On Sep. 27, 2012 we published a due diligence report discussing several Kandi Technologies (KNDI) related party transactions involving at least nine individuals and several entities. We also summarized other issues, including the status of KNDI's electric vehicle ("EV") business. KNDI has not addressed our findings since the publication of our report. However, management wasted no time in issuing three press releases; a press release on September 28, 2012, a day after our report and one on October 1, 2012 discussed details about a project to "facilitate faster development of China's electric vehicle" that is supported by an alleged "Strategic Cooperation" KNDI has with certain entities including China Aviation Lithium Battery (Luoyang) Co., Ltd. ("CALB"). In a third press release issued on November 5, 2012 KNDI mentions that it:
"…intends to expand into Hainan's pure EV market by establishing and investing in a manufacturing plant that will have the capacity to produce key components and parts for up to 100,000 EVs annually."
The releases paint a bright future for its Electric Vehicle ("EV") business. It is our opinion that these press releases are just a means to promote KNDI's stock price maybe just long enough to benefit shareholders who hold warrants at exercise prices of $6.3. Our opinion is supported by additional due diligence our team has completed that should lead investors to conclude that KNDI appears to have intentionally concealed some important information regarding its EV business and its relationship with CALB. We actually cannot believe how sloppy KNDI has been regarding specific details about its "strategic cooperation."
KNDI also claims that it inked a contract with CALB Hangzhou where it will manufacture 5,000 EVs as part of a bigger program to launch 20,000 EVs in Hangzhou China:
"Kandi Technologies, Corp.(NASDAQ: KNDI announced that the Company's wholly owned subsidiary, Zhejiang Kandi Vehicles Co., Ltd. has signed the sales contract with China Aviation Lithium Battery (Hangzhou) Co., Ltd. ('CALB Hangzhou') to provide the first 5,000 EVs for the currently largest pure EV commercialization launch in China -- the 20,000 pure EV leasing program in Hangzhou.
According to the letter of intent between Kandi Vehicles and China Aviation Lithium Battery Co., Ltd ('CALB') of July 16th, 2012 for the purpose of promoting the 20,000 pure EV leasing program in Hangzhou, CALB established a wholly owned subsidiary, China Aviation Lithium Battery (Hangzhou) Co., Ltd. in Hangzhou city to specifically facilitate the implementation of the leasing program."
CALB is a subsidiary of a public company called Sichuan Chengfei Integration Tech Corp. (SHE:002190) ("Chengfei Integration") which trades on the Shenzhen Stock Exchange in China. Chengfei Integration has disseminated public information to its shareholders that contradicts KNDI's claims regarding the relationship among State Grid, CALB and KNDI, Hangzhou project's implementation and others. CALB also established a project company for Hangzhou project called CALB Hangzhou on September 20, 2012. The relationship between Chengfei Integration, CALB and CALB Hangzhou is as follows:
Summary of New Findings
- KNDI's claim that it inked contract to deliver 5,000 EV to CALB Hangzhou by the end of 2012 appears to be a material misrepresentation. Based on the content of this alleged agreement, this "contract" would actually just be a letter of intent since CALB Hangzhou can decide when or even if to ever take delivery of any EVs. Furthermore, unless CALB Hangzhou is able to secure further grants, the amount of funds that CALB has dedicated to the potential purchase of EVs cannot cover 5,000 EVs, and certainly not 20,000.
- More importantly, we have not been able to locate details of this alleged "contract" other than a press release issued by KNDI.
- Recent comments by CALB's parent company, Chengfei Integration, clearly state that the commencement of the potential project covered by the alleged LOI is far from a guarantee.
"The feasibility of the business model has yet to be demonstrated as it is still in the planning stage….There is uncertainty regarding the implementation of the project agreement…"
- Recordings with Hangzhou EV Enterprise Development Co., Ltd. (marketing company of Hangzhou project) confirm that KNDI has delivered ZERO EVs under the Hangzhou project and there is no timeline regarding the delivery, despite KNDI's claim that it will deliver 5,000 EVs from September 2012 to December 2012.
- Our findings indicate that if CALB were to proceed with its EV plans in Hangzhou City that it would not be able to purchase its EVs from KNDI. The government approved EV model for the project, JNJ6290EV, is to be manufactured by a different company that is actually listed on a government site as the only firm that can manufacture this model.
- We will show that KNDI's EV is clearly not favored by the Chinese government based upon the Energy Saving and New Energy Vehicle Industry Development Plan issued on June 28, 2012 by the State Council (Chinese Central Government).
