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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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  • 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
  • Kandi Technologies (KNDI); What’s A Sweet Girl Got To Do To Get Some Respect?

    OK, I admit it. Since the first day she became public three years ago, I am and have been a “junkie” for this “sweet” eight year old, always profitable under-reported China doll that appears destined to be the Electric Vehicle (NYSE:EV) “Volkswagen” (the people’s car) of China. Though listed on NASDAQ for three years, even the well respected China Analyst doesn’t realize KNDI is a China stock. CA Recently reported KNDI as #2 on its “Top 10 Rebounding Automotive Stocks”, ahead of such well known names as Dana, TRW and Tenneco.
     

    On Monday, prior to the opening, KNDI once again blew away investors expectations by posting Q2, YOY sales up 80% to $9.9 million and net income up 425% to $1.2 million ($.05/sh). Closing Friday at $3.57, some 49% below its January high and 25% below its current August high, as might be expected, the stock soared out of the chocks reaching $3.83 in the first hour of trading on well above average volume. But by day’s end, the stock ended down 9% on 347,000 shares, triple the first hour’s volume. First thought might be; bad “guidance”? Nope, no guidance. Bad Conference Call? Nope, no Conference Call.  Something bad in the 10Q? Nope, best 10Q ever. In fact, for the first time in its history, working capital finally turned positive and working inventory was at one of its highest levels ever at $9.6 million. Considering the Company has almost no Long Term Debt due to China banks aversion to making long term loans, but owns a modern manufacturing facility that encompasses some 400 acres, has over 2.5 million sq. ft. under roof, a current vehicle capacity of 100,000 vehicle annually, and has a current replacement cost of more than its $70 million current market cap, I would say the 10Q was fine. Check out this video clip.

     

    But for us long term groupies, the action were not that surprising. This Company has made several monumental announcements over the past year with most seeing the stock taking a thrashing on the news. One might think there was a large short in a stock which trades like this. Well, in KNDI’s case, one would be right. The recent 1.185 million shares reported short represent over 15% of the shares not held by the CEO and 6.75 days to cover on recent increasing volume.

     

    So what’s the big surprise? All US trading China stocks have big shorts and low pe’s, right? Mostly true. But not all China stocks are sitting in a leadership position in the hottest sector, Electric Cars (EV’s), in the hottest market in the World. KNDI, with its two recently approved low and full speed PRC and locally subsidized EV’s costing under $10,000 before subsidy and just a few thousand after, for both Consumer and Government use, is truly in a “sweet spot”. But if that isn’t enough, KNDI thanks to its “patent” ownership, in true Chinese spirit, leads a Joint Venture group made up of several multi-billion dollar China companies. This JV not only clones a concept touted world wide by pre-public Venture Capitalist darling “A Better Place”, but takes it several steps further by selling the cars without the most expensive item, the batteries, then turns around and leases the batteries to the consumer. In other words, KNDI is developing the “whole” practical solution to affordable and efficient EV use. And they are doing it in a Country who has publicly committed, both in voice and money, to be the dominant Nation in EV production and use.

     

    From a recent PR

    About The Alliance For Chinese Electric Vehicle Development and Commercialization ("the Alliance")

    On January 4, 2010, Kandi announced it had forged an Alliance with major Chinese energy, IT and battery companies to help launch a new electronic vehicle (EV) era in China. The new business model of the Alliance addresses key hurdles to mass commercialization of EVs by reducing EV purchase costs, eliminating battery concerns and substantially increasing driving ranges. The new model envisions expansion on a city by city basis of its new model, key elements of which include: strong government cooperation, separating the sale of electric vehicles from the sale of batteries, construction of a comprehensive network of "battery stations" within each city for repair, replacement and charging of batteries, and also, utilizing Kandi vehicles and patented and patent pending EV technology for easy removal and replacement of batteries. The core members of the Alliance are: Kandi Technologies Corp., China Potevio/CNOOC New Energy and Power Ltd. (a joint venture between China National Offshore Oil Corporation and China Potevio Co.) and Tianneng Power International, Ltd. Jinhua City, where Kandi is based, has been chosen as the first model EV city by the Alliance.

