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Arthur Porcari
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Arthur Porcari is a retired former regional stock brokerage firm President with 40 years stock market experience. His finance background includes, three years a stockbroker and two an investment banker with Merrill Lynch, ten years a Regional brokerage firm President, and OTC Market Maker and... More
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  • Kandi Tech: The Real Truth About China's Currently Uncontested #1 Pure EV Developer
    • Contrary to some with an "agenda" KNDI's Financials are clean, clear and informative to anyone with basic knowledge who takes the time to actually read them.
    • KNDI sell its EV Products in a similar way that TSLA sells it Powertrains and Battery's to its Strategic Partners, Toyota and Daimler
    • KNDI's infrequent battery sales are done with a profit in a clear and easily understood way
    • KNDI share of EV revenues for both CarShare and Lease programs is disproportionally higher by as much as 90% over its JV partner
    • Don't believe the above? Then read on for supported facts, not opinions and learn why KNDI .

    As the first Seeking Alpha Author to ardently follow NASDAQ listed, China Based Kandi Technologies (NASDAQ:KNDI) going back to Sept. 2010, with my last article in December 2013; I thought I could quietly live out my retirement years knowing that KNDI was in the capable hands of intelligent investors and a whole new generation of thorough researchers who have taken the time to not only read a 10K, and 10Q, but actually understand what they are reading. But under the old Wall Street adage; "You can't make this 'stuff' up'" along comes a new first time Seeking Alpha writer whose bio states he is a Pharmacist (great credentials if you want to opine on biotechs but likely questionable on China EV's) who shocks Wall Street with a well-timed 20 minute before the market close attack article on KNDI driving the stock down 13% by the close.

    The article was no surprise since this soon-to-be new SA author was claiming all day, in a reminiscent fashion of a recent high profile shortseller, but on StockTwits and various other chat boards rather than CNBC that after being long KNDI, he sold all his stock upon reading KNDI's three month old Q1-10Q and also went short. He went on to tweet for 24 hours prior to his report warning all longs that he was going to expose all the bad things he found by publishing his first Seeking Alpha article. Needless to say, even I, who probably know more about the company and what was in the 10Q than any outsider had a smidgen of apprehension.

    As a battle worn veteran of having to successfully rebut some 30 attack articles on KNDI over the past four years from $3 on up, I thought nothing would surprise me. But this one was a first. It was the first attack article that I immediately knew had everything wrong.

    Likely advanced notice of this article though StockTwit is what caused the stock to drop more than a dollar yesterday morning pre-open and continue down for the first hour or so after the opening. The author was quiet for the first few hours until the stock made a hard reverse and actually went green above $21; up as much as $.50. At that time he started Twitting again with this post: "Careful here. All longs, last warning. Know what's in the 10Q".

    This is a classic example of the time honored trick used by short selling attack writers. Create doubt by using a "big lie". Nothing is more disconcerting, and rightfully so, than for a company to have "fiddled with the books", particularly on its SEC filings. But SEC financial filings are so complex you would be hard pressed to find even a CPA that could explain 90% of what is in a companies 10k or 10q. So even if you do read the 10q and find nothing wrong (as is the case of KNDI) you still have the "lingering doubt" that maybe you missed something.

    I am confident in saying "as in the case of KNDI" regarding this 10Q more so then I would be saying the same thing about any other Companies 10q or even some past KNDI 10q. Why? Because 10q's are not audited like a 10k, so they are usually just quickly, if at all, perused by the SEC. BUT, in the case of this Q1 10q I believe it is somewhat a different story. Why? Because KNDI received SEC clearance by way of an "Effective" ruling on June 6th to issue new registered shares underlying some 2010 warrants. The timing of this Effective ruling just under a month after the 10Q was filed is a strong indication that the SEC did likely review the 10q along with the audited year end 10k for sure. There is nothing to stop the SEC from holding up such a ruling if they feel there is a significant problem with a company. It is done all of the time.

    Now I admit, there is nothing wrong with he telling investors to read the 10Q. After all, since this last 10Q he is referring to came out almost three months ago, the stock has traded over 160 million shares and rose 60%. One would think that many investors had read the 10Q by now and came to the same conclusion as I had. I read it several times and found absolutely nothing wrong with the content and the way it was reported.

