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Arthur Porcari is a retired former regional stock brokerage firm President with 39 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
  • Kandi Tech: The Real Truth About China's Currently Uncontested #1 Pure EV Developer  50 comments
    Jul 25, 2014 4:43 AM | about stocks: KNDI
    • 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















    Total China PEV







    (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.

    Stocks: KNDI
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Comments (50)
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  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » This article was first submitted to SA 24 hours ago to be run as a full SA syndicated article as a rebuttal to the totally false attack article published Wednesday just prior to the close. After multiple rejections by SA on the grounds that I was too "insulting" to the attack writer, even after re-writes, I have made the decision that maintaining my journalist integrity in "telling it like it is" was more important then worrying about whether I was hurting some young ignorant opportunists feelings.


    KNDI shareholders: this is an important message to get out so I strongly recommend you pass this link out or copy and paste and then send out, to as many shareholders, prospective shareholders, message boards, tweets etc. as you can.


    Other authors: Feel free to use and/or reproduce any or all of this blog in any publication.
    25 Jul 2014, 04:54 AM Reply Like
  • Mr. Sorry
    , contributor
    Comments (46) | Send Message
    Thanks Arthur that was an excellent article. Will see how the market reacts today.
    In fact the stock was heavily overbought from a technical perspective so this pullback can be healthy. When a stock doubles in such a short time frame there were a lot of weak hands who wanted to realize there gains. A small bear article is then enough to give it the kick.
    Impressive was the sell volume yesterday at the close and the price of the stock was not falling further. In the order book were very big buy orders.
    In addition there are also big bets made yesterday for a rising stock price when you look in the option chains for august.
    My bet is we see a nice morning spike today and that we see a cup and handle in the next days/weeks.
    So I started with a small position yesterday at the close.
    It is sad that you couldn't publish this great and very well researched post as an SA article. Here on the blog it doesn't reach so much people.
    25 Jul 2014, 06:04 AM Reply Like
  • bullmarket2222
    , contributor
    Comments (58) | Send Message
    World Class work Art, second to none. Detailed,concise and complete... Myths Busted.


    25 Jul 2014, 06:43 AM Reply Like
  • 13907792
    , contributor
    Comments (87) | Send Message
    Thank you soooo much Arthur.
    A sane voice to cut through the babble.
    25 Jul 2014, 07:19 AM Reply Like
  • Sloop
    , contributor
    Comments (20) | Send Message
    Arthur thank you very much for the rebuttal. it's a shame that SA has to worry about the "feelings" of somebody who published such a fictional outline of this company and is allowed to publish such Garbage and then when you come along to try to straighten it out with the truth and your piece gets rejected in the name of protecting the fictional writer is beyond reproach. Thank you very much for the time spent to try to correct this atrocity. I do hope the SEC finds that there was clear evidence of manipulation in his article in order to gain a profit by being short before publishing the article we should all make sure that this doesn't happen again by placing a complaint to the SEC. If we fail to do so these kinds of crimes will continue to happen. It's time to make an example of these people.
    25 Jul 2014, 07:28 AM Reply Like
  • IP Hawk
    , contributor
    Comments (366) | Send Message
    Excellent work. Added on the drop and will continue to add as funds become available.
    25 Jul 2014, 08:04 AM Reply Like
  • terzman
    , contributor
    Comments (52) | Send Message
    Art this is our final "go to " a Monroe doctrine of sorts let's call it the "art doctrine"! To be referred to for anymore annoying short articles thank you for taking the time patience and energy in its composition ! Frankly I am more in shock by how jittery weak hands let go of such a great stock . They had a few days to sell but all hit the exit at first sign of some pubescent myriad . Thank art again those who now buy shall be better to have as long term shareholders !
    25 Jul 2014, 08:26 AM Reply Like
  • LightHouse Lookout
    , contributor
    Comments (2) | Send Message
    Arthur great article and rebuttal of this Short attack and Lies!! Seriously we have to find a way to get this article on Yahoo Finance and other media outlets asap today. This could be enough to give it a Bounce and start it running back up by Monday for sure. Any ideas on how to get this on Yahoo and SA today so people can read it all weekend???