     

    Now skeptics might say; “wait a minute”, all this China EV talk right now is just that, “talk”. To an extent, that is correct. As of the end of Q2, 2010, the only reported KNDI sales made in China of EV’s have been two test lots of two different models of EV’s to two different cities, Jinhua, and Hangzhou for China Postal Service evaluation. But all that changes now that we are in the second half of the year. Here are some recently reported events over the past four months from Monday’s PR:

     

    • On April 13, 2010, Kandi announced that, in an effort to "jump-start" EV sales in Jinhua City, Zhejiang Province, it anticipated local government funded subsidies for up to 50% of the purchase price would be made available to the first 3,000 purchasers of Kandi's electric vehicles. It believes this reflects a strong government commitment to the success of the Alliance and the establishment of a "model EV city" in Jinhua.
    • On April 30, 2010, culminating years of effort by Kandi to develop an economical EV able to meet all government requirements, in public announcement No.98, China's Ministry of Industry and Information and Technology qualified the Kandi low speed vehicle (KD5020X) for China's energy conserving and new energy projects. The vehicle was placed on its list of vehicles in its 10th catalogue of recommended car types which meet requirements for sales to the public.
    • On June 21, 2010, the Company announced that following the milestone approval by the government of Kandi's first EV, another Kandi EV -- Model KD 5010XXYEV -- also was approved for sale in China. With its larger size and better performance, the Company believes this latest model has broad market appeal and will play a significant role in the Company's future development.
    • On July 12, 2010, Kandi announced that it expanded EV sales to Hangzhou, the capital city of Zhejiang Province, with an initial order from the Postal Service there for 60 all electric vehicles.
    • On July 16, 2010, the Company announced that construction of the first, large battery charging farm to support a planned network of battery changing stations was underway in Jinhua. The State Grid Corporation of China, China's largest electric power and transmission company, is funding the project and is responsible for construction, which is expected to be completed before the end of 2010.

    Based on an associate’s recent visit to the Company in Jinhua, a city with a population of 4.1 million, not only has the “large battery farm” mentioned in the last item above been under construction since June, but simultaneously, six battery changing stations are currently under construction as well. All paid for by the PRC government. The expected completion date of all is expected some time in October. Now knowing the Chinese penchant for “ceremony”, I can envision a large celebration, peppered with all sorts of Government dignitaries from the top of the PRC on down, along with press, and media covering this “first in the World” event. Now common sense tell me that since this is a KNDI led project which requires a car built specifically for a “quick change” battery, then KNDI better have a lot of cars sold by “opening day”, or else the party is going to flop without the star attractions. As can be seen from an above bullet point, Jinhua has already committed an initial car subsidy for 3,000 units. Now remember, KNDI will be selling these cars without its most expensive item, the battery. It is anticipated that the car will be selling for around $6,000(US) before subsidy and at a margin of 35-40%. Now it is hard for me to comprehend that in a city of 4.1 million, there won’t be one out of each 1400 people that will want to be the first to own one of these “historical” vehicles. Not surprisingly, while the Company is currently following its long penchant of “tight lips”, a source close to the Company has reported that there is already a large waiting list.

    Since the Government subsides in China go to the Manufacturer rather then the user, policy is to pay the company the subsidy within two weeks of the sale to a dealer. It is my speculation that cars will shortly begin to be sold to dealers under a “program” similar to this: Build 100 cars, sell to the dealer, present the bill to the Government, receive the subsidy check two week later. Then build 200 cars and repeat the cycle. Then 400 cars and so on. This would have all 3,000 cars ready for opening day in October. Though currently having plenty of cash and facilities available, using this cycle, the Company never has to commit more than a few hundred thousand dollars of their own cash while generating sales in excess of $15 million and substantial profit in new revenues in its last half of this year. 


    Now your next question should be; “is this 3,000 car subsidy a one time deal?” Those who may know are not telling right now, but according to a past article in the Jinhua Daily News, (this linked article is translated by Google from Chinese. KNDI is referred to as Condi in translation) Jinhua alone will be building an additional 14 sub-battery farms and 19 additional battery changing stations by 2012. That is a lot of stations just to service 3,000 cars. So IMO, it is a reasonable speculation that a lot more cars will be sold, and many under subsidy. Then of course there is Hangzhou and the rest of China and its 390 million and growing urbanites.