- Chinese financial markets have downplayed the importance of the Hangzhou project to Chengfei Integration, the parent company of CALB. This assertion is supported by the fact that Chengfei's stock price is lower than it was after it announced its potential involvement in the project. Yet KNDI still trades above the price when it issued its initial press release discussing the Hangzhou project.
- KNDI claims that:
The State Grid Cooperation of China ("State Grid") will cooperate with Aviation Industry Corporation of China (OTC:AVIC) through CALB for a 20,000 pure EV project through personal leasing method in Hangzhou, Zhejiang.
This is a very misleading statement. Our research shows that there is no formal agreement between entities involved in a "strategic" cooperation and the State Grid.
- Regarding KNDI's November 5, 2012 release, we will discuss the absurdity of KNDI's goal to build a manufacturing plant for EV components and parts in an area that makes no logistical sense. Given the state of the company's financials, in order to build the plant it would require the assistance of outside capital from very fickle investors at prices well below current levels.
We believe it is unwarranted that the market is valuing KNDI at a P/E of 40 when so many loose ends exist with the company's story. However, we believe KNDI's days of premium valuation are numbered since the market can effortlessly verify our findings by referencing statements made by a publicly traded Chinese company.
The Comprehensive Details Supporting our Findings
Argument One - Cooperation Letter of Intent NOT stamped with Official Seals
KNDI fails to point out the fact that the CALB admits that its Cooperation Letter of Intent with China Aviation Lithium Battery (Luoyang) Co., Ltd. ("CALB") was "not stamped with the official seal of each party; that lack of a seal does not follow the internal approval procedure for each party and does not have legal binding authority."
KNDI issued several press releases prior to our first report. For example, on July 16, 2012, KNDI's press release reads:
"There were over ten Strategic Cooperation LOIs signed between the companies from Jinhua city and major State Owned Enterprises of China at the Cooperation Forum in Beijing. The LOI signed by Kandi and CALB is to facilitate faster development of China's electric vehicle industry and to secure Kandi and Aviation Industry Corporation of China ("AVIC") leading positions in the EV and lithium battery industries. Their cooperation is also intended to promote structural development of China's automobile industry and accelerate transformation of economic growth pattern to fulfill the national goal of sustainable development. The State Grid Cooperation of China ("State Grid") will cooperate with AVIC through CALB for a 20,000 pure EV project through personal leasing method in Hangzhou, Zhejiang. Under the project, AVIC/CALB will be responsible to produce automobile-use lithium batteries and purchase 20,000 electric vehicles for personal leasing, while the State Grid will be responsible for the construction and supply of the charging network to power the operation of 20,000 EVs as well as the procurement of integrated automobile-use power battery sets. The Hangzhou municipal government will provide financial subsidies and create supporting policies that are beneficial for the promotion of EVs."
CALB is a subsidiary of a company called Sichuan Chengfei Integration Tech Corp. (SHE:002190) ("Chengfei Integration") which is a company listed on the Shenzen Stock Exchange in China. On July 17, 2012, Chengfei Integration issued a very different press release to its Chinese shareholders as follows:
"Hangzhou Electric Lease Rental Project (hereafter referred to as "Hangzhou project" or "the Project ") the feasibility of the business model to be demonstrated as it is still in the planning stage. As of today, CALB has not signed any strategic cooperation agreement with the National Grid and/or the Hangzhou Municipal Government, buy only signed a Cooperative Letter of Intent with entities that attended the "Strategic Cooperative Meeting Between Central Government owned Enterprises and Jinhua City" sponsored by the city of Jinhua in Zhejiang Province. The Cooperative Letter of Intent is part of the Government-led behavior and only a cooperative intention between two parties, only carries the signature of each party, is not stamped with the official seal of each party, does not follow the internal approval procedure of each party and does not have the legal binding authority. There is uncertainty regarding the implementation of the project agreement…"
As of now, the initial plan of the project is as follows:
"According to the initial pre-project planning, EV launching will depend on market response to EV. This project shall be implemented from September 2012 to August 2013 in several installments. Based upon the initial plan, from September 2012 to December 2012, 1,000 EV would be launched per month, totally 4,000 EV in 2012. From January 2013 to August 2013, 2,000 EV would be launched per month, totally 16,000 EV in 2013. The plan for the entire project is to launch 20,000 EV. The specific number of EV launched to the market shall depend on the market development, with different installments to gradually launch rental EV."