    Let me know partner and thank you for all your great articles, keep em coming!!
    25 Jul 2014, 09:13 AM Reply Like
    , contributor
    Comments (15) | Send Message
    Great job Art,... I trust your knowledge and experience .
    25 Jul 2014, 09:13 AM Reply Like
  • Dan Erik
    , contributor
    Comments (3) | Send Message
    Thanks Arthur. You put into words what I didn't have time to do. I will be visiting the company in October and would be happy to provide for you an update.


    25 Jul 2014, 09:40 AM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Dan. Say hello to Mr. Hu for me. here is my email address. Stay in touch
    25 Jul 2014, 02:05 PM Reply Like
  • chovue2013
    , contributor
    Comments (2) | Send Message
    You are the liar ben.. many have filed a sec complaint against you while you erase your websites and try and hide who you really are... be scared ben..
    25 Jul 2014, 09:40 AM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Ben, I think I like this Instiblog stuff. I get to shut you up. SEE YA..


    But I do have a question. What is it you have to hide? First you take down your Linkin bio then you take all of your hedge fund partners off all the pictures of you and your hedge fund partners.


    Does SA know that you are part of a team of Hedge Funds while you were passing yourself off as an "innocent investor?"


    From what I know about SA, they don't like people doing this.
    25 Jul 2014, 09:52 AM Reply Like
  • Bill Burtchaell
    , contributor
    Comments (413) | Send Message
    Thank you Art for your thorough debunking of BenRab's bogus article. Now it appears that Ben is going dark and rightly so, I for one am hoping that his credibility is damaged and his future posts are very carefully scrutinized.


    Hard to fathom that someone with his bogus credentials and assumptions could impact the value of prudent investments everywhere.


    SA should welcome a rebuttal as detailed bullet by bullet as you have provided. I thank you.
    28 Jul 2014, 03:01 PM Reply Like
    , contributor
    Comments (30) | Send Message
    To Mr.BenRab....


    "You don't have the credibility understand or interpret 10Q to anyone after your LinkedIn, Wedding Opera,Options PRO disguised as Retail Investor Article DRAMA .Watch out for how KARMA will come after you ,do you know how many longs are pursuing a lawyer to get you completely corrected?Are you gonna dissappear from the internet once someone officially discloses their suit against your recent DRAMA?You better be around on the internet, even if not I think people have enough proofs by now,screenshots etc... "
    25 Jul 2014, 09:56 AM Reply Like
  • lehrdude
    , contributor
    Comments (2) | Send Message
 deleted him! I was just coming in to point out that he forgot to add the last sentence of that paragraph from the 10-Q:


    "...Excluding the effects caused by these transactions, the percentage increase in cost of goods sold was $2.43% less than the percentage increase of our revenue in the same period."


    Thanks for the article!
    25 Jul 2014, 10:05 AM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Well I just did that because he had my early comment on his article which if you remember, started as "This is a joke, Right?" removed by SA for insulting to him.


    I felt his comments here this morning were "trying to insult my intelligence" by trying to defend the indefensible. :-)
    25 Jul 2014, 10:10 AM Reply Like
  • cosmoman
    , contributor
    Comments (7) | Send Message
    Where's Ben's rebutle?
    25 Jul 2014, 10:26 AM Reply Like
  • Eli Gurick
    , contributor
    Comments (3) | Send Message


    Thank you for the article and for the clear and concise points.


    I still do have hesitations about their battery sales though. If it is a legit transaction, then why wouldn't KNDI make money on them just like they are making money on the service parts they are selling to the JV?


    Before expenses and selling costs, the company has a 2.43% profit margin on the battery sales. After the expenses, the company IS losing money. Why would they do that for the batteries specifically? Additionally, according to the 10Q, they signed an additional two contracts for batteries now worth $40Mil.


    It does seem to the untrained eye that top line sales has grown tremendously because of the battery sales.