    But true to the short seller attack article manual; "Don't worry about the facts, just make the headline scary", up pops the below article in the last half hour with this Headline:

    "Kandi Technologies' 10-Q Reveals Phantom Sales Growth And Other Serious Concerns"

    Scary headline, huh? Even more scary if it comes out in the last few minutes of trading before anyone can have time to read the whole article. If contents of this article was such a big deal, why has it taken three months and a rookie author to be the first to expose it? I'll tell you why, because there is nothing to expose. Anyone can take any company filing and even if they don't know anything about the company, (or have an agenda like being short the stock) can spin it anyway they want. Under 1st amendment rights, I can make up whatever I want and put it in print. Now I am not speaking of KNDI specific here, but most companies would rather ignore even personal attacks rather than try to make a legal issue out of it. Why? Ask Herbalife. Why don't they sue Ackman? Because that is exactly what Ackman wants. Once a suit is filed, the defendant has the right to all the corporate books and files of the Company, and that could include trade secrets. So you see, no company wants to get into that type of situation. So when you see an "over the top" headline, remember, the short seller knows it is a lot easier to scare someone out of a stock, then to scare them in. With KNDI's incredible 24% of the float reported short, the shorts in this stock have a lot to lose and will stoop to almost any level to "buy one more day". It sure didn't work for TSLA when it had its biggest percentage short ever while it was a $30 stock and it isn't going to work against KNDI. The short seller waited too long, fundamentals will now over-run him.

    Now let's look at what this young self-admitted short seller is trying to sell you;

    Here are his opening bullets:

    · Most KNDI electric vehicle sales are to KNDI subsidiaries, not to the end-user.

    · The new EV parts business launched in Q1 resells battery packs at a loss to create the illusion of rapid company sales growth.

    · KNDI EV and parts sales appear to be related to inventory buildup for the Carshare project and may not be reflective of end-user demand.

    · KNDI appears to only have a 9.5% economic interest in the Carshare project.

    · There is no official company data to show how the Carshare project is doing financially.

    Below are my point by point responses debunking each under the copied bullet:

    Most KNDI electric vehicle sales are to KNDI subsidiaries, not to the end-user.

    This is partially correct, but only to the extent that KNDI does not sell Electric Vehicles to the JV per se, at least as of the date of the subject Q1 10Q, it sells "EV Products which are addressed below. But before wrongly opining on this, the author should have taken the time to learn this which is explained in the 10Q. But for now, let me try to make this simple. KNDI through its wholly owned subsidiaries makes and builds about 90% of the completed Vehicle excluding the battery, but including the body, motor, AC, and controllers which it refers to in the 10Q as "EV Products". It then sells this almost completed vehicle to a 50/50 Joint Venture with Geely Auto , China's #1 ICE (gas powered) car manufacturer. The joint venture then adds the battery which is also provided by KNDI, but as "EV Parts" and a few more finishing touches and then sells the completed cars to a minority owned subsidiary (9.5% owned by KNDI) called Zhejiang ZuoZhongYou (ZZY) The balance of the sub is owned by Geely 9.5% and two Shanghai based Venture Capital(pg-8) firms 81%, Jiaxing Jiale Investment Partnership Enterprise and Jiaxing Jiazheng Investment Partnership Enterprise. It is ZZY who puts the purchased completed EV's into the CarShare program as well as manages it.

    Now I don't know what is so sinister about this arrangement. These type of Partnerships and JV's are done all the time Worldwide. When When NASDAQ listed Tesla Motors (TSLA) sold its powertrain and battery packs to Toyota for their RAV-4 EV or to Daimler the complete power train for the Mercedes-Benz B-Class Electric Drive, launching this year, does anyone think TSLA should not be paid? Or the arrangement is a scam? Of course not.

    If the author looked at the KNDI PR put out on July 14 Headlined:

    Kandi Announces Its JV's Sale of 4,114 Kandi Brand EV in the Second Quarter, a 238% Increase From the Previous Quarter

    JINHUA, China, July 14, 2014 (GLOBE NEWSWIRE) -- Kandi Technologies Group, Inc. (the "Company" or "Kandi") (KNDI), today announced that Kandi Electric Vehicles Group Co., Ltd. (the "JV Company"), which is a 50/50 joint venture between the Company and Shanghai Maple Guorun Automobile Co., Ltd., a 99% owned subsidiary of Geely Automobile Holdings Ltd., sold 4,114 Kandi brand Electric Vehicles ("EVs") during second quarter of 2014, a 238% increase from 1,215 EVs in the first quarter of 2014. Kandi expects to report its second quarter financial results on August 11, 2014…

    It couldn't be any clearer. The JV sold the Cars, all 4114 of them in Q2 Worth some $50 million. But these cars didn't materialize out of thin air, KNDI, as discussed in the prior paragraph, sold the 90% completed EV's to the 50/50 KNDI/Geely JV who in turn sold them to an "End User", Zhejiang ZuoZhongYou Electric Vehicle Service Co (ZZY) to put in the CarShare program. The fact that KNDI happens to own a small 9.5% interest in ZZY is a bonus for KNDI and its shareholders. But any common sense investor would have to agree that ZZY is 81% owned not by KNDI, but by the two Venture Capital Firms who put up the money for the project. The fact that ZZY is included as a sub of KNDI should not be surprising. This CarShare project is a new concept developed by KNDI's CEO, Hu Xiaoming so can you blame the VC's for wanting KNDI to assist in running this new business model?

