There is no question in my mind NASDAQ listed Tesla Motors' (TSLA) recent 200+% run-up was a major contributor to NASDAQ listed, China based EV maker Kandi Technologies' (KNDI) massive two day high volume move up. Let me explain.
Wednesday morning, June 5th, quiet KNDI's stock woke up with a vengeance trading over 18.5 million shares, or right at the total shares not held by insiders and hit an early inter-day high of 6.95 up over 70% from its prior close of 3.92; finally closing up 37% at 5.33 after heavy selling into the close. But that's not the important part of the trading story. The stock traded just under 900,000 shares in the pre-market and almost 12 million shares above $6 a share. Considering the average daily volume had been around 60,000 shares and the highest single day prior volume it ever traded was 3.1 million shares with 1.2 million shares in its 2nd through 5th highest days, all in Dec. 2010 this action was stunning. That is until Thursday which was another wild day which saw over a hundred thousand pre-market shares printing as high as 5.88 and an opening trade of 5.50. Trading the balance of the day saw a regular market low of 5.05 and high of 5.78 with a close up a .05 at 5.38 on 4.1 million shares.
OK, so the company did put out a small, short press release an hour before the opening Tuesday, but to close followers of KNDI, this was far down the list of substantial press releases about their incredible EV accomplishments in China. So the Company got another EV model approved by the PRC's Ministry of Industry and Information Technology (MIIT) for road use and subsides. No big deal, this is the tenth such EV Kandi has received MIIT approval on in the past couple of years. You can find the other nine at this translated link. Just click on the picture and you will see the info on each EV. And below you will see some pictures of the new 4 door Kandi-Geely Panda (The Panda line is Geely's top selling internal combustion engine car worldwide.)
JL7001BEV Panda, designed and built by Kandi for the Kandi-Geely Joint Venture
With the way the stock acted on this PR, one might think it really must have taken off when the KNDI-Geely 50-50 Joint venture was first announced back on March 23 by KNDI in a press release; not the case. The stock actually went down a nickel as soon as that news hit and ended day up only .04 at 4.01 on a couple of hundred thousand shares. And of course, once any stock starts immediately going down on news, it stifles new buying. Why the quick selling? Was it because it had run up before? No, it had been going down on light volume. General consensus is that the seller came in because at that time KNDI's reported short had grown to over 700,000 shares. Not big by Tesla standards, but considering the KNDI average daily volume at the time was running under 40,000 shares, 18 days to cover makes it significant and worthwhile for the short seller to try to turn each positive press release into a "sow's ear". If he lets it go up, well, you see what happened with this latest release. For those who missed it, here is the KNDI press release from Wednesday:
JINHUA, China, June 5, 2013 (GLOBE NEWSWIRE) -- Kandi Technologies Group, Inc. (the 'Company' or 'Kandi') , today announced that JL7001BEV, the first pure electric sedan jointly developed by Kandi and Geely Automobile Holdings Ltd. (Hong Kong Stock Exchange, Stock Code: 175) (the "Geely"), has been approved by Ministry of Industry and Information Technology of the People's Republic of China ("MIIT").
According to No. 27 public announcement of MIIT, Kandi Brand/JL7001BEV model is among the latest vehicles on the lists of "Approved Vehicles (No. 248)" and "Recommended Models for Energy Saving & New Energy Vehicle Demonstration and Promotion in China (No. 45)". As a result of this approval, the purchaser of such pure electric sedan will now be qualified to receive all levels of national and local subsidies and incentives for EVs.
Mr. Hu Xiaoming, Chairman & CEO of Kandi commented, "Given the MIIT's latest approval, Kandi and Geely Motors (GELYF.PK) have accomplished a significant progress in their cooperation. We will take advantage of the strength, resources and expertise of both Kandi and Geely to achieve a greater success in manufacturing, R&D and sales of the EV in China.
While this PR may seem quite tame, it is not surprising to KNDI veterans who know how conservative KNDI's CEO really is, but one wonders what additional positive affect this news would have had in the market, if KNDI would have included comments Geely made just last Thursday to Hong Kong analysts projecting the sale of at least 5000 of these Electric Panda's by this year end. Since Geely has a thousand dealer network, moving 5 EV's per location should not be hard to do. To quote from the China Media on that Analysts Call:
"… the electric car. A joint venture company with Condit, the future will produce small electric cars, electric cars such as the Panda. 5000 sales are expected in the second half, in addition to possible future cooperation with foreign manufacturers, selection and Condi cooperation model of electric car production…"
So why the difference in the stock reaction with this PR?