    Looking forward to your reply.
    25 Jul 2014, 10:52 AM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Eli- From my perspective, KNDI is already "getting the fat side of the hog" out of this JV. I guess Mr. Hu did not feel comfortable flipping them for more than just the "Carrying cost".


    I could be wrong, but I don't think it is a business KNDI is going to be in on a full time basis.
    25 Jul 2014, 11:50 AM Reply Like
  • User 13000152
    , contributor
    Comments (3) | Send Message
    I would be very suprised if they were actually selling batteries at a loss. Gross profit is just over $600k, and since they are "selling" to their subsidiary I can't think they would have many more expenses other than freight, so in the end probably looking at 1.5 - 2% margin re-selling the batteries.


    To your second point, they produce a low cost EV, so the batteries are going to make up a disproportionate share of the total cost of the vehicle, so when you sell those batteries your top line will go up greatly.


    We know from their most recent purchase contract their cost per battery pack is about $2,340. Adding gross margin it looks like they are selling them for about $2,400, and given Q1 total sales of $23 million they would have sold about 9,500 units. I believe it has been verified there are two per car, so that number would equate to 4,750 vehicles, which is EXACTLY how many they have sold in the first half of this year!


    Given this the only thing you could accuse them of is pushing through battery sales in Q1 to juice revenue, knowing Q2 revenue would be strong with the increased EV sales. However there is nothing illegal about this, many companies purchase hardware parts ahead of planned projects or production ramp-ups.
    25 Jul 2014, 12:10 PM Reply Like
  • Eli Gurick
    , contributor
    Comments (3) | Send Message
    If that is the case, why did they just sign another $40 million in contracts for more batteries in the same 10Q?


    Now that you created this article, the only thing holding me back is the battery sales. If not for the battery sales, revenue would have barely budged since they lost business elsewhere. The only logical explanation I still see is to increase the top-line number.


    I really hope you can explain to me what I'm missing because I am ready to go all in if this gets cleared up for me.


    Thanks again.
    25 Jul 2014, 12:50 PM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » I don't question the fact that it did juice revenues. But at the expense of Gross margin. HOWEVER, the point I tried to get across in the article was that they really had no choice. But perhaps I should have added what I am going to say below to the article;


    Mr. Hu, the CEO is a very good personal friend of both the CEO of Wanxiang, who he not only new through business (Mr. Hu was General Manager of Wanxiang's Battery Division until 2002-equivalent of a Division President), but also named his replacement when he left Wanxiang to start KNDI who even today is still the GM of the Battery Division and of course thankful to Mr. Hu.


    Likely because of this relationship, Mr. Hu was able to negotiate a sweet deal on that $31 million in batteries back in October 13 two months before the JV was fully finalized. So KNDI cut the contract with Wanxiang and then sold them to the JV right after the JV closed. While I am sure there were other ways to convey them over to the JV but a sale is sure the quickest and easiest


    Personally, I did not like the drop this caused in Gross Margin more than I liked the increase in revenues. I think it is much more healthy for a company to avoid big one time fluctuations from quarter to quarter while they are still in their ramp-up stage. Even without the battery sale, their still would have been a healthy Q over Q performance.


    Gross Margins were some 24% in Q4 and on the way to a record 25% in Q1 (the same Gross Margin that TSLA got so much mileage out of last year) Then up comes this deal and knocks the hell out of GM. But I do expect it to be up substantially in Q2, maybe even to that 25/5
    25 Jul 2014, 01:43 PM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Eli- see the comment I just posted above
    25 Jul 2014, 01:44 PM Reply Like
  • bergenhoff
    , contributor
    Comments (7) | Send Message
    Disclaimer: I'm a novice compared to the lot of you. I'm long kndi through stock, covered calls and call spreads. Could it be as simple as buying and selling batteries is the most accurate way to properly report revenues? The "kit" that kndi sells is and should be fully reflected as revenue. The batteries are a MAJOR part of any ev sale. Why shouldn't kndi be able to buy and sell to the JV and show this as revenue. That would be the most accurate way to report revenue. Could the JV buy the batteries themselves? Sure. But how would this be a more accurate reflection of the actual cost of the vehicle? Just thinking here. Perhaps, the well-informed can explain this to me. Thank you.
    26 Jul 2014, 12:16 PM Reply Like
  • ampedupp11
    , contributor
    Comments (65) | Send Message
    About the batteries. Didn't Tesla run out of batteries at one point. I have assumed that Hu is purchasing batteries in bulk and ahead of time to insure there availability when they are needed as well ask getting them cheaper. The cheaper the better for his target buyers.
    28 Jul 2014, 01:34 PM Reply Like
  • Marquez1234
    , contributor
    Comments (2) | Send Message
    I generally hate when people comment that a stock is being subjected to short manipulation, etc. because I generally feel it is someone venting. But this is the FIRST time that I feel that what Ben and others did was border line fraudulent. This was a concerted attack that was based on promoting false misconceptions about the company.


