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Aerospace engineer who is seeking to learn as much about investing as possible in hopes of one day managing more than just my own money.
  • Kandi: The World's Greatest Non-Candy Company 26 comments
    Apr 1, 2014 1:46 AM | about stocks: KNDI, TSLA

    Wouldn't it be nice to invest in the best business in the world? Now, I don't want to hyperbolize, but I believe I have uncovered the greatest investment opportunity in the history of the universe. This perfect company goes by the sweet name of Kandi Technologies (NASDAQ:KNDI). Now, I know what you're probably thinking: "Mmm, candy..."

    If this is the case, you're either A) Homer Simpson, or B) Hungry. Why are you still reading this? Go fix yourself a snack or grab some actual candy, because it's going to take a while to describe just how incredible this company is.

    Are you back? Good. Anyway, contrary to what you were probably thinking when on your candy break, the company Kandi is actually a manufacturer of Electric Vehicles in China. Now, wait just a minute, you ask out loud, causing your spouse, dog, or coworkers to look at you like a crazy person, "Isn't China irredeemably corrupt?"

    The answer, of course, is yes. But it's only their politicians. Oh, and some of their CEOs. So basically it's exactly the same as here in the good old US of A, except slightly less socialist. The main difference is that they have a much larger population than us, the US. Wikipedia, the main source of information for lazy writers like yours truly, estimates that they have over 1.3 billion people. That's billion, with a B. Or whatever letter of the alphabet that "billion" starts with in Chinese.

    But, no matter how you ignorantly translate it, this is a fairly large addressable market. If every man, woman, and child in China were to buy an electric vehicle, this could help solve global warming, assuming it is not a myth. An affordable electric vehicle, that is, not global warming, which is clearly a scientific theory, like Intelligent Design. All of these (except ID, which, unlike here, their backward education system doesn't allow them to teach) Kandi can help solve, perhaps mainly by causing a bit of a traffic jam, as many urban Chinese are not used to driving, especially the aforementioned children.

    But, no matter, Kandi has a solution to this problem as well, which will probably allow them to gain considerable market share in China, as well as in other progressive countries like California. This is a revolutionary CarShare program, where the vehicles are sold not directly to consumers, but rather to cities, which will then rent them out of high tech garages to make them more accessible to the masses. Especially the aforementioned children, who will probably be the only ones capable of operating such an advanced technological system. Now, if you'll excuse me for a sec, I have to go ask my 6 year old nephew to show me how to cut and paste an image of the car sharing garage into this article...

    Ah, there we go. Wait a minute, buddy, how do I make it larger? I can't read it without my glasses! Come back here! Ah, never mind, it'll have to do, with the added benefit that the image of the car in the photo is now shown at actual size. What, you were expecting some big honking road hog like we drive here in the States to compensate for our physical and fiscal insecurity?

    No, the Kandi electric vehicle is perfectly sized for the Chinese market. Not because the people there are small, that would be presumptuous to presume, as well as possibly racist even though perhaps factually true. Except for Yao Ming, obviously, he probably wouldn't even be able to stand up in the garage, much less fit into the actual car.

    But anyway, to arrive at my point in a roundabout way, street smart pun intended, the space saving design of both the garage and car is perfect for China's crowded cities, where space is at a premium. Also, fresh air is at a premium as well, with smog approaching pea soup thickness in some cities. Or to use a more appropriate culinary analogy, egg drop soup thickness. Or egg drop soup with peas thickness, although I hate when restaurants ruin perfectly good egg drop soup with vegetables!

    Regardless, air/soup quality is a major problem that Kandi's product can help solve. Well, not the soup problem, as the electric motor on these cars is not quite powerful enough to run a blender at a high enough speed to get the right consistency in a soup. But it does power these cars at speeds up to 30 mph, which is even faster when translated into kilometers per hour, or whatever unit of time the Chinese use. I believe it is the yuan, since after all, time is money in any language.

    So, assuming the exchange rate stays constant, you can cruise along in your Kandi EV at up to 48 km/yuan, which may or may not be the speed limit in China, but I'm too lazy to even bother looking it up on wikipedia. But won't driving at such a high speed drain the battery, leading to performance anxiety? Did I say performance anxiety? Sorry, Freudian slip, I meant range anxiety. Range anxiety, of course, is the fear that your battery might not have the juice to go all night long. Or day, if you're driving in the daytime, which come to think of it is probably much more likely and less of a double pun-tendre.