Comparing these two different press releases, we conclude that KNDI seemingly concealed the facts illuminated by CALB that:
- The Cooperative Letter of Intent "is not stamped with the official seal of each party,"
- The Cooperative Letter of Intent "does not follow the internal approval procedure of each party,"
- The Cooperative Letter of Intent "does not have the legal binding authority,"
- CALB is still in the early stages of determining the feasibility of the project,
- CALB has not signed a contract with KNDI, but only an unofficial LOI,
- The State Grid and/or Hangzhou municipal government does not have an agreement with CALB and/or KNDI regarding the Hangzhou Project.
Argument Two - JNJ6290EV is Branded as "Zoyte"
KNDI does not present the fact that JNJ6290EV, a pure electric passenger vehicle approved by the Chinese Ministry of Industry and Information Technology for the Hangzhou project, is branded with "Zoyte" under a company called Hunan Jiannan Vehicle Manufacturing Co. Ltd., rather than branded with "Kandi" or under any company related to KNDI.
On September 28, 2012, the day after we published our report, KNDI did not directly comment on our report but did issue a press release in an attempt to seemingly portray its legitimacy to investors:
"Kandi Technologies, Corp.(the 'Company' or 'Kandi') ( NASDAQ : KNDI ), a leading Chinese manufacturer and developer of pure electric vehicles (EVs) and all-terrain vehicles (ATVs), today announced that JNJ6290EV, a pure electric passenger vehicle jointly developed by Kandi and Zhejiang Zoyte Holding Group Co., Ltd. ("Zoyte"), has been approved by the Chinese Ministry of Industry and Information Technology ("MIIT"). The approval paves the way for Kandi's Pure EVs to meet the requirements for subsidies under the previously announced 20,000 electric vehicle leasing program to be launched in Hangzhou City.
According to No. 45 public announcement of MIIT, JNJ6290EV model is among the latest lists of "Approved Passenger Vehicles (No. 240)" and "Recommended Models for Energy Saving/New Energy Vehicle Demonstration and Promotion in China." As a result of this approval, the purchaser of such pure EVs will now be qualified to receive all levels of national and local subsidies and incentives for EVs."
We found the announcement of MIIT stating that JNJ6290 EV is on the list of "Approved Passenger Vehicles (No. 240)" and "Recommended Models for Energy Saving/New Energy Vehicle Demonstration and Promotion in China." However, in the published official list, the approved JNJ6290 EV is under the name of a company called Hunan Jiangnan Vehicle Manufacturing Co., Ltd. with the approved brand "Zoyte." The relevant information is as follows:
Recommended Models for Energy Saving/New Energy Vehicle Demonstration and Promotion"
Based on KNDI's disclosure, the approved JNJ6290 EV is entitled to the subsidies under the 20,000 EV Hangzhou project to be potentially launched in Hangzhou City. However, the electric vehicle will be branded with "Zoyte" under a company called Hunan Jiangnan Vehicle Manufacturing Co., Ltd. ("Jiangnan Vehicle"), rather than the brand "Kandi" or under any subsidiaries of KNDI. Based on our research, Hunan Jiangnan Vehicle Manufacturing Co., Ltd. is a subsidiary of Zhejiang Zoyte Holding Group Co., Ltd. ("Zoyte").
In sum, the Chinese Ministry of Industry and Information Technology approved Jiangnan Vehicle to manufacture the EV with the brand "Zoyte" for the Hangzhou Project. However, KNDI did not fully disclose the content of the governmental approval, only claiming that its pure electric passenger vehicle it allegedly co-developed with Zoyte "received Chinese government approval for a subsidy in the Hangzhou Leasing Program." Furthermore, based upon the governmental approval, we can't even be sure whether the approved JNJ6290 EV is a "Kandi-Zoyte Co-Developed Pure Electric Passenger Vehicle." We would have expected to find information about the KNDI-Zoyte relationship in SEC filings.
On August 15, 2012, KNDI claimed to sign a cooperative letter of intent ("LOI") with Zhejiang Zoyte Holding Group Co., Ltd. ("Zoyte") to establish a strategic alliance and cooperate with each other's competitive strengths to advance the EV development in Hangzhou. The major provisions of the LOI are as follows:
"In order to obtain the local government subsidies support, parties intend to jointly establish a new company of Hangzhou Zoyte-Kandi New Energy Co. Ltd. ("Zoyte-Kandi") in the area of Hangzhou city.
For the specific terms of cooperation, parties will sign a separate agreement based upon Hangzhou municipal government's requirements and the progress of the projects.