    Ben KNEW everything he was saying had been cleared up previously from inquiries brought forth by various investors yet decided to twist those VERY SAME AND LEGITIMATE QUESTIONS to bring doubt to the company. It is not a coincidence that a law firm then published an article on this "stock drop".


    SeekingAlpha's delay in publishing Art's article is questionable given the amount of proof that has been put forth that shows that the author (Ben) was not who he purported to be; he was not just some concerned retail investor.
    25 Jul 2014, 10:52 AM Reply Like
  • Tickerman
    , contributor
    Comments (101) | Send Message
    Art, while your effort is laudable, I again respectfully opine that focusing on the bearers of negativity and attempting to refute their message by repeating it ad nauseam does little to further the cause. It only serves to highlight the turmoil, not settle it.


    Wrestling with a pig is a bad idea because you both get muddy and it becomes hard to tell the difference....


    You may be rightfully pissed, but it comes off like a pissing match, not a rational dissertation of facts. I think the facts and otherwise rationale arguments are unnecessarily diluted by the amount of ink spent on ire for a gnat.


    25 Jul 2014, 11:40 AM Reply Like
  • jmap2013
    , contributor
    Comments (14) | Send Message
    Art, The punk kid is specious at best. Your professional due diligence puts the kid to shame. There should be no doubt, he will not have the last laugh. Great future ahead for Kandi long shareholders, you can count on that :) Take care
    25 Jul 2014, 12:02 PM Reply Like
  • myrestofthestory
    , contributor
    Comments (14) | Send Message
    I really appreciate you publishing this article though SA tried to place rail road ties in front of you for its release. IMO your original title for this piece probably was more appropriate.


    Ben or David which apparently is his real first name IMO is only a single actor of many involved to suppress KNDI's stock price ahead and after his hit piece was published by SA.


    Past history suggest that the regulators have been soft going after naked shorts particularly when it involves Chinese based companies. This may be changing as the largest settlement for naked shorting was recently reported by the SEC involving brokers and their advocates. Additionally the dispute between the SEC and Chinese regulators regarding transparency apparently has been settled. The largest complaint by Chinese regulators was the issue of the naked shorting of Chinese stocks. Time will tell if the aforementioned events will have any affect regarding illegal naked shorts. Stay tuned...


    IMO KNDI is an unbelievable investment opportunity and for those of us who have studied this stock and done our DD. I knew right away that David's (aka. Ben), article was nothing more than a short hit piece as most of his complaints were either known or he came to his own conclusion not understanding or misinterpreting the facts that you and other pointed out in your articles.


    Hopefully in time KNDI's stock will stabilize to a point so you can truly enjoy your retirement!


    Take care and Thank You!
    25 Jul 2014, 12:25 PM Reply Like
  • myrestofthestory
    , contributor
    Comments (14) | Send Message
    Sodaking: I do not see what this has to do with the facts presented here. As far as sharesleuth is concerned, they can rename themselves ShortsRUs and is not an investment publication a true investor would use for their investment decisions.