    Below I will make a forecast for the balance of the year, but before I do, let me clarify what I meant by “tight lipped” in regards to the Company. There are several parameters that come into play with this comment. The Chairman and CEO, Mr. Hu, personally owns in excess of 12 million of the 21 million shares outstanding. Between personally meeting him and speaking to others who either work with, or for the Company, as a leader he is definitely cut from the same “whole cloth” as the Founder of Volkswagen, Ferdinand Porsche, Enzo Ferrari and Henry Ford.  He is totally politically connected, and totally rules his Company. If there is one main deficiency in KNDI as a US trading public company, it is that Mr. Hu doesn’t speak English. And though I have been recently told a search is underway for an English speaking top Executive, to date there is none. For that reason the Company doesn’t do Conference Calls and doesn’t do Investor Road Shows. I have no question that with an Elon Musk of Tesla fame, or a Shai Agassi of “A Better Place”, running always profitable KNDI, there wouldn’t be a 20-30 to 1 valuation difference with both these earnings-less billion dollar valued companies.

     

    Historical Business

    I have talked a lot about the “sizzle” for the near future and beyond, now let me spend a minute on the “steak” which effective makes KNDI at its current price an undervalued, non-expiring option for a potential World Series grand slam future.

     

    Since its founding in 2002, KNDI has been known primarily as a developer and manufacturer of Off-Road recreational vehicles and recently three wheeled motorcycles. In effective the same “space” as Polaris Industries (NYSE:PII). Until very recently, 98% of its business was for pure export to the US. It has been profitable in each year since inception.  While suffering a dramatic decrease in revenues after the world wide economic downturn in late 2008 and early 2009, it still managed to maintain profitability in each quarter but one. A gargantuan task as noted in its Q2 2009 numbers which saw a decline in sales of over 65% yet still made a profit. (show me a US Manufacturer with this flexibility)

     

    During the Energy spike in 2008 and an impending economic downturn, Mr. Hu decided to re-structure the Company in two very fortunate ways. One, start building Low Speed Electric Vehicles for export to the US, and two enter the home China market. Little is it known, but in 2009, KNDI was one of China’s largest exporters of Electric Cars to the US. Sales totaled over 2,000 units. This year to date, KNDI has already exported over 1,300 Electric Cars to the US, with 1,000 in the recently reported quarter alone. As of the first quarter of this year, KNDI has just begun exporting its US products to Europe with sales totaling $250,000. Sales to Europe should ramp up considerably in this year’s second half.  

     

    Forcast

    Based on my assumption of the second paragraph above, China consumer sales revenues for the second half should be at least $15 million with $2.5 million net profit. Other China Government sales should reach $6 million with $1.3 million net profit. Historical, conventional export sales, should reach $25 million for an additional $3.1 million net profit. Conservatively total is $46 million in sales and $6.9 net profit or approximately $.30 a share.

     

    When one looks at the Company’s prior record year, 2008, on $40.05 million in sales they delivered $4.92 million net on much less profitable export sales requiring trans-pacific shipping cost to the US and a distributor of Off-Road recreational vehicles. Considering this the above numbers seem conservative in that KNDI in China sells directly to the Government, and self distributes to dealers.

     

    For more information on the Company, I suggest you read some of my prior SA Blogs along with PR’s and SEC filings.

     

    Arthur Porcari

    Corstrat




    Disclosure: Long KNDI
    Aug 17 9:46 AM | Link | 1 Comment
  • Kandi Technologies, (KNDI) Can A Massive Short Squeeze Be Imminent?

    Once again, a big jump in the Short Interest. The reported short increased by 200,000 shares to a record 1,187,000 which is now over 14% of the float and “Days to cover” based on the volume of that last two week period jumped to just under 11 days. In the past two reporting periods (4 weeks) at an average price of around 3.12, the short interest has increased by 341,443 shares. Add the prior two week period and the total six week short position has increased by 458,326 shares at an average price of 3.26. With a very tightly held float of only 8 million shares, this is truly incredible and should be setting the stage for a MAJOR move up. And I mean soon. 

