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Kandi Speculation

|Includes: Kandi Technologies Group, Inc. (KNDI)

Since 2012 many investors have asked, "What is taking so long for KNDI to achieve breakout sales results." The answers have consistently been the comparatively higher cost of EVs compared to traditional automobiles, the shorter driving range between battery charges, long charging times, the limited charging infrastructure, and battery attenuation, maintenance, and disposal. Added to the list are the Big Bad Short, protocol, pomp, ceremony, bureaucracy, and any myriad of new subsidy delays, anything necessary to confound, confuse, and obfuscate what one could speculate to be the real cause.

In the 2015 second quarter Form 10-Q, Chairman Hu announced plans for an Initial Public Offering of the Kandi/Geely JV. Then the subsidies suddenly and mysteriously were withheld. At the end of December 2015, the EV requirements suddenly changed causing the JV to sell zero cars for the first quarter of 2016. Then the JV's EV offerings are approved for sale April 1, 2016. Coincidentally, Geely decides to sell its half ownership of the JV to Li Shufu with Geely realizing a twenty-five percent gain on about a two-year investment. Meanwhile, Li Shufu gains the rights to about $125 million in subsidies due the JV. All this transpires while involving an organization boasting three EV factories, soon to be a fourth, capable of producing about five hundred thousand EVs annually. Naturally, the JV IPO occurs on the eve of the launch of carbon credit sales in 2017 which represents a potential incalculable financial windfall.

So now we can foresee a Chinese EV corporation with four factories, realizing $400 million in annual sales, and about to be flush with $250 million in cash and a carbon credit annuity with a present value one can guess to be in the high ten figures. A ten multiple of sales would modestly value such an entity at $4 billion, or greater considering future carbon credits. Following Chairman Hu's announcement of plans to pursue an IPO of the JV, one might speculate that Li Shufu could have mused, "Why would I want the gains from such an IPO to pass to Geely? What gain can I realize in exchange for $110 million?"

It requires little imagination to piece together the events that have transpired. I trust that Kandi will soon clarify its plans for the JV IPO before simple speculation gives may to more active imaginations.

Disclosure: I am/we are long KNDI.