Recently, I authored a series of Seeking Alpha articles showing a head to head comparison and surprising similarities between the companies TSLA and KNDI as well as their respective CEO's. Well, after perusing many favorable reader comments on my articles from self-proclaimed TSLA supporters, I have to give a lot of the credit for recent buying to the savvy TSLA shareholders. Many have come to realize that TSLA and KNDI are the only two relatively "pure play" EV maker stocks easily accessible to US investors. So if you like and believe in the EV "space", it should not be to anyone's surprise after reading these articles (which have had 21,500 visitors to date) that some of these TSLA shareholders might want to play both stocks. Particularly after they realized that neither company are threats to each other and both stocks have incredible upside potential as their respective Country's EV leaders. So I certainly attribute a good bit of the buying, both directly by TSLA shareholders and by capitalist investors who realize the 90 to 1 disconnect between TSLA's $14.5 billion fully diluted market cap, to profitable KNDI's, $160 million, makes no sense and started buying KNDI shares. This recent buying triggered by the press release clearly stating that the PRC government has publicly confirmed the Kandi-Geely JV is in place, underway and will have full access to "all levels of national and local subsidies and incentives for EVs".
But aside from TSLA advocates who likely were early KNDI buyers Monday, another anomaly appeared that I can't remember ever seeing in my almost 40 years as a Market pro. Call it a "Perfect Storm" if you like. Tuesday was a hard day down in the Market overall right from the pre-opening futures. I mentioned above that KNDI was trading very heavy volume in the pre-market up as much as 40% on almost 900,000 shares. Then, when the market opened, KNDI stock gapped up further and was immediately the #1 percentage gainer on NASDAQ at the open. It maintained the #1 position by at least 50% ahead of #2 for the whole day through the close. This type of persistent performance is very rare for a non-takeover industrial stock, particularly one that is trading 375 times its average daily volume.
I think it is fair to say that prior to Wednesday, less than one tenth of one percent of active investors had ever heard of KNDI, let alone invested in it. But when an unknown stock is actively crossing the CNBC and Fox Business News "ticker" up 40%, it does create some curiosity by investors. So maybe by the end of the pre-market, recognition of KNDI may have jumped to 1% of active investors, but then by spending the whole hard down overall market day as the top "bull" play on NASDAQ, it is likely by days end another two or three percent would have heard of KNDI. So take this jump in the audience and match it with two other items, the Kandi-Geely press release and the recent warming of investors towards US traded China stocks as can be seen by recent headlines like: "China ETFs Are on Fire" and Monday's WSJ article; "U.S. Door Swings Ajar to China IPOs" , and a positive "Perfect Storm" for KNDI's stock materialized.
Armed with all this, momentum traders piled in day trading long and short, some 20 and 30 times during the day trying to scalp a nickel or dime, some long holders likely took a profit on a portion of their position, old short sellers squeezed a bit and now with the stock trading above $5, the door opened to many new funds and institutions, some of which I know started buying. Combine all this and you have what Wall Street veterans call a "Stock in Play". An Inflection Point, which every young mini-cap company yearns for.
Let me just wrap this up by saying; the timing of this increase in audience could not have been better for both KNDI and prospective shareholders. The long awaited new three year China National subsidy Policy has been reported by the PRC to be going into effect by the end of this first half, June 30th. Since December 31st, there has been no National EV subsidy available in China which has all but frozen EV sales by all manufacturers. This was the cause of the small number of EV's (302) KNDI sold in Q1 down from 2800 in Q4-12. Those EV's were sold under the old subsidy program and likely the reason Geely in its analyst call above projected the 5000 JV EV sales in this year's second half. Once the new subsidy program is released, KNDI also has a pending order to deliver 20,000 of their own EV's, outside of Geely, to a $140USD a month turn-key leasing program (includes everything including unlimited free one minute Quick Battery Exchanges for 36 months) for residents of the City of Hangzhou. KNDI's is only the provider of the EV's and has no liability or responsibility other than EV maintenance for the leasing program. The size of this whole order is approximately $135 million USD.
I wanted to keep this brief, so if you would like to learn more about KNDI and its similarities to TSLA, I suggest you read my three most recent articles found at this link.