    Next bullet busted.

    The new EV parts business launched in Q1 resells battery packs at a loss to create the illusion of rapid company sales growth.

    Once again; partially true, KNDI did sell the battery's to the JV. But if the attack writer would have spent a little more time researching the Company, he would have noticed that KNDI bought these batteries (and a few more) under contract before the JV was finalized on Dec. 24, 2013 from Wanxiang on Oct. 28, 2013. Here is the 8k that was filed at that time and the Company Press Release:

    Kandi Technologies Announces Sales Contract for Lithium Iron Phosphate Battery From Wanxiang Group Corporation Valued at RMB 182.4 Million or Approximately USD 30.3 Million

    October 28, 2013 08:35 ET

    JINHUA, China, Oct. 28, 2013 (GLOBE NEWSWIRE) -- Kandi Technologies Group, Inc. (the 'Company' or 'Kandi') (Nasdaq:KNDI), announced today that Jinhua Kandi New Energy Vehicles Co., Ltd. ("Jinhua New Energy"), a subsidiary of Kandi, has signed a sales contract to purchase 12,036 cases of 80V66Ah lithium iron phosphate battery from Zhejiang Wanxiang Ener1 Power System Co., Ltd ("Wanxiang Ener1"), a subsidiary of Wanxiang Group Corporation ("Wanxiang Group") to meet the battery demand for its electric vehicles ("EV") for Hangzhou public EV sharing system (the "Project"). Each case of battery has 80 volt and 66 Ah (Ampere Hour) capacity. The contract is valued at RMB 182.4 million or approximately USD 30.3 million when all the purchase orders have been fulfilled.

    Wanxiang Group is China's largest automotive components company and its subsidiary Wanxiang Ener1 is one of the largest and most advanced battery manufacturers in China. Wanxiang Ener1's products have been well recognized and praised at the 2010 World Expo in Shanghai and 2010 Asian Games in Guangzhou…

    And here is the 8K and KNDI PR which shows that the Transfer of Assets creating the JV didn't happen until two months after KNDI tied down the battery deal with Wanxiang.

    Kandi Technologies Announces Its Subsidiary Zhejiang Kandi Electric Vehicles Co., Ltd. (the "JV Company") Signed the Ownership Transfer Agreement With Shanghai Maple Guorun Automobile Co., Ltd

    December 24, 2013 08:35 ET | .

    JINHUA, China, Dec. 24, 2013 (GLOBE NEWSWIRE) -- Kandi Technologies Group, Inc. (the "Company" or "Kandi") (Nasdaq:KNDI), announced today that its subsidiary Zhejiang Kandi Electric Vehicles Co., Ltd. (the "JV Company") signed the Ownership Transfer Agreement (the "Agreement") with Shanghai Maple Guorun Automobile Co., Ltd. ("Shanghai Maple"), a 99% owned subsidiary of Geely Automobile Holdings Ltd. ("Geely") on December 23rd, 2013...

    Now the Attack Author states in his article:

    "EV Parts" Tactic: In Q1, a new

    "EV parts" business was, according to the 10-Q, launched and brought in $25 million in sales. The 10-Q states that this revenue was entirely from the "resale" of battery packs at a loss after considering "labor and overhead costs."

    Note that the author puts this in Quotes, I assume to make the reader think what he says comes for the 10Q. I don't know whose 10Q he got that quote from, but I can assure you; nothing resembling his quoted statement is anywhere in the KNDI Q1 10Q. While it is very likely KNDI didn't make much on the battery sale, as shown by the one time drop in Gross Margins in Q1, KNDI, as seen above, did spend over $30 million buying the batteries in October, and subsequently had to "book" the transfer after Dec. 24th somehow, so they logically did it with a "sale" following GAAP accounting rules.

    Now let's look at this transaction as it pairs with the author's sinister motive theory. Don't you think if KNDI really was just doing something to "cook" its numbers by selling to its supposed "own" subsidiary, the Company would have done it at some sort of significant profit? And for that matter; wouldn't it have made a good PR at the time the transaction took place? Think about it.

    Let's move on to his next bullet.

