As a young, small investor, like many who will read this article, I claim no credentials of a stock market analyst, accountant or investment guru. But as an avid follower of Wall Street legend Peter Lynch, theories such as:
If you do buy common stocks, make sure you understand the company and have a reason to believe that it is going to grow and have larger profits in the future. You should visit the company's retail outlets (if any), read reviews of its products, check to make sure it has stable management, and talk to people who are the company's natural customers.
I want to share with you an investment idea in a small un-researched company that I discovered while working on my "day job" as an independent video documentary producer. A little background first.
In 2010, prompted by President Barack Obama's push for a "green economy" I started research into green technology. I have worked in media over the last decade including for the NewsHour with Jim Lehrer and on documentary projects for the National Geographic Channel, doing stories in many locations around the World. I thought the "green economy" could be one of the important stories of the 21st century.
I began looking at fledgling relatively unknown public companies that might offer a viable path for a "green economy" and a great investment. The "green economy" was such a big and convoluted concept I began to focus exclusively on transportation. I was initially interested in the possible reality of electric vehicles. Today, when I, as most Americans think of electric cars the thought of Tesla and its amazing progress first comes to mind. NASDAQ listed Tesla (NASDAQ:TSLA) and its beautiful electric cars have unquestionably led the buzz about the industry. While the "darling" of both EV consumers and Wall Street, Tesla still faced the considerable obstacles any electric vehicle company needed to overcome, namely vehicle cost, range issues, parking, and charging infrastructure.
To start my investigative journey, I decided to take small positions in several technology companies to monitor their growth. But I decided against a position in Tesla not because it did not have potential to be a great company, but because their business model at the time was reliant on selling high-end cars to a U.S. consumer base born and raised on a flourishing internal combustion engine (ICE) infrastructure. I understood they would sell cars, but felt it might be largely a novelty item to wealthy individuals. Tesla's recent sales show there is a market for their car, but the high cost of their cars still caters to an exclusive top few percent demographic. Still, their success has been an important catalyst for electric vehicle recognition in the mainstream media.
In the course of my research I found some articles by Seeking Alpha mega-writer, John Petersen (curiously a "Pure" EV "detractor"). I took up a very small position in Axion Power (NASDAQ:AXPW), a provider of start/stop technology for car batteries. But I also discovered Kandi Technologies Group (NASDAQ:KNDI), the only Pure EV endorsement of a manufacturer in all of Petersen's writings; which amazingly, was a Chinese company listed on NASDAQ.
It was the simple approaches that Kandi's Founder/CEO, Xiaoming Hu, took to tackling the major issues facing electric vehicles that led me to take a small position and add it to my list of green tech stocks I was following. A unique eye-catching approach developed and patented by KNDI was the side-slide quick battery exchange that addressed the all-important range anxiety issues. The batteries can be exchanged either robotically in one minute, or manually with a mobile unit in two minutes.
Kandi Proprietary Quick Battery Exchange with State Grid Developed Robots
The side-slide quick battery exchange also allowed the battery to be leased or provided for free negating the expensive battery cost for consumers and significantly lowering the price of the car. This allows the cost of the batteries and their maintenance to be borne by either a leasing company or electric utility or both, allowing excess battery power to be used by the utility in a modified "Vehicle to Grid" (V2G) or Battery to Grid (B2G) program for "Grid Stabilization". Not surprisingly, over the past year or so, TSLA has also address the battery/range issue with its own form of Quick Battery Exchange similar to what KNDI first developed and patented in 2003.
Close-up of Tesla's Quick Battery Exchange in Action.
Currently, Kandi, the City of Hangzhou (>10 Million population), State Grid, (China's largest electric utility servicing over one billion of the population) and a consortium of battery and auto leasing companies are finishing a test turnkey leasing program in Hangzhou. The leasing program allows a qualified consumer to lease a Kandi EV for up to three years with all expenses included, even insurance, and unlimited battery exchanges for a flat fee of US$145 per month. Now that the China National EV subsidy program is approved, expansion of the program in Hangzhou to 20,000 Kandi EV's is expected to be initiated shortly.
When I looked further I came across a Pew Research Report discussing "green technology" and the fact that China is currently outspending the United States in this area. For good reason, the international media has documented how China's cities are cloaked in toxic haze. China's need to address their pollution was another indicator to me that Kandi would receive continued Chinese government support in their EV initiatives.
China, a country of 1.35 billion people, and largest importer of oil, has also become the World's largest car producer and the largest new car market. Passenger car ownership in China reached 120 million by the end of 2012. It's estimated that at its current growth rate passenger car ownership will top 200 million in China by 2020. The ownership rate in China is still only at 85 cars per 1000 people. Compare that to the US where it is 797 per 1000 people. As the rate of ownership in China continues to increase to just the worldwide average of 120 per 1000, it's likely that it will result in massive environmental problems and constrict the world's crude oil supply.