To satisfy the EV demands in Hangzhou, before the establishment of Zoyte-Kandi, parties will utilize their respective competitive advantages to start the initial cooperation for mutual development and benefit. The details will be further discussed and negotiated."
The planned joint venture is not yet established and there are no SEC disclosures regarding the details of the strategic alliance between Zoyte and KNDI.
Argument Three - In Our Opinion, The Claimed 5,000 EV Sale To CALB Hangzhou In 2012 Is Not Achievable
The contract between CALB Hangzhou and KNDI is not a contract, but still an LOI.
On October 1, 2012, KNDI announced a Sales Contract (based on the related LOI) for sale of electric vehicles ("Sales Contract") with China Aviation Lithium Battery (Hangzhou) Co., Ltd. ("CALB Hangzhou") as follows:
"Under the Sales Contract, CALB Hangzhou will purchase 5,000 pure electric vehicles without battery from Kandi Vehicles for a total price of RMB 199,000,000 (approximately US$31,587,301). The unit price of the electric vehicle is RMB 39,800 (approximately US$6,317) and the delivery place for the electric vehicles will be in Hangzhou City, China. The purchase period of the Sales Contract will be from September 29, 2012 to December 31, 2012. Kandi Vehicles will deliver the electric vehicles upon CALB Hangzhou's delivery confirmation notice by batch, delivery to be made within 7 working days of receipt of the notice and CALB Hangzhou's full payment for the vehicles identified in the confirmation notice.
The purpose of CALB Hangzhou's purchase is to promote the use of electric vehicles in Hangzhou City on a large scale and CALB Hangzhou has the right to adjust vehicle delivery times to conform to the implementation of this promotion, to market responses as well as to the actual running conditions of the electric vehicles, including vehicle quality and market adaptability."
Considering the last statement above and quotes from CALB we highlighted earlier in this report, in our opinion, this Agreement is only a letter of intent and not a firm contract. Furthermore, KNDI has yet to deliver any EVs.
CALB Hangzhou Has Not Allocated the Necessary Funds In Order To Purchase RMB 199 Million 5,000 EVs
Based on the disclosure of Chengfei Integration, the controlling shareholder of CALB, CALB Hangzhou is wholly owned by CALB and was established on September 20, 2012, only nine days before the execution of the claimed Sales Agreement by KNDI.
Furthermore, CALB also planned to provide a personal guarantee with the credit line of only RMB 120 million to CALB Hangzhou. In the disclosure, Parent Company Cheng Integration also states the following:
"The (Hangzhou) project can enjoy the preferential loan treatment as a green energy project and the CALB Hangzhou can enjoy the treatment with the principal/loan ratio 1:4 with basic loan interest issued by the government. Therefore, based upon CALB's registered capital RMB 30 million, CALB Hangzhou can apply RMB 120 million loan with the basic loan interest rate. For the progress of Hangzhou project, based upon the cash flow projection, the initial capital requirement of the project shall be around RMB 120 million."
Basically, CALB Hangzhou only can prepare a maximum of RMB 150 million (RMB 30 million registered capital as principal and RMB 120 million as a possible bank loan) for the Hangzhou Project. It also states that the projected initial capital requirement of the Hangzhou Project is only RMB 120 million. However, KNDI's claim that the RMB 199 million "contract" with CALB Hangzhou is far greater than RMB 120 -150 million, the capital potentially allocated by CALB Hangzhou for the Hangzhou project.
Furthermore, on October 8, 2012, Chengfei Integration only disclosed the establishment of CALB Hangzhou and not the execution of any EV orders. It also mentioned that as of October 8, 2012, CALB Hangzhou received ONLY RMB 6 Million from CALB as the paid capital. Chengfei Integration has not disclosed the alleged Sales Agreement by KNDI to its Chinese shareholders.
On Oct. 26, 2012, our investigator visited the office of CALB Hangzhou based upon the registration information. To our surprise, the CALB Hangzhou office was still under initial construction and no one was working in the office yet.
As of the end of October, 2012, no EVs have been delivered to the public and no EVs are available for public through lease arrangements under the Hangzhou Project. It appears improbable that KNDI will deliver and CALB can accept 5,000 EVs by the end of 2012.
KNDI's disclosure made on September 28, 2012 states:
"Based on the recently published status from State Grid, there are currently five QBE stations, 62 charging/service stations and 620 charging poles already in service in Hangzhou City. It is expected that State Grid will build an additional 25 QBE stations in the future to support the infrastructure needs for the leasing program. The ultimate goal is to allow the EV driver to be able to locate a charging station within every 5 kilometers radius in downtown."