    KNDI EV and parts sales appear to be related to inventory buildup for the Carshare project and may not be reflective of end-user demand

    Now this one, as ominous as he wants you to believe, is probably true to a point. I suspect that most manufacturing Companies do build up inventory in excess of immediately known demand but since KNDI has manufactured different amounts of PEV's in the first half of 2014 as can be seen by the charts and graphs below, including a lesser number in the Month of June, it certainly appears they are building for "reflective end-user demand".

      

    China Pure EV Production

     
           
     

    Jan

    Feb

    Mar

    Apr

    May

    Jun

    Kandi/JV

    0

    200

    943

    1536

    1564

    1014

    Total China PEV

    171

    409

    1894

    2562

    3915

    3777

    (Click on month for link to confirmation article)

    While the attack author may try to paint a picture of subterfuge and "Phantom" production on KNDI's part, a fact he cannot change is that in spite of only having received its first subsidy payment a few weeks ago, KNDI is clearly #1 in production to date in all of China as is easily corroborated by clicking on the various "month" links in the table above. He may be able to confuse unknowing US shareholders, but he cannot refute the thousands of China Media articles, month after month year to date publishing that all-telling statistic.

    And on to his next point:

    KNDI appears to only have a 9.5% economic interest in the Carshare project.

    If you have read this far in my rebuttal, the 9.5% he states should sound familiar. Yes, not surprising he is either again confused, or is again trying to purposefully obfuscate the "facts". As I explained above, the 9.5% is KNDI's percentage ownership in the Operating Company, ZZY. Notice how he leaves himself with "cover" by using the word "appears". Well to anyone who read the 10Q, it is not a matter of "appearance". It is a matter of fact that KNDI, the US public company has closer to 90% "economic interest" in the CarShare program.

    And his final opening bullet:

    There is no official company data to show how the Carshare project is doing financially

    Again, to an extent, he is correct. Since KNDI does not own over 50% of the JV, and only 9.5% of ZZY, FASBI rules do not allow KNDI or any company for that matter to "consolidate" a subsidiary's numbers with the parent's numbers other than as a simple "line item" in the P&L called "Share of profit after tax of JV". However for transparency, KNDI did provide JV results in a "Note" to the 10Q. Anyone who really read, or if he really knows how to read the 10Q should have seen this P&L on Page 29 which clearly showed that the JV had Sales of $34.9 million, gross income of $4.3 million and a profit of $1.7 million in Q1. Below is a reproduction of the 10Q table.

    Now if you have been following what I have written so far, you should understand that there is no direct relationship between KNDI the public company and the CarShare program other than KNDI is the sole supplier to the JV of the "EV Products". So why would he or any knowledgeable investor expect to see "official data" on the CarShare project in KNDI's, independent public companies filings? What any investor in any public company should be concerned about is if their Company is generating sales for their products in a conventional way. KNDI is clearly doing that.

    To address some additional accusations

    He says "Kandi has a complicated organizational chart" With that statement it appears he has little knowledge on setting up a corporate structure for a future multi-billion dollar, multi-national company. With a total of 14 wholly and partially owned subs, considering KNDI is a China based US listed company now expanding to four additional provinces and over a half dozen cities, paired with their legacy and export business, the number of subs is quite small. I suspect what has him confused is that for transparency KNDI actually posted its Subsidiaries in their filing, something most companies usually don't do. Ever see TSLA's Organizational Chart? I haven't because they don't report it. Look at this list of Subsidiaries Morgan Stanley has. If you care to count them you will find over 1,100.

    EV Parts" Tactic:

    He said (and this is a direct copy and paste):

    "In Q1, a new "EV parts" business was, according to the 10-Q, launched and brought in $25 million in sales. The 10-Q states that this revenue was entirely from the "resale" of battery packs at a loss after considering "labor and overhead costs." The 10-Q does not say who the battery packs were sold to, but one could assume the majority was sold to the JV with Geely or other KNDI subsidiaries. The more concerning part is how KNDI spun this to boast 174% revenue growth from $14.7M to $40.2M. Without this questionable tactic, revenue growth would have been roughly flat. This is worth repeating: Without the launch of the financially engineered EV Parts business in Q1, revenue growth would have been 3.4%, not 384.5%."

    For starters I have no idea what he is saying or where he got this totally confusing paragraph from; certainly not from the 10Q as he quotes it. The 10Q simple says the following about EV Parts on page 36:

    "EV Parts

    During the three months ended March 31, 2014, our revenues from the sale of EV parts was $25,014,066. We started this business in the first quarter of 2014, and our business has consisted primarily of the sale of battery packs and related parts."

