Arthur Porcari's  Instablog

Arthur Porcari
Send Message
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
  • Could NASDAQ’s Kandi Technologies, Inc. (KNDI) With It’s Current $63 Million Market Cap, Be A Non-Expiring Option For A Potential Billion Dollar Future? A Good Bet. 0 comments
    Jul 6, 2010 2:34 AM | about stocks: KNDI, TSLA, BYDDF

    Unlike BYD, Geely, Chery and other giant China electric car manufacturers, this profitable EV fledgling is developing the whole Green personal transportation solution for  China's emerging middle class.

    Almost unheard of Kandi Technologies, Inc. (NASDAQ:KNDI), with operating subsidiaries in Jinhua, Zhejiang Province, Peoples Republic of China was founded in 2002 by its current Chairman and CEO and 60% controlling shareholder, Hu Xiaoming. It entered the US stock market scene as a bulletin board company in July of 2007 followed by a NASDAQ listing on March 18, 2008. At the time of listing, KNDI was quite profitable exclusively as an exporter to the US of “Toys for Big Boys” which included ATV’s, UTV’s, and high end “Go Carts” which garnered KNDI the distinction of being China’s largest exporter with approximately 15% of the market.  

    Shortly after listing, it soon became apparent to Management, and the rest of the World for that matter, that an energy crisis was underway and an economic meltdown was beginning. Not a good outlook for a Company exclusively exporting gas powered off-road recreational vehicles. But while most companies world wide were being inundated with “lemons”, Mr. Hu and his team broke out the juicer and conjured up a sweet (no pun intended) batch of lemonade.  

    At that time, the PRC was one of the first Countries to realize a problem was brewing and started stimulating to the tune of some $600 Billion US. Rather than hunkering down, KNDI dramatically modified its business plan, took advantage of the stimulus and significantly increased its administrative and manufacturing space to over 2.5 million sq.ft. under roof which increased current manufacturing capacity to over 100,000 vehicles and longer term logistical capacity to over 300,000 vehicles.  While there was never an intention to do away with it core business of off-road recreational vehicles, a new product line of on-road low speed electric vehicles (LSEV) which had been under quiet development was quickly being readied for market. Prior to the impending economic meltdown, the thoughts were to build these LSEV’s exclusively for export. But these thoughts quickly changed and the Company announced in early 2009 that they were now actively addressing future sales of these vehicles domestically in China.


    As 2009 came and as expected year over year revenues crashed, but bottom line was not as bad as expected. Q1 ’09 saw top line drop more than half to $4 million and the Company did experience its first loss since its earliest years of $571,000, or under $.03 a share. Q2 saw a more than 60% decline in sales to $5.4 million yet amazingly saw a recovery back to profitability with net income of $226,323. Particularly when considering the infrastructure growth at that time, this feat would seem almost impossible to Western manufacturing companies. The balance of 2009 saw export sales of KNDI’s traditional business begin to revive and most importantly two major events in their new LSEV model appeared. Initial sales to the US of 2,100 of their new LSEV “Coco” electric cars making KNDI one of China’s largest exporters of electric vehicles for the year, and an initial China sale for testing of 30 modified Coco cars by the China Postal Service in Jinhua.

    The new year of 2010 came in with a bang. On the first day of trading, Jan. 4, primed by a monumental press release, saw the stock soar from its Dec. 31 close of $4.40 to an inter-day high of $6.16, closing at $5.72 on its heaviest volume ever of 1.85 million shares. Over the next five trading days, on well above average volume, the stock hit its multi-year high of $6.75.  What caused the excitement was KNDI’s revelation that it had “fathered” a Joint Venture with three China giants in developing a solution to the World’s major roadblock to EV growth, a quick battery charge solution to initially be implemented in Jinhua, China in 2010. Specifically, a one minute battery exchange concept similar to exchanging propane tanks for a home griller.  KNDI took the lead in this JV since it owned the patent for the technology.

    Now for those “green” investors out there, this concept might strike you familiar with a still private venture capital darling called “A Better Place”, which based on their latest round of private financing has valued that company at $1.25 billion.

    Now, think about it. Where does it make more sense to develop this concept to profitability in the relative near term? A US based “A Better Place” scattering battery changing stations in various parts of the world that already have a relatively mature gasoline powered auto saturation, or KNDI a China company along with other China partners (to include the Government) in China where most potential EV buyers will be first time auto buyers and the Government can dictate when and where changing stations will be built? (In fairness, I should note that A Better Place has also recently signed an MOU with Chery to potentially one day build changing stations in China). 

    In KNDI’s favor, its plan goes steps further than A Better Place. Not only will KNDI participate in battery exchange revenues, its concept separates the battery from the car and makes it a rented or leased item, thereby dropping the purchase costs of the car significantly. (many of which will be made and sold by KNDI) Additionally, the PRC Government along with local governments have already announced subsidies for the building of the exchange stations, battery leasing or renting, and for the car itself covering 50% to 90% of the cost of a recently PRC approved KNDI conventional speed KD5010XXYEV car. (The Company has already announced local subsidy approval alone for 3000 cars in Jinhua)

    Now let’s not forget KNDI’s Postal Car test mentioned above. While not yet confirmed by the Company, wording in several past press releases by the Company regarding Postal Service and other Municipal users leads me to believe they did in fact “past the test” and could very well be on the cusp of announcing this additional monumental event. Monumental in effect for several reasons to include; if awarded, this could open the door for other government and municipal users creating a potential market for these vehicles in the seven digits, and also create an “instant branding” credibility factor as KNDI starts rolling out their consumer versions of their vehicles throughout China.

    Bottom Line.  While KNDI is still in a major transition year with exceptional R & D, marketing, other expansion and branding costs along with GAAP non-cash charges such as stock based compensation for stock option plan, its historic core business is keeping the Company solidly cash flow positive and is expected to grow nicely this year. Top line should easily exceed its all time record year, 2008 which showed $41 million top line and GAAP EPS of, $.25 a share. With its proven flexible and very capable management, who already felt the need to increase near term annual manufacturing capacity to 100,000 vehicles and has building space to increase that number to over 300,000, compound growth of over 100% for the next several years should be a good bet.

    If the “market” thinks that A Better Place is already worth $1.25 billion as a private company, and recently public electric vehicle maker Tesla Motors (NASDAQ:TSLA), who has never had a profit, and won’t for at least several years is currently worth $2 Billion, then, IMO, KNDI, at $3.12 a share and a $63 million market cap is being given “0” premium for its multi-billion dollar potential in its new China endeavors. And, in fact is undervalued based on its historic, ongoing and growing export business.


    Therefore I restate that IMO KNDI stock is currently being valued as nothing more than an undervalued stock option that won’t expire, with an infinite upside potential .

    Disclosure: Long KNDI

    Disclosure: Long KNDI Stock
    Stocks: KNDI, TSLA, BYDDF
Back To Arthur Porcari's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.