Regarding leasing EVs under the Hangzhou project, on Oct. 9, 2012 our investigator called Hangzhou EV Industrial Development Co., Ltd., the marketing company of the Hangzhou Project. The officer clearly said that there were still no EVs leased to public, none available to lease under the Hangzhou Project and no timeline to launch EVs under the Hangzhou project. On Oct. 29, 2012 our investigator made a second call regarding the EV lease business. The officer confirmed that there were still no EVs leased to public and no timeline had been defined to launch EVs under the Hangzhou project. (Listen to Recording; Read Transcript)
The unofficial July 16, 2012 LOI between CALB and KNDI called for the delivery of 1,000 EVs per month from September to December. Based upon this plan, KNDI would be scheduled to deliver 4,000 EVs by the end of 2012. Furthermore, based upon the claimed contract signed on September 29, 2012 (which we now know is an LOI) with CALB Hangzhou, KNDI claims that it is now contracted to deliver 5,000 EVs, one thousand more than the original plan, by the end of 2012. However, in reality, as of the end of October 2012, KNDI has delivered ZERO EVs under the Hangzhou project which is not even officially launched yet. For all the reasons we explained above, we do not think that KNDI can or will deliver a substantial number of EVs under the Hangzhou project by the end of 2012.
Argument 4 - KNDI's EV and its battery change model are clearly not favored by the Chinese government.
On June 28, 2012, the Chinese State Council (Central Government) issued an Energy Saving and New Energy Vehicle Industry Development Plan. The Plan explains the details for the development of the Plug-in EV Model, including a key technology development plan and business operation plan, but only briefly mentions that it will explore the feasibility of the EV Battery Change Model.
The EV Battery Change Model means that an EV must be taken to a charging station to exchange the battery after it runs out of power. The Plug-in EV Model means that the EV can recharge its own battery at designated destinations after it runs out of power. KNDI, along with CALB, are sticking with the EV Battery Change Model. (KNDI manufactures the plug-in EVs while CALB manufactures the lithium batteries).
Following the issuance of the Plan by the State Council, the plug-in EV Model is already equipped with its own "EV AC charging pile energy metering" which is scheduled to go into effect on November 1, 2012. However, the EV Battery Change Model still does not have a national standard for the size, interface and layout of the battery. The majority of commentary suggests that the EV Battery Change Model will lose the battle with the Plug-in Model in the Chinese market. Sina Finance, Roll.sohu, 21cbh
Argument 5 - Chinese Investors Have Reacted Differently To The Shares Of Chengfei Integration When Compared To KNDI.
As we discussed before, CALB is a subsidiary of and 63.63% owned by Chengfei Integration. We can reference how U.S. and PRC investors view the relevance of the Hangzhou project by taking a look at the price action of Integration's stock price traded on the Shanghai Exchange and KNDI traded on the NASDAQ. The Chengfei Integration price chart is as follows:
On July 18 & 19, 2012, the stock price of Chengfei Integration increased more than 10% due to what we believe was speculation that the Hangzhou project could result in an increase in sales of CALB's lithium battery. However, the stock price of Chengdu Integration quickly lost these gains, arguably after Chinese investors realized the lack of feasibility of the Hangzhou project and that no substantial progress has taken place. The current price of Chengfei Integration has gravitated to levels lower than those before the announcement of the Hangzhou project. Chinese investors have seemed to disregard the impact of the Hangzhou Project when valuing shares of Chengfei Integration.
Here is the price action of KNDI in the same period:
Except for the time period after our report on September 27, 2012, KNDI's stock price had been substantially bolstered by the "prospects" that the Hangzhou Project would have on KNDI, fueled by many misleading press releases. KNDI's shares briefly attained $5.13 per share and currently trade at a P/E higher than 40. Apparently, KNDI's U.S. investors are not as fully informed as Chengfei Integration's Chinese investors and seem to still have high hopes for the Hangzhou Project. We find it amazing that KNDI is able to trade at a P/E higher than 10 in a space that has been mired with fraud.
