Ok, call me crazy. While it might not make “sense” to think that Warren Buffett would even consider looking at NASDAQ listed Kandi Technologies (KNDI) with its tiny $80 million market cap, it sure could make “dollars” for Buffett’s China doll, BYD (OTCPK:BYDDF). Let me explain.
Last week I was pleasantly surprised that Seeking Alpha picked up and syndicated a 4 part article I wrote titled “Examining Kandi Technologies: A China-Based EV and Quick Change Battery Company.” From the stock action in this normally quiet virtually unknown stock, it appears the article was well received. Imbedded in that lengthy multi-part article were several points why it could be deemed smart for BYD to consider marrying up with KNDI. For the sake of brevity here, I am going to skip the background on KNDI and suggest that those interested attain it by reading the above linked Seeking Alpha article. In this piece, I am going to highlight just two main logical reasons why a relationship with KNDI would be beneficial to BYD.
(A number of the below links are from China based website which I used Google’s on-line translator to exhibit. Therefore, I suggest you ignore the grammar and just get a feel for the content.)
Can KNDI’s KD5010XXYEV Mid-Speed Pure EV Be China’s Model-T or Volkswagen (Peoples' Car)?
Several months ago, just prior to the release in June of the PRC EV subsidy program, KNDI put out a press release announcing the PRC approval for their first EV cleared for sale in China. In the press release the CEO, Mr. Xiaoming Hu, made the following statement:
This was a long awaited announcement for us, culminating years of effort to develop and market in China an economical all electric vehicle meeting government standards that could become one of the cornerstones of China's ambition to become the world leader in low cost, clean and efficient all electric automobiles.
The Company noted that the process for obtaining official government approval for mass production of a vehicle is a long and arduous one, entailing numerous tests of the vehicle and inspections of the manufacturing process. Mr. Hu said:
Actually, of the vehicles approved by the government, the only EV on the list was our Kandi COCO.
Six weeks later an additional EV was approved, the KD5010XXYEV (KD5010):
…KD5010xxyev is much broader and it has great market potential. Not only does it potentially provide families with low cost, environmentally friendly all electric transportation, but it also is expected to meet the needs of government agencies such as the post office and power supply providers. As such, the Company is optimistic that the new KD5010xxyev will achieve popularity and contribute to the Company's future development…
(Since the above PR came out, the speed and range have been increased as can be seen by the below excerpt of an interview with the CEO Mr. Hu in the Zhejiang Daily on July 23, 2010... Condi is KNDI when translated.)
This newest EV which is half the length of a conventional sedan, and as can be seen from this China article reaches a speed of 85kph, has a range of 150km, and truly is a "peoples' car." This EV has already been embraced by at least Jinhua City with a local subsidy for an initial 3,000 cars bringing the cost after subsidy to the consumer without the battery to approximately $3000. The battery situation will be covered here in a later section. KNDI also has some 90 “trial” Ev’s mini’s sold to the China Postal Service in both Jinhua and Hangzhou. From the article:
…It is reported that at the present, "Condi" to develop a change-in electric cars, using a lead-acid batteries, driving range up to 150 km, the supreme speed of 85 kilometers without battery retail price is 4 million, Under the existing tariff, one hundred kilometers across 25 yuan cost is not applied, even compared with low-emission gasoline vehicles, but also saving more than 40%...
Now an EV with this size, speed and cost is exactly what the vast majority of the 300 million emerging middle class need and can afford. Not the expensive full size EV’s that SAIC, Geely, Chery, Dongfeng and BYD are trying to sell in China. The “people” are talking by keeping their wallets in their pockets in spite of generous subsidies, but the “big boys” are not listening. There is a reason that BYD still hasn’t sold as many consumer cars in China as you have fingers and toes. This translated article out of China is saying this as clearly as possible.
With the new energy vehicles introduced subsidies, China's emphasis on pure electric vehicles to support the road map increasingly clear. However, due to high prices, not stable enough battery performance and other factors, the current delays in the electric vehicle market acceptance, "hot policy" experienced "cold market." Some auto industry experts suggest that China should give priority to the development of small low-speed electric vehicles through which to meet the daily needs of price models can open the popularity of electric vehicles, the door to the community….