    But, having beaten around the bush long enough before reaching my climactic point (I've found the trick is to think about baseball), I will now reveal that Kandi's solution to this problem is a battery exchange system, shown as follows:

    This QBEX system, short for Quick Battery Exchange Xstem, quickly and easily swaps out a flaccid battery for a fully charged one, like electric Viagra. If this system looks familiar, it's probably because Tesla (NASDAQ:TSLA) blatantly ripped it off for their own battery swap system. This is no surprise, given Elon Musk's history of stealing great ideas, for as everyone knows the Winklevoss twins really invented the Model S. But I wouldn't trust Tesla's Supercharger, a grandiosely named but clearly cheap knockoff product, since have you ever tried generic versions of Viagra? No, of course not, me neither. It was a rhetorical question, what are you implying?

    However, even though Kandi has had to put up with the corporate espionage of lesser electric vehicle manufacturers, they have managed to keep research and development spending in check. In fact, since completely overhauling their product lineup from their legacy ATV and go-cart business to become a global electric vehicle powerhouse, they have only spent several million dollars per year on R&D. Contrast this with the irresponsible wasting of several hundred million taxpayer dollars per year, which Tesla has dumped into boondoggles like R&D with not much to show for it, other than the greatest car of all time.

    But this is nothing compared to what Kandi has been able to achieve, not only an impressive lineup of small appliances/vehicles, but also all the impressive infrastructure to support them like smart parking garages and battery exchange systems. To imagine that Kandi has developed all this on a mere hundredth of the R&D spending, fills my mind with wonder until it strains the credulity of my tiny brain. But of course this can be easily explained when you consider that unlike me, Kandi's founder and CEO, Xiaoming Hu, is a certified genius. Yes, he literally has a certificate, as you apparently can get any sort of official document drawn up in China for the right price.

    But, all kidding aside, which would have made this article quite a bit shorter and probably saved some eInk and eIQ points, the man must be brilliant to have built such an incredible company with so many innovative products on such low R&D spending. Apparently he retained some patents from his illustrious career as a government scientist, which he donated to Kandi pro-bono, which is Latin for "in exchange for a majority stake". These decades old patents laid the foundation for Kandi's impressive lineup of EVs, which may be why most of them look somewhat like a Yugo from the early '90s.

    But say what you will about aesthetic styling, Hu was ahead of his time. You might say he was first, well ahead of when Tesla got into the game. Hu was first, and with his design, the battery responds with power in a second. I'm not sure even Tesla can match that acceleration, and I can't even name the third place finisher in this contest. So to recap: Hu's on first. Watts are second. I Don't Know's in third.

    So in conclusion, Kandi Technologies has developed a cutting edge product for a huge market at a very low cost, which is the holy grail of business. And you can buy a share of this company and own 100% of Continental Development Limited, which owns 100% of Zhejiang Kandi Vehicles, which owns 30% of Jinhua Three Parties New Energy Vehicle Services Company and 50% of Zhejiang Kandi Electric Vehicles, which owns 100% of Kandi Electric Vehicles and 19% of Zhejiang ZouZhongYou Electric Vehicle Service, where Zhejiang Kandi Vehicles owns 100% of Yongkang Scrou Electric, 90% of Kandi Electric Vehicles and 50% of Jinhua Kandi New Energy Vehicles, which also owns 10% of Kandi Electric Vehicles.

    Obviously, this labyrinthine corporate structure is for the benefit of shareholders, to get around Chinese ownership laws, allow them to more easily form lucrative joint ventures, and/or to save on taxes, or something similar that sounds good in SEC filings, when they actually bother to disclose relevant things like that in them.

    But hey, that's just a minor issue when you own the greatest company in the world. I'm sure their impending massive profits will eventually find their way back into your pocket. After all, you're certainly not a fool for reading this story today and wanting to buy the stock, so the joke's on those who merely laugh at this article and miss out on these April showers of profits.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (26)
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  • salineff
    , contributor
    Comments (2) | Send Message
     
    Who authored this piece? I'm guessing ...... Dave Barry?
    As a KNDI stockholder ( unfortunately only a teeny tiny number of shares which I was bludgeoned into buying by
    my smartest friend who, if he really cared about me, how
    come he didn't keep up striking me with the Clown bladder
    till I coughed up [no pun] the rest of my goose-egg {no,
    that would be NEST egg}? this essay gives me for the first
    time a wonderful, totally incomprehensible piece of
    writing which will live on my office wall.
    HOORAY for YOU, unknown essayist, I LOVE you.
    1 Apr, 11:07 PM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » Thanks, I've always liked Dave Barry so I guess a little of his style rubbed off on me. I'll take that as the ultimate compliment, praise of Caesar.
    2 Apr, 01:45 PM Reply Like
  • Scipio Advisors
    , contributor
    Comments (173) | Send Message
     