6. Aside From The Hangzhou Project, KNDI Just Released A New EV Expansion Agreement That We Feel Is Unrealistic.
On Nov. 5, 2012, KNDI issued another press release:
"…Zhejiang Kandi Vehicles Co., Ltd ('Kandi Vehicles') has recently negotiated, conditional upon approval by the board of directors of the Company, a framework agreement (the 'Framework Agreement') with Wanning city government of Hainan Province, under which Kandi intends to expand into Hainan's pure EV market by establishing and investing in a manufacturing plant that will have the capacity to produce key components and parts for up to 100,000 EVs annually.…
The release goes on to state the following:
A. The Hainan manufacturing facility will be built by Kandi. When fully completed and reaching its ultimate production capacity, the facility is expected to generate up to RMB 3 billion of annual revenue;
B. The Wanning City will list this Kandi project as a top priority and apply for various preferential policy supports from the province government in Hainan;
C. The Wanning City will provide Kandi up to 500 mu (or about 82 acres) of land at a favorable price to build the manufacturing plant;
D. Upon the initial investment by Kandi, Wanning City will work actively to gain national, provincial and municipal supportive policies for the EV industry, and will fully promote the use and acceptance of Kandi EVs as well as its business model in Hainan province. In principle, the government will have a special subsidy policy for no less than 20,000 EVs every year;
E. Kandi will receive favorable tax incentives and rebates from Wanning City;
F. Kandi agrees to complete the construction of the manufacturing base within two years of obtaining the favorable land-use rights
We were able to locate a Chinese source showing that KNDI's chairman visited Wanning City on September 22, 2012 to discuss the feasibility of an EV project. However, no public information exists that shows that Wanning City government and KNDI executed any binding agreement regarding the EV project. KNDI seems to think that engaging in a conversation is as good as inking a contract.
Based upon the press release, we believe that the Wanning project substantially lacks feasibility and makes no business sense:
- Wanning City is a small county level city with only 610 thousand residents and USD 2,516 GDP per capita, which is 30% less than the GDP per capita of Hainan province, where it is situated. The local EV market in Wanning City is very small. Therefore, KNDI's assertion that "In principle, the government will have a special subsidy policy for no less than 20,000 EVs every year" is in our opinion totally ridiculous.
- Wanning City is more than a thousand miles away from KNDI's current campus; and to add even more logistical issues, it's on an island! KNDI claims to be planning the establishment of a manufacturing plant that will have the capacity to produce key EV components and parts. We assume these planned EV components and parts will be assembled for use in KNDI's EVs. Thus, these components and parts would be delivered to KNDI's facility from an island located over a thousand miles away from its home base. It also makes little logistical sense to ship EV components from Wanning City to other EV companies located outside the island. Why not just build a plant next to existing headquarters? Currently, only one EV manufacturer exists on this island in Hainan province called FAW Haima Automobile Co., Ltd. ("Haima"). Haima is also the only car manufacturer on the island. We do not see any indication that KNDI's planned manufacturing plant will provide components and parts to Haima. Furthermore, if KNDI wanted to sell EVs in the small island market, it would still have to compete with Haima for the market share.
- KNDI's current cash flow cannot provide the funding to begin this project. As of the first six months in 2012, KNDI had operating cash flow of negative USD 14.5 million and had a cash balance only totaling USD 4 million. The tight capital markets for China Hybrids may not allow KNDI to continue to access funds from the capital market, especially at its current premium valuation.
Something smells with regards to this press release. Why is the company planning to divert funds to a project that makes little economic sense?
We view a long position in KNDI to be very risky at any price.
KNDI U.S. investors should have a right to full disclosure with respect to the Hangzhou Project and KNDI's EV business; the same information that has been afforded to Chinese investors of Chengfei Integration, the controlling shareholder of CALB.
However, KNDI appears to have intentionally concealed key information about its EV business and the Hangzhou Project in what appears to us as an effort to bolster the company's stock price. Now that we have compiled even more information, building upon what we have already uncovered in our first report, we are of the opinion that investors who are banking on the Hangzhou Project as a way to fuel KNDI's EV business may need to search for other opportunities to jump start their portfolios. It appears that KNDI is twisting the truth to exaggerate its involvement in a "potential" project. Furthermore, KNDI's EV business is still far from successful and may even lack the viability it needs to be successful given the lack of infrastructure and charging stations.
Once investors consider the variables Chinese investors have already taken into consideration when pricing Chengfei Integration, we believe U.S. investors will do the same and value KNDI under $3 per share, which is commensurate with the price of KNDI prior to the announcement of Hangzhou project. However, $3.00 per share does not take into consideration the undisputed related party transaction issues we discussed in our first report and that KNDI may have grossly misrepresented the prospect of its EV business through loosely claimed contracts and statements. Investors would also be hard pressed to find a China Hybrid RTO that trades at a P/E greater than 10 (equating to a price of $0.90), especially ones that seem to misrepresent information to investors.