    And the last Italicized line three paragraphs above makes no sense at all. He likely got the 384.5% growth from this section of the 10Q, also on page 36, which has nothing to do with the EV Parts section and simply says:

    "EV Products

    During the three months ended March 31, 2014, our revenues from the sale of EV products increased by $6,641,054, or 384.5%, as a result of a 105.3% increase in unit sales and a 136.0% increase in the average unit price compared to the same period of last year. The significant increase was mainly attributable to the newly-added EV model -Kandi Brand SMA7000BEV, a five-door and five-seat vehicle, and SMA7001BEV, an improved model of electric vehicle, both of which are sold at a significantly higher prices. The increased unit sales were driven by sales to Hangzhou Public EV Sharing System (the "Carshare" Project).

    As you can clearly see, the 384.5% has nothing to do with the $25 million battery sales.

    Now let's try to bring this rebuttal to an end with my addressing the four bullet points in his conclusion.

    He amazingly claims his 100% erroneous article answers the four following questions:

    · Why there is no analyst coverage

    · Why there is very low institutional ownership (mostly just index funds

    · Why there is a large and growing short position

    · Why KNDI recently filed a $300M shelf offering

    Really? I don't think so. But let me try to answer them accurately.

    There is currently no US analyst coverage for several reasons, but mainly three; Analysts are not going to take a risk in being the first to "write up" a low price company (particularly foreign unless; 1) The Company signs up with a "full service" Investment Banking firm with analysts to raise money for the Company or; 2) Until the Company starts giving earnings and revenue "guidance" and sponsors Investor Conference Calls; and 3) The Company pays for a Research Report.

    In KNDI's case,

    As a small Chinese company that did not attempt to raise any serious money until after the 2011-2012 Chinaphobia era when all Chinese Companies were being written up as frauds by short sellers; its only option to raise money was through "Transactional Hedge Funds". They typically don't have analysts. But they did tie up the Company with Right of First Refusal on Subsequent Offerings blanking out prospective larger full service firms. All three of KNDI's offerings to date were done by the same two firms. At the Companies last Annual Meeting in Dec. when asked by a shareholder if and when Conference Calls and Guidance would begin; the CEO stated and I paraphrase, once the Government firmly put its EV plans in place and the Company knows the ground rules for EV sales in China, both would begin. And finally, the Company has had no interest in "paying" someone for a report.

    However, over the past two weeks, Analyst coverage was initiated on KNDI in China at two China based firms, both with "Overweight" ratings. Old line Haitong Securities and Shun International Securities. In reality, I feel much more comfort that Analysts in a Companies Home operating area endorses their stock even though 95% of their retail clients cannot buy US listed Companies, then some second tier US firms. If anything not kosher is going on in the business, the home grown firms will report it first.

    2) While the increase above ten dollars in Q1 did see the appearance of some Institutional names such as Morgan Stanley, Investco, JP Morgan Chase, Calpers, WFG Group and a few dozen lessor names, and it is likely when the new list come out on Aug. 15, more will be added due to the higher price and volume. Until the company starts doing Conference Calls and giving Guidance or having other analysts following, I wouldn't expect massive increases in Institutional holdings.

    3) Why a so large a short in KNDI? The same question could be asked as to why was there a large and growing Short Position in TSLA. Though more shares outstanding now, TSLA hit its max short outstanding of over 30 million shares when its stock was trading in the $30 area. Over the years many hedge funds did very well in attacking China stocks in particular. So KNDI is a China stock that had an inordinately high short for some four years now.

    4) The Company filed a $300 million shelf offering for the same reason TSLA did when its stock was in the low two digits; with the expectation of triggering the shelf when the stock gets to the high double digits to triple digits. The Founder/CEO and largest shareholder has not built up current annual capacity to over 300,000 cars and through MOU's with several cities and in four Provinces an additional 300,000 capacity expected to be in place by 2016-17, just to have these new facilities collecting dust for the next decade.

    In conclusion

    You have two clear choices here. Either believe what I have put together here which should effectively challenge100% what Mr. Rabizadeh, a trained Pharmacist writing his first article has delivered to you, or believe me with my over 40 years' experience as a Wall Street Pro.

    I have followed and endorsed KNDI for seven years now and visited the Company in China twice at no expense to the Company. It is not my intention to tell anyone to buy or sell this or any stock. But it is my intention to get the "real" story out so investors can make educated decisions and not sell for the wrong reason.

    One thing for sure; when I last visited the Company in September of 2013, I asked the CEO if he felt KNDI could be a hundred dollar plus stock in a few years. His answer with an upward moving thumb was "Higher". I believe him and I will be here to see this achieved. It is up to each of you to decide if you want to be here as well. At that time, neither the stock, nor the market will care who is still around.