    Cracks me up. Good entertaining article.
    2 Apr, 01:43 PM Reply Like
  • salineff
    , contributor
    Comments (2) | Send Message
     
    I'm semi-retired.
    From what, you ask?
    From a ridiculous lot of stuff including: teaching,
    acting, group travel leader, diamond and gemstone dealer (GIA), and perpetual student.
    I even, in the 70s, worked at the Hugh Hefner's Miami Play
    Playboy Club.
    And those are only what jumps immediately to mind (I've
    been around a while!)
    My favorite cities are Hong Kong, San Diego and Juan les Pins.
    And for a USdollar (or 88 cents Swiss), I'll send you:
    a list of my favorite foods,
    the title of my youngest son's brilliant new book
    and teach you how to string PEARLS like a pro.
    Betcha your Fund Managers don't offer that!
    3 Apr, 09:48 AM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » Is this solicitation for your investing advice or an online dating profile? Or both?
    3 Apr, 12:11 PM Reply Like
  • therestofthestory
    , contributor
    Comments (11) | Send Message
     
    Entertaining take on Kandi... I especially liked the part that shows the labyrinth of business partner relationships.

     

    Nonetheless, I have been investing in KNDI for about six years now and the only thing that needs to be uncorked at this juncture is the Chinese EV subsidy payments to Kandi by the PRC (due this month) and the Chinese stimulus that will relieve any cash flow concerns and spark significant sales for EVs. This will allow the Chinese people and business partners to purchase Kandi EVs for next to nothing. Note that currently Kandi has the most EV sales in China. Stay tuned...
    7 Apr, 12:36 AM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    Time will tell who gets the last laugh in the Kandi long/short tug-of-war, but in the meantime this was balanced enough to entertain both sides of the debate. Quite a feat given the history of publishing on this topic!
    7 Apr, 10:34 AM Reply Like
  • jobehro
    , contributor
    Comments (223) | Send Message
     
    Quite a trail of ownership. Why so? Is it that remarkable a concept in EV utility? Does everyone want a piece of the pie?The market is there, (not an American market with all it's characteristics) but I think the Consumers are ready, the ways and means are there, and who knows where this will lead. Let's watch this company progress and reward the "believers" as it should. There is risk/reward in all things and this "concept" in EV's is full of it. (Be vigilant and don't bet the farm on this one. It could really be candy-like this time next year.)
    15 Apr, 05:43 PM Reply Like
  • Tom Konrad, CFA
    , contributor
    Comments (1010) | Send Message
     
    Ha!
    26 Apr, 10:46 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1077) | Send Message
     
    I was a vocal KNDI bear when it was over $20. But at $11, I could be persuaded to change my tune. Am I missing something?
    29 Apr, 01:58 AM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » I just don't see how they could have completely overhauled their entire product lineup and developed supposedly revolutionary things like the smart garages and battery exchange system on almost no additional R&D spending, so obviously I'm a bit skeptical about this company.
    29 Apr, 01:00 PM Reply Like
  • rcaulfield
    , contributor
    Comments (11) | Send Message
     
    they arent reinventing the wheel. Taking proven technologies and applying them to china. Why would they need R&D when the R&D has already been done for years?
    7 May, 04:11 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1077) | Send Message
     
    I am skeptical of this one too. But they did have a blow out qtr. When do they next report earnings?

     

    They also had some pretty rabid bulls as shareholders, who for the most part seem to be gone now. I am wondering if it is worth a short term spec going into earnings.
    29 Apr, 01:17 PM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » Maybe, certainly seems like the type of all-or-nothing speculative stock that would be a good candidate to buy a straddle on, since options prices actually seem fairly reasonable for such a volitile stock.
    29 Apr, 01:25 PM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    Rabid Kandi bulls haven't gone anywhere, except to pick up additional cheap shares. Most of us were fully invested under $8, but when shorts give us such great buying opportunities we usually take advantage.

     

    Hangzhou subsidies are about to be announced, which will mark the start of the leasing program (finally). Manufacturing capacity is ramping up steadily, and will be over 700K within 3 years with the completion of new factories in Hainan, Rugau, expansion of the Jinhua facility (another carshare city!) and of course that massive factory in Shanghai. New battery purchase contracts confirm progress.

     

    The next few years should be amazing. Instead of counting subsidiaries, you should be counting factories and cars. And dollars, of course. Although Q1 is always the weakest for Chinese companies due to the Lunar holiday shutdown, we should see good numbers on May 12th compared to last year. And Q2-Q4 should be truly fabulous with both the leasing and carshare programs rolling out in Hangzhou. And that's just one city! There are already deals with 4 others, and the CEO has said publicly that he is negotiating with partners to start CarShare in Beijing! And there have been articles about a couple of new models being introduced later this year. What was that about R&D? These cars will cost only about $2,500 after local + PRC subsidies. They are not marvels of design or technology. They are basic non-polluting transportation for the masses. Embrace the Chinese market as it is and appreciate how Kandi has mastered it....
    1 May, 11:57 AM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » Maybe, but I'm totally gunshy to ever invest in another Chinese company after what just happened with LIWA, another potential fraud.

