s article. As was the case in June, this news was released over a week earlier. Kandi did not put out a pres release on the subject until immediately before filing a S3 covering the sale of over 1 million warrants which would raise $5 million for Kandi.

As was the case in June, the September news applied to the entire EV market in China. Of greater importance is the fact that these were not new subsidies at all, but instead were just a renewal of past subsides. And in sharp contrast to the analysis from Kandi promoters (who own Kandi stock), independent media suggested that the news was not so great.

So what does the independent media have to say about the latest “news” ?

Bloomberg offered the following commentary on September 17th, following the announcement of the subsidies:

The new policy is basically the same as the previous one and doesn’t really address the underlying problems,” Han Weiqi, an analyst with CSC International Holdings Ltd. in Shanghai, said yesterday in a phone interview. “Unless there are follow-up measures to step up support for hybrids, today’s policy is not expected to spur the EV market.

A new subsidy plan has been long awaited,” Ole Hui, Hong Kong-based analyst at Mizuho Financial Group Inc. (8411), wrote in a report today. “This new plans seems less aggressive than earlier targets.

So how did the share prices of other EV makers respond to the news ? They certainly did not shoot up by 50% like Kandi did. Following the release of the subsidy news, Bloomberg noted that:

BYD Co. (1211), the maker of electric vehicles that counts Warren Buffett‘sBerkshire Hathaway Inc. (BRK/A) as a shareholder, fell as much as 3 percent as of 11:12 a.m. in Hong Kong trading.SAIC Motor Corp. (600104), which began offering its Roewe E50 electric car in November, slid as much as 1.4 percent in Shanghai.

But for the Kandi bulls, the recent “news” of Chinese subsidies was to be transformational and would send Kandi into the stratosphere.

What is the point of this ? The point is that the facts being conveyed by a small number of vocal Kandi bulls (who happen to own the stock) is wildly at odds with view being expressed by the mainstream media, including Bloomberg, McKinsey, WorldWatch and many others. The movements in the share prices of other EV makers seems to agree with Bloomberg. Only Kandi has soared to new highs. But this sharp rise has been based on the analysis and interpretation of this small group of individuals who profit from gains in Kandi’s stock.

Point #5: Even when news has been neutral or negative, Kandi bulls have used any mention of EVs in China to proclaim a new, transformational tipping point for the stock. This has consistently been at odds with the views of independent media sources and the share price reactions of the few publicly traded Chinese EV makers.


There are several realities that we must deal with in looking at Kandi.

The first reality: there are a large number of investors who simply do not even care if Kandi has a bright and legitimate future or not. They simply know that these hyper bullish articles have consistently been able to provide the stock with a sharp (but brief) boost. They are happy to buy and make a quick and easy profit. But they have no intention of waiting around to see if the hype is real. As a result, they quickly sell to lock in quick profits. This is why Kandi has repeatedly given up its gains on each surge in 2013.

It can be easily seen on comments below articles and on message boards that various investors are now counting much more on a continuing stream of bullish articles to pump up the share price than they are on any actual progress from Kandi itself. This is a very bad sign for any stock.

The second reality: The information which has been used to promote Kandi’s share price has often been 100% incorrect. Kandi is NOT the ONLY supplier of EVs in China, there are hundreds of identical offerings. Demand for EVs is not astronomical. It is not even merely substantial. The extremely and persistently low levels of demand have been cause for concern in various independent articles and industry reports. Likewise, the latest “news” regarding the EV industry and subsidies in China has been negative and has seen share prices of other Chinese EV makers fall rather than skyrocket. Analysis by independent media sources (who do not happen to own Kandi stock) have been unanimous on this front.

But because the numerous other EV competitors in China are unknown in the US, many US investors have come to believe that this inaccurate information is true. The fact that multiple writers have been posting very similar (but inaccurate) information has caused many investors to give this information even greater credence.

The fact remains that many investors who have bid up the price of Kandi by 50-100% have done so based on information which is verifiably 100% incorrect. As they come to appreciate this, the stock will almost certainly correct to below $5.00, from where it began.

The third reality: Kandi bears all the hallmarks of a classic stock promotion. A small number of investors produce well timed and coordinated articles designed to generate maximum enthusiasm for the stock. Much of the information is inaccurate. The promotion is then coordinated with organized buying to elevate the price.

The promoters of Kandi have then set very lofty share price targets which are often several hundred percent above the current level.

But readers need to ask themselves this: if Kandi is destined to rise to $30-50 in the near future, then why is there such a desperate need to continue pumping the stock when it gets down to $5.00 ? Why is there such a desperate need to defend the stock as soon as it falls by as little as 50 cents ?

If the share price were really headed to $30-50, then the right strategy would be to simply turn off ones computer and ignore the stock for the next 6-12 months. One could simply ignore arguments like mine because they would truly have no impact on the share price 6 months from now. These gyrations would be just random noise over the period of a few months.

The determination by the promoters to get the share price up basically tells us that they do not have the confidence in Kandi that they claim. Their rabid concern over the share price can only be explained by assuming that they are looking to sell in the near term and at prices not far above current levels.

Clearly the only thing that would really propel Kandi to such lofty levels would be actual success on the commercial front. But the steady stream of articles designed to pump up the share price has continued anyway. And now, we are told to expect a full promotional video produced by a professionally hired video production team. Once again, if the stock is inevitably headed for $30, then such a promo video would not be necessary. Nor would it have any marginal impact relative to the triple digit gains which are expected.

The good news is that for those who really believe that Kandi is truly destined for near term greatness, detailed findings like these really don’t matter. Investors who feel this way should simply disregard this article and not even watch the share price.

Disclosure: I am short KNDI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.