    Just a last reminder: KNDI's Q2 financials will be reported on Monday Aug. 11. I expect a five to six fold increase in year over year revenues and some $.25 + GAAP net income up from a $.03 Q2 loss last year. What is most impressive is that all this has been created before the subsidies finally began with an initial $31 million payment for the PRC alone. I also expect total subsidies paid for the first half of 2014 to exceed $70 million. While KNDI does not get the subsidies directly, that cash going to ZZY will likely be all plowed into buying more EV products from KNDI. If that is not enough for you, then I am sure Mr. Rabizadeh would be happy to have you join him in his self-proclaimed short position.

    Disclosure: The author is long KNDI.

    Tags: KNDI, TSLA
    Jul 25 4:43 AM | Link | 50 Comments
  • The Collapse of the Big Name China Stocks: OMG! All China Stocks Must Be Frauds. Right? Not So Fast…

    Those who have followed my Seeking Alpha articles know that in spite of spending eight days in China last November visiting several companies, I have only written positively about one US traded China Stock; Kandi Technologies. (NASDAQ-KNDI) I liked it at higher prices, and based on recently reported events, I love it now. But that is not what this article is about. This article is about a current market sector environment and a number of stocks that I personally wouldn’t buy. Not because I have any problem with them, simply because I only take long term positions in stocks that Wall Street doesn’t know or care about, but where I have spent many hundred, if not thousands of hours doing my own due diligence. However, based on my 37 years as a market professional with more of a Psychology rather then Business educational background, I think I know a short term market disconnect when I see one and history shows it is times like this when longer term reward potential is at its highest for savvy investors.

     

    I am not going to waste a lot of time giving the background of how we have arrived at this point of disconnect between stock price and business performance of the vast majority of US traded China companies. The various forms of media have done a more then sufficient job of creating this environment whereby fear throws out logic. If somehow you have missed what is going on in this sector, then you shouldn’t be investing in the Market. But I will unconditionally state that not all, not even a vast preponderance of China stocks, are purposely fraud infested. However you wouldn’t know this by following the media or looking at the sector stock performance over the past few months. Credit for this phenomenon is certainly given to short sellers and “attack” blog writers who have created a “magic bullet” to create instantaneous assured profits from short selling. But don’t for a second buy into their claim that proper due diligence is the primary reason why the stock of an attack target drops like a rock within seconds of the release of their articles. I suspect the dramatic drops are more so attributable to short sellers capitalizing on Market Psychology of the old adage; “It is easier to scare an investor out of a stock then into a stock”. This point is further proven by the immediate collateral selling in other sector stocks, no matter how unrelated, in just minutes from the release of a 20 to 40 page target article.(who can read that fast?) The thought of this broad based power now being realized by even ignorant attack writers with short selling in mind should be chilling to all to say the least. Emboldened with this psychological tool, virtually all stocks, China or otherwise, could in the future be more vulnerable then ever to this brilliant form of manipulation.

     

    I have read and researched a number of these articles and their targets and have found several which have uncovered activities which seem to range from at least suspicious, to bizarre, to fraudulent in appearance to a western way of thinking, but to broadly blame any such activity as purposely fraudulent rather then considering the possibility that cultural or translation differences may be the cause seems “over the top”. But in all fairness to the writers; even if they did want to be equitable to the target company and perhaps present a draft of their article in advance for contributory company comments, corporate securities counsel would most likely not allow clients to respond in fear of violating SEC selective disclosure rules. So yes, congratulations to the attack writers and their short selling friends, they have found their magic bullet and regrettably for the retail investor, they have no friend in the Regulators who are supposedly empanelled to protect them.

     

    Now on to my main theme here

     

    A month or so ago, many, including myself, felt most of the Chinaphobic sector carnage was likely past. As an old Viet Nam era Marine Corp captain, to my investor friends I had likened the small cap China stock environment at that time of stagnant prices and much lower volume to that of a completion of a combat ”fire fight”. I was suggesting it was time for the bold to stick their heads out of the foxhole and go on the offensive. But even to my supposedly experienced amazement the attacks writers just boldly moved on from the small caps to the “institutional” darlings like Longtop (NYSE:LFT) and Sino-Forest (OTC:SNOFF). Up until a couple of months ago Institutional investors in the big named “Chinas”, were snickering at the carnage the shorts were wrecking on the small Chinas. These confident “Funds” kept driving the big Chinas like Baidu (NASDAQ-BIDU), China Dangdang (NASDQ-DANG), Yoku.com (NASDAQ-YOKU),Sina.com (NASDAQ-SINA), New Oriental Education (NYSE-EDU), Perfect World (NASDAQ-PWRD), Shanda Interactive (NASDAQ-SNDA), Trina Solar (NYSE-TSL), China Yuchai (NYSE-CYD) etc. to newer “highs”. But now let’s fast forward to earlier this week. The “tape” says it all...