Further, this article is right on point, even quoting a BYD “staff member”:
…A staff member BYD booth said that although the advice people are doing it every day, but the real purchase of two new energy vehicles are a no. after state subsidies, the prices have come down a lot, but most people still think the price is high, but also worry about charging facilities are not complete and the short length of battery life issues…
And this second article, "Why develop a small electric car," states:
…From the mass consumer level, the current electric vehicle technology and more support costs are the development of small cars. Battery cost, capacity and charge constraints that have hindered electric vehicle to market a key factor. Small electric vehicle in the car battery cost is only half the price of mass production will be reduced by 30%, and operating cost is only the same level of fuel trucks, 1 / 3 or less, so more in technology and market feasibility…
The China EV industry today has the same problem that the US Auto Industry had right after the turn of last century and Germany after the WW II. One wonders how long it would have taken for the US auto industry to take off were it not for Henry Ford and his Model T or in Europe after the war if Ferdinand Porsche hadn’t developed the Volkswagen. Common sense, (but not dollars) gives one the feeling that the big “Sisters”, SAIC, Chery, Geely, Dongfeng, BYD, etc. are not going to voluntarily start making small EV’s in their current “big car” manufacturing facilities. And if only from an ego point of view, the thought of starting a new “mini-ev” facility from the ground up is something that none of the sisters want to be the first to do. KNDI on the other hand already has that modern 2.7 million sq. ft. office and manufacturing complex with an existing logistical capacity in excess of 100,000 EV’s a year making and selling more EV’s (over 3,500) the past 12 months in the US alone, then all the above have sold together on all Continents. And by this years end, most likely will have sold an equal amount in China.
KNDI on the other hand already has that modern 2.7 million sq. ft. office and manufacturing complex with an existing logistical capacity in excess of 100,000 EV’s a year making and selling more EV’s (over 3,500) the past 12 months in the US alone, then all the above have sold together on all Continents. And by this years end, most likely will have sold an equal amount in China.
Here is a video clip from a TV station in China. It shows the new Postal Vehicles along with various other EV's being assembled. It is in Chinese, but the video pretty much speaks for itself.
Quick Battery Change Technology…
Earlier this year, Chery partnered up with “A Better Place” to begin developing EV’s with Better Place’s “quick change” capability built in. This was great for KNDI in that I am sure it added a significant amount of credibility to KNDI and its multi-billion dollar Joint Venture partners “quick change” technology. Their battery quick change stations will begin operations in the next month or so in the City of Jinhua with an initial six exchange stations and 3,000 compatible subsidized EV’s. But look at the mess this partnership with its partner A Better Place has put Chery in. As can be seen from this article, Chery is planning on starting sales of its new mid-priced S18 EV in this year’s last half.
Chery Auto, China's largest independent carmaker, is set to start selling its first plug-in electric car model S18 in the second half of this year as the government has announced its plans to support and subsidize more eco-friendly vehicles, media reported Monday…
…Chery Auto will join hands with U.S. Better Place, an electric vehicle infrastructure provider, in the R&D of electric cars and charging network. The Chery switchable-battery electric car will be launched to the market in 2012…
Now who is going to want to buy the “old technology” S18 without the battery change feature knowing that once the new version is out in 2012, the old model will be effectively obsolete?
KNDI, on the other hand is already building all their China EV’s with the quick change feature built in and as mentioned above will be fully operational in weeks, not years. And, additionally will be selling their cars without the expensive battery which will be effectively leased to the consumer by the Joint Venture. The expense of the car, the charging farm, changing stations and the batteries are either covered by PRC and local government subsidies or out right paid for by the government. And to make it even “sweeter” KNDI, due to their ownership of the Quick Change patent will participate in the revenues of each quick battery change.
Now Mr. Buffett, tell me. How’s your “Sweet Tooth” after thinking about this Kandi?
Disclosure: Author long KNDI