     

    Just make sure you have irrefutable proof that the company is legit before investing too much money in it.
    1 May, 12:34 PM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    Valid point. Luckily many Kandi investors have visited the company over the last several years. They've toured the factories and counted cars and met with strategic partners and visited garages and parking lots and headquarters and interviewed management and staff level employees at every stop. The Chinese press is full of news reports about Kandi and there are many public job postings corresponding to new factory sites. The contracts have been read (in two languages). And Nasdaq recently conferred the "Select" stock status on KNDI after a thorough legal/financial review. This company is the real thing... Long investors need to constantly be diligent, though, and we are. Many of us are into this very very big.
    2 May, 11:14 AM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » How could KNDI get the "select" designation when they're under SEC investigation, even if it's for a minor issue.
    4 May, 12:09 AM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    Many Kandi investors with huge holdings begged the SEC (letter writing campaign plus using securities lawyers) to investigate the manipulation of Kandi stock by at least one large dedicated short-seller last fall, and were very glad to see that the investigation we requested appears to be happening. (We provided evidence too.) As soon as the investigation began in November, as well as the FINRA monitoring of short trading activity in Kandi, the stock price began it's climb. There is no indication that Kandi is the target of that SEC investigation, only that they were requested to provide documents. As for Nasdaq, the results of their own review was that Kandi deserves 'Select' status, which they indeed have.
    4 May, 11:57 AM Reply Like
  • JosephCortes
    , contributor
    Comments (438) | Send Message
     
    So true.... I also strongly believe KNDI is the real deal. KNDI will become the next BIG thing and not only in Asia. Once the short sellers that are holding KNDI back are taking care of.... we will see this stock rise way above $40.00 soon.
    26 May, 12:23 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1077) | Send Message
     
    I am continually amazed at how many people mis-analyze a company and then blame the stock performance on either short sellers, pumpers, the media, or something else external. Short sellers are not keeping KNDI down. The 5.7 million shares that are short require only 2.5 days to cover. There is plenty of trade going on outside of the shorts. Someday KNDI may generate the earnings to make it the "real deal". But those earnings have not arrived yet. The market at current prices gives KNDI reasonable credit for its growth potential.
    26 May, 04:34 PM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    It looks like Kandi's revenue in 2014 will be at least $200 million, which means that it's now trading at less than 2X current revenue! I don't think that's reasonable credit for it's growth potential. I'm not expecting crazy multiples like Tesla's (65X), but surely a company that is ramping up it's production capacity to 500K per year and is just starting to deliver on huge leasing programs and carshare programs in China deserves at least a half-billion dollar valuation. And that would be conservative!
    27 May, 03:58 PM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » I hate to keep harping on this, but ask yourself if $200M in revenue is realistic for a company that is spending less than $4M a year on R&D.
    27 May, 04:14 PM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    They long ago did the R&D that is reflected in this year's sales. The recent R&D relates to a new model SMA7005 which hasn't been announced yet, but will be released later this year. In 2014-2015 they are delivering on CarShare contracts for cars that are already in production. $200 mil in 2014 is quite conservative.
    28 May, 09:34 AM Reply Like
  • Illuminati Investments
    , contributor
    Comments (3970) | Send Message
     
    Author’s reply » When did they do the R&D exactly? A year ago when they spent $2.9M? Two years ago when they spent $2.2M?

     

    Prior to that when they were spending less than $2M a year, mostly on their legacy ATV/go-kart business?

     

    Are you saying that's directly applicable to the new EV models that supposedly use state of the art smart garages and battery exchange systems?
    28 May, 01:07 PM Reply Like
  • frellgem
    , contributor
    Comments (188) | Send Message
     
    Yes! All the above.... plus the years Mr. Hu spent at the 863 project pre-Kandi. These cars are not technological marvels. They will be scrapped after they are 3 years old, melted down and made into new models. Your hangup on R&D is misplaced. Kandi is simply marketing a new form of public transportation for Chinese urban centers. That's all. Clever marketing, not advanced design or technology. It's a social mission, not an original product. It's about overcoming range anxiety and parking problems and pollution, not about museum pieces or impressing auto critics. (Although I do hope the new model is a little more sexy looking :-)
    29 May, 11:27 PM Reply Like
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