     

     

    Symbol

    BIDU

    YOKU

    DANG

    SINA

    EDU

    PWRD

    SNDA

    TSL

    CYD

    April High

    154

    69

    26

    145

    128

    29

    54

    30

    33

    Recent Low

    118

    28

    11

    78

    98

    18

    35

    19

    19

     

     

    To the average investor, seeing the recent rapid breakdown in all the big names along with hearing the incessant media rants that “all China stocks are frauds”, would likely lead the unknowledgeable investor to the belief; “OMG!, the media is right, they are all frauds”. And of course this belief is just further unfairly compounding the problem in the lesser known names. But could it be true that all of these big names are really all frauds? Of course not. It is my opinion that what we are seeing at this moment is Institutional “Window Dressing” as we approach the end of the quarter. Mutual Funds in particular are concerned that with all of the mostly bogus media about China stocks in general, their investors might consider the fund manager “idiots” if shown holding any China stock in the portfolio by quarters end. So “ethnic cleansing” Wall Street style is running rampant.

     

    If it turns out that my above theory is true, it is likely (assuming no more specific “big name” fraud accusations appear) there could be a substantial rally in the big names after Quarters End settlement date passes. IMO, if the big names do rally, this should take the pressure off a number of the smaller names. If Wall Street’s Chinaphobia does begin to quiet down in the new quarter and common sense returns, then the inevitable realization that China is the real growth story for the balance of this decade should reappear and irrespective of what downturn may or may not lay ahead for US stocks, the real fortunes will likely be made in China stocks for a long time to come.

     

    This too shall pass

     

    As painful as this has been for traditional long term investors and honest China companies who have suffered during this unique period of time, this too shall pass. While no “market” is pure of those with fraudulent intentions, I suspect that time will tell that those China companies who survive this bloodbath and come out fundamentally unscathed, will inure significant benefits for two reasons; Firstly, they will have survived a regulatory and accounting review more intensive than any US based companies have ever had to endure and secondly, as US investors once again focus on investing in the fastest growing and largest economy in the world, there will be a much smaller arena of China stocks to chose from.

     

    Dart Board Portfolio-How to outperform any US Index over the next year+.

     

    Trying to safely choose the best stocks in the China arena may likely be a fool’s errand for the unsophisticated investor. But if you have a large enough sum with which to speculate, perhaps you should go to www.allchinastocks.com and print out the list of US trading China stocks. Tack the list to a wall and throw 20 darts and put 5% of your cash in each issue. Even if two or three of your choices yet fail, it is very likely that the balance will more than make up for the losses and handily outperform the S&P, Dow or any other US Index. (Perhaps some ETF consolidator might be wise to take this “tongue and cheek” solution at heart.)

     

     

     

     

     




    Disclosure: I am long KNDI.
    Tags: KNDI, BIDU, YOKU, DANG, SINA, EDU, PWRD, SNDA, TSL, CYD
    Jun 23 6:13 AM | Link | 2 Comments
  • Is China Based NASDAQ Listed Kandi Technologies (KNDI) Shares Ready To Explode?

    October 12 Update:  KNDI put out an 8K this morning showing they now own 30% interest in the recently announced Joint Venture with State Grid of China, and Tianneng Power International, Ltd., China's largest Electric Utility and Dominant battery maker respectfully. 30% is a much larger share then what I was expecting.


    What’s that you say? Over the past couple of weeks it already has? Maybe, but maybe the move has just begun. 

    As many of you know, a few weeks ago, thanks to AltEnergyStocks.com and Seeking Alpha, I was allowed to publish a series of articles on this obscure, but potentially sleeping giant who is creating a paradigm shift in a trillion dollar space in China. Since publication, the stock has seen a move up of over 50% and average volume up six fold. Hopefully, I have made it very clear that I have to date not had, nor have I attempted or cared to gain, any access to non-public information. I wrote those articles based on my following the Company for three years, a lot of internet research of websites both in the US and China, and reading the “tea leaves”.

    This past week on Oct. 5th, the Company published one of its rare press releases. At the time of publication of that release, the majority of information within was not a surprise to me as effectively the same information was published on numerous China websites as early as Sept. 29. While the “majority” was not a surprise, there was one particular part that was not just a surprise, but potentially startling to me. Let me explain.