    You are obviously short and want to change the story so you are here to wage a personal attack against the author. We know who the author is; however, you don't provide any information about yourself. Your post is noting more than a cheap shot and very unprofessional.
    25 Jul 2014, 02:11 PM Reply Like
  • Sodaking
    , contributor
    Comments (32) | Send Message
    Very classy Art had his article rejected because most article was an attack on author, I'm throwing facts out there for both longs and shorts, he's pumped stock before and using same tactics Again
    25 Jul 2014, 02:18 PM Reply Like
  • Sodaking
    , contributor
    Comments (32) | Send Message
    Your all ready attacking me when you also provide no info about yourself Lol, and that's the tactics longs use here, if try to do that to me I will post this info all over the internet, blogs even my own SA article
    25 Jul 2014, 02:26 PM Reply Like
  • myrestofthestory
    , contributor
    Comments (14) | Send Message
    You drew first blood Pal.


    I do have a Bio - read again. I am a retail investor and not a professional investor. I have been trading stocks for over 40 years. Enough said.
    25 Jul 2014, 02:48 PM Reply Like
  • Sodaking
    , contributor
    Comments (32) | Send Message
    Then I too have a profile says daytrader
    25 Jul 2014, 02:50 PM Reply Like
  • User 20003891
    , contributor
    Comment (1) | Send Message
    Thanks Art for taking the time to write this informed report.I can only hope new KNDI investors will understand the short position and their motives.Since they have no ethics one (new investor) should be very cautious on their stop sell orders.
    25 Jul 2014, 03:58 PM Reply Like
  • qyu001
    , contributor
    Comments (2) | Send Message
    Just want to say "Thanks Art!".
    25 Jul 2014, 04:39 PM Reply Like
  • bjavier11
    , contributor
    Comments (37) | Send Message
    thanks Art, I also read this at kndi message board at yahoo
    26 Jul 2014, 03:08 AM Reply Like
  • jsIRA
    , contributor
    Comments (4521) | Send Message
    I have to thank Beb to bring the stock down so I bought it cheap. I missed its recent run and now I got in at 16.20.


    From technical point of view, stock is on double top and is subject to pull back. I don't know how low it could go but it should be higher than $11.00.


    This is a buy-and-hold type of stock.


    What I would like to know is how the company will be doing in Q3 and Q4.
    26 Jul 2014, 09:38 AM Reply Like
  • jsIRA
    , contributor
    Comments (4521) | Send Message
    It is more likely the stock will drop to $11.00. Check what DANG did: after vertical raise, the vertical down. from 9 to 18 then back to 9 and now slowly moving up.
    29 Jul 2014, 11:40 AM Reply Like
  • bergenhoff
    , contributor
    Comments (7) | Send Message
    Kits to JV. Kits reflected as revenue. Kits should include batteries. Batteries should be reflected as revenue. This is not rocket science. This is the most accurate way to report revenues of "actual" sales. The JV could buy the batteries themselves, but that would not reflect the total revenue that should be attributed to KNDI.
    26 Jul 2014, 12:18 PM Reply Like
  • JosephCortes
    , contributor
    Comments (1605) | Send Message
    Thank you Arthur Porcari,
    Such a great article.


    Its crazy how people react without proper DD.
    Well, I took advantage and bought a little more.


    Price should start rising quite soon. Should be back to $21.00+ very soon.


    Long on KNDI with it's bright future!
    27 Jul 2014, 12:17 PM Reply Like
  • Brian Cross
    , contributor
    Comments (8) | Send Message
    In KNDI's 1st quarter 10Q, they discuss cost of goods sold on page 37 and make clear that $22.9 million of its sales was from the resale of EV parts purchased from third party manufacturers and sold with only a small markup over cost of $22.3 million, a gross margin of only 2.6%.


    Backing this out of their net revenues of $40.2 million and COGS of $35.3 million we see that they had $17.3 million of other sales of finished product at COGS of $13.0, or for a gross margin of 24.9%. More in line with what I would expect.


    Like Art, I was more concerned by the negative impact these EV part (battery) sales had on gross margins than any concern over inflating sales. If they really wanted to inflate sales through sales to subsidiaries as has been suggested then they should have added a higher markup, but of course their JV partner would probably have something to say about that.


    I don't find any of this unusual for a company doing business in China. I do think it would be helpful if the reasons why the deal was structured this way were more fully discussed somewhere in the 10Q.