For these reasons and others, China has set a goal of 5 million electric vehicles on the road by 2020 and in September this year provided US$66 Billion in electric vehicle subsidies for the next three years. Check out this Mckinsey Report from 2012 on electric vehicles in China.
Over the last three years of following my "green economy" stocks, with several crashing and burning, I noticed Kandi starting to emerge as a viable option for electric cars in a country that desperately needs this solution. However, it wasn't until the completion of their first public automated EV CarShare garage earlier this year that I considered traveling to China to further my work. The Chinese media reports were showing Kandi's new electric car garage and to me it resembled an enormous vending machine for electric cars. I thought immediately that this was a novel and elegant concept. I had to see it for myself.
First Operational "Kandi Machine"
With both Government and "outside" support, Kandi's plan is to build 750 of these garages in the City of Hangzhou over the next four years through a 50-50 joint venture with Geely Automotive, China's largest passenger automaker. This effort will require about 100,000 Kandi electric vehicles. This model is slated for other cities and regions like Shanghai, Shandong, Hainan and as of yesterday, Jiangsu Province. Two garages were just completed in Hangzhou over the past two months and another 18 are currently under construction as of two weeks ago. Here's a list of the sites and size of the first 26, (click the Bianjiang tab on that web page to pull up the list).
To meet its aggressive goals Kandi has increased its EV annual manufacturing capacity to a current 150,000 cars per year, with a doubling of that capacity on the drawing boards for completion by 2017.
The Kandi public EV CarShare concept is based on Hangzhou's bikeshare, the largest bikeshare in the world and the first of its kind in China. The bikeshare has since spread from Hangzhou to 19 Chinese cities including Shanghai and Beijing. What you will see in the video below is the vast number of not just bicycles on the road, but as was pointed out in an excellent Seeking Alpha article which came out a year ago titled "What Percentage Of The 120M China EV Bike Owners Will Kandi Technologies Convert?", an amazing number of electric bikes and scooters. Many potential converts for Kandi's various programs and vehicles.
What is most impressive is the cost-effectiveness of Kandi's EV CarShare (20 Yuan for an hour, or US$3.28) making electric car transportation affordable and accessible to the masses. It has more flexibility and lower cost than a taxi and the privacy and intimacy of a private car while being an eco-friendly solution for car use. It also allows drivers the ability to get off their scooter, out of the elements, into cars and to transport large items like TVs and microwaves to help spur the Chinese economy. Initial reports in the Chinese media from EV CarShare customers have been positive.
As I mentioned above, I am no stock analyst, so I suggest anyone interested in the stock should review the Company's SEC filings at this link, read their press releases at this link, and read some of the more recent Seeking Alpha articles on Kandi by investors more sophisticated than I. But to help put in perspective what the value of the anticipated sales I reference above, based on information attained during a visit, the below table gives a general idea what the expected revenue generation potential for each of the PRC subsidy approved vehicles that are involved in the current two programs alone. The Hangzhou Long Lease program mentioned above is anticipated to need 20,000 Kandi cars mostly JNJ 6290 EVs with some portion being the four door Joint Venture JL7001BEV Panda. In this program the EV's are sold without the battery as these EVs are used with the free unlimited Quick Battery Exchange feature. The CarShare program expected to reach 100,000 cars over the next four years in Hangzhou alone, are sold with the batteries which are purchased by Kandi and resold with the EV's --therefore giving Kandi a much higher subsidy from the Chinese Government. Garages are coming online (as I mentioned above 2 are complete and 18 are under construction, with roughly 750 to a 1000 planned for Hangzhou alone) and each garage averages about 100 cars. Since Kandi also owns the Subsidiary that makes the electric motors, air conditioners, generators and controllers for both cars, Gross Margins should be in the 30% level.
Now words are great...reading is one thing, but seeing it is a whole other thing. So I decided to cash in my frequent flyer miles, scrape together some dollars and travel 7,442 miles to see the Kandi Machines for myself in Hangzhou and film this astonishing Kandi story for others to see.
Since my return a month ago I've put together the short eight-minute video documentary I have titled, The Kandi Machine, which I've included below:
I cannot tell you what the stock might do over the next few months or years. I will leave that to the pundits that claim omniscient wisdom in that area. But as a small investor I can tell you that in my short ten years of following and in some cases documenting "stories", many about public companies, I believe Kandi is a Peter Lynch-type "find", if ever there was one, and expect to be well rewarded by the stock performance.
Disclosure: I am long KNDI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.