    Going back to the beginning of the year when the Company first introduced its leadership position in a Joint Venture to develop a total logical solution to rolling out Electric Vehicles in China, one of the partners they named was CNOOC, Ltd. (NYSE-CEO) a division of China National Offshore Company, China’s largest producer of oil and gas. No question, a very prestigious partner. Up until last weeks press release and the Sept 29 China articles, in the Company in its press releases, and the China websites  CNOOC had been continuously mentioned as a partner. Tuesday’s PR made no mention of CNOOC in its body text. Instead surprised by disclosing Jinhua Bada Group, an affiliate of the State Grid Corporation of China (SOCC), China's largest electric power transmission and distribution Company.  While CNOOC is a big company, it is dwarfed by PRC owned SOCC, which is the Worlds largest electric utility and 9th largest Company on the Fortune 500 Global index.

    What happened to CNOOC? I don’t know. But neither did the Company’s Investor Relations contact at least as of Friday. The Company’s IR contact has been with the Company since it began trading three years ago and while always “tight lipped”, seemed to be constantly on top of what is going on with the Company.  Even he admitted that this last minute change in partners was unexpected. Now how is this for an attention getter?

    What If KNDI’s patented “Quick Battery Change” technology becomes standardized in all China EV’s?

    It doesn’t take an investment genius to realize in the off chance this happens; it would be a “game changer” to KNDI’s stock price. (it could maybe reach a market cap 1/10 of TSLA, or 1/7 of A Better Place) Could this happen? Let’s look at the tea leaves.

    Back on July 24, an article was syndicated throughout China titled: 

    Breakthrough electric vehicle industry standard for new energy bottleneck

    The gist of the article has to do with an expected and soon to be announced standardization for batteries and battery charging.  Quotes from the article; 

    “It is understood that long-awaited "energy saving and new energy automotive industry development plan" will be submitted to the State Council in July…” (remember these are direct translations by Google from Chinese with my bold face)

     “With the electric car "escape", a complete set of charging station (piles) and other infrastructure facilities have sprung up bits and pieces appear in major electric vehicle pilot cities. According to incomplete statistics, the domestic ten urban planning, under construction and has built electric vehicle charging station (pile) of the total investment more than 3 million. But it is inconceivable that the central enterprises to the public and local governments look to the charging station (pile), so far, no national standards introduced. Not only the "external environment" so that even the production of electric vehicles because of the different camps are the two major sects of charging pattern formation. Such as FAW , SAIC, Changan automobile companies and other domestic ten jointly established in August 2009 electric vehicle industry alliance to promote plug-in electric vehicle business standards and models.  Condit (Kandi when translated) is with CNOOC, Zhejiang, China Putian, Zhejiang days Battery Co., Ltd. and other energy giants could reach an agreement, set up a "Chinese electric car industry to promote Union", trying to expand the "change battery" mode of influence…”

    What this Google Translated article appears to be try to say is that back in July, a plan was submitted to the PRC State Council who will at some time in the near future make a decision as to whether to adopt a Condit etc.  “battery change” concept nationwide in addition to the conventional FAW etc. “plug-in” concept. Obviously the Gov today believes that both are viable options since the KNDI led group is building changing stations with government money right now. IMO, what this “standardization” decision is all about is whether ALL China EV makers are to be directed to make their vehicles compatible with quick change technology.

    Now I haven’t forgotten about “A Better Place” and their JV with Chery Automotive. They too have their own “battery change” technology. BUT, herein lays another curious “tea leaf”.  Back in July, Chery put out this press release;

     

    Chery Auto to start selling electric car S18 in 2H

    In this article, Chery said this EV will sell for around $19,200 US and is expected to go on sale this years second half. But this last paragraph is a real “head scratcher” (and maybe a tea leaf);

    “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.”

    IMO, it makes no sense that Chery would start selling this car now WITHOUT A Better Place’s quick change technology built in if they are confident that A Better Place’s technology will ultimately be Government approved. Even if it takes a couple of years for their changing stations to be operational. If their technology is about to happen, Who would want to spend that much money on a car that they know would be obsolete in less than two years? 

    After seeing the recent news on KNDI’s local approval and imminent implementation of their new battery exchange technology, the unexpected rapid addition of their new world class JV partner, the lack of confidence in A Better Place’s technology by Chery, and the fact that a new Nationwide standardization plan for Battery technology will soon be released, could these “tea leaves” be foretelling a major sea change in KNDI’s fortunes?



    Disclosure: Long KNDI
    Oct 10 6:15 PM | Link | 5 Comments
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