    The reporting of these sales in the top line is certainly in accordance with GAAP, and KNDI probably had no other choice than to report it this way, but I wonder if a case could be made that since the purchase and resale of batteries is not KNDI's primary business it might be more appropriate to report the net proceeds of this sale as other income in the P&L. I think that would certainly make KNDI's financial results more clear to investors.
    28 Jul 2014, 12:47 AM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Brian, A thought just came to mind. Since I do not talk with management, but only use public source documents in both US and China, this is only speculation. I knew early-on that KNDI was intending to sell the partially completed cars with the batteries to the JV. Something that would never have caused a second glance by anyone.


    Also, it would be logical, even under the above scenario, that the batteries would be separate and not be wired into the car until final assembly for obvious reasons of safety and battery preservation.


    In this case the batteries were bought early-on at a very attractive price prior to the final closing of the JV, but still likely had a heavy carrying cost to KNDI just to warehouse $31 million in batteries until the respective partial cars were to be delivered in Q2, so maybe the Company just broke out the batteries as a separate item this one time and sold the batteries in advance to the JV, rather then waiting until the partial cars were delivered.


    I suspect when the Q2 numbers come out in two weeks some of these questions will be answered.
    28 Jul 2014, 06:44 AM Reply Like
  • Taeyun36
    , contributor
    Comments (67) | Send Message
    arthur, is it true that they do not have c/c and just release earnings PR? can you (or other big holders) talk to company and try to urge them for a conference call on these important events?


    i am hesitant to get in due to this more than Ben's article.
    28 Jul 2014, 01:31 PM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » Taeyun- AsI discussed this point in the above blog. Here is a snippet.


    "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."


    (Both meaning CC and guidance)
    28 Jul 2014, 01:58 PM Reply Like
  • Taeyun36
    , contributor
    Comments (67) | Send Message
    thank you. i plan to visit Alibaba later in the fall and will prob take time to visit KNDI in the same city. will spend a lot of own time looking at EV developments in China when i visit. better to get in the field feedback on EV happenings there than a lot of posters on finance yahoo
    28 Jul 2014, 02:56 PM Reply Like
  • Arthur Porcari
    , contributor
    Comments (795) | Send Message
    Author’s reply » just for the record; I just came back here to see if LTV had responded to my last lenghty post and consider removing LTV's earlier comment for ignoring my challenge this morning and to my suprise, both his and my lenghtyy discourse posts were all missing. I assume either someone has hacked into this blog, or SA is now deleting Instablog posts.
    28 Jul 2014, 02:16 PM Reply Like
  • myrestofthestory
    , contributor
    Comments (14) | Send Message


    FYI. Conversed with the one-time author/want-a-be financial adviser/pharmacist via messages of another SA article that discussed the shorting practices in Kandi's case last week. The article was deleted (not by the author... SA or a hacker?), informed the author and he re posted his article; however, the messages of the aforementioned conversation were removed from the original article... Of course I had already capture the original article's messages/conversation... Certainly some gremlins are very active with these SA articles...
    28 Jul 2014, 08:54 PM Reply Like
  • Brian Cross
    , contributor
    Comments (8) | Send Message
    Arthur, your guess is probably better than mine, but I know that one issue KNDI would need to deal with is the different duty rules for items manufactured for export (KNDI's direct business) versus non-export manufacturing (the JV business).


    PRC does not charge duty on any machinery, equipment, parts and materials that are imported into PRC for use in the manufacture of goods for export.


    Because of this, a company like KNDI cannot mix its export and non-export operations (at least not easily). I imagine this is one reason why setting up a separate JV for the PRC destined EVs made sense for both KNDI and Geely.


    Not entirely sure how this would impact a purchase of batteries that I assume were destined for use in both KNDI's export and non-export EVs, but given that they negotiated a deal with a single manufacturer for both, it is better to have them first purchased duty free by the export manufacturer (NASDAQ:KNDI) rather than the other way round (by the JV).
    28 Jul 2014, 06:45 PM Reply Like
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