    What is really amazing is that in this last reporting period, KNDI was one of the very few NASDAQ China stock whose SI increased at all and its increase of over 20% is the biggest percentage jump, period over period, this year.  And this increase over the past three reporting periods has been happening while each reporting period saw less and less average daily volume. In January, when the short interest started to really ramp up as the stock hit is high of the year of $6.75, the average daily volume was over 550,000 shares. The last reporting period saw average daily volume decline to just 110,000 shares, and with yesterday being the last trading day in the next short reporting period, the average daily volume has again dropped to 90,000 shares. (51,000 average over the past three days alone).
     

    During all this time, the Company, which has 20.3 million shares outstanding of which 12.2 million shares is owned by the Chairman, founder and CEO, reported a Record first quarter with top line up over 106%, and bottom line of $.04 ex-non cash charge for stock based compensation. It also announced the approval by the China Government of three new pure electric passenger cars, received a Government subsidize contract to deliver 3,000 of their newest electric vehicles for consumer sales over the following few months, made initial sales to the China Postal Service for electric postal delivery cars, and announced the formation and leadership of a Joint Venture with three, multi-billion dollar China energy companies to advance KNDI’s patented technology in Electric Vehicle Battery Quick change.  And most recently, announced construction has begun on the Joint Venture’s first Central battery recharge farm to feed the Changing Stations, fully paid for by the China Government.
     

    Admittedly, KNDI is little known on Wall Street with virtually no Institutional ownership and no analysts following. And to some for good reason. As of this writing, they have no Company Executive who speaks English. Therefore, they have not done any stock promotional tours, no Conference Calls, and they don’t give Guidance. All pretty much a requirement to get Wall Street’s attention, and certainly to get any legitimate analyst’s attention.
     

    I have in the past spoken with the CEO Mr. Hu on two occasions through an interpreter, Once in 2008 when they listed on NASDAQ, and most recently two weeks ago. In my most recent discussion, I did not ask any questions out of respect for inside information rules, but I did make three comments. One, KNDI  has an urgent need for an English speaking executive.  Mr. Hu’s response was effectively that he “understood the need, and that was now a top priority and was being worked on as we spoke”. Two, the need for US Company Institutional and Analyst road shows. His response was as soon as they have their English speaking executive and get him or her up to date, they would immediately begin road shows”.  And Three, the Company’s English website is woefully out of date. He appreciated the heads up and would try to get that taken care of soon.


    After these comments and his response, I thanked him for the courtesy of the call, and complemented him on the amazing recent successes of the Company. He responded by thanking me for my comments and concerns and assured me that he “could not be more happy with what has been going on with the Company, both in China and the US, and  expected with a bit more shareholder patience, shareholders would be significantly rewarded.”

     

    Bottom line, IMO.

    If one reads my past recent SA blogs on KNDI, they will notice I have given a fairly thorough history and update on the Company. In my three years following the Company, the surprises have all been upside considering past market environments. I expect that trend will continue. IMO, there are two logical reasons why the stock has been performing so poorly, neither of which have to do with fundamentals or growth potential. One, the lack of exposure due to no English speaking high level company representative, and two, which likely had a lot to do with one, the massive short position.
     

    It appears that “One” is soon to be corrected, which in turn should be disastrous for the short sellers.
     

    I have been involved in the Market both professionally and more recently as a passive investor for more than 36 years. I have never researched a company more thoroughly as I have Kandi these past three years. To have an always profitable Company that is in the forefront in one of today’s hottest sectors, China Electric Vehicles, with a massive short position, volume drying up and trading at less then replacement value of their fully paid for Manufacturing Facility, and no current Institutional ownership or analyst following, is IMO, a once in a lifetime market opportunity. With the rest of the market in China Stocks now heating up, it can only be a matter of days or weeks, not months before KNDI shareholders should see the beginning of a massive move up in their ridiculously undervalued shares.

     

    Link to my past KNDI blogs.




    Disclosure: Long KNDI
    Jul 28 9:20 AM | Link | 2 Comments
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