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KANDI Linked To Chinese EV Subsidy Fraud? Based On Gleey Auto CEO Comments A Skeptical Investor Would Think So!

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

Recent Developments on the EV Subsidies Scandal front make $KANDI uninvest-able and are likely to jeopardize the entire business model of the Company as well as its financial stability.

Bloomberg breaks the story to western investors about China Government taking actions against scammers in the EV industry.

On September 8, 2016 Bloomberg broke out a story about China punishing five manufacturers of electric vehicles (NYSE:EV) for scamming the government of about $150 million in subsidies in a crackdown aimed at rooting out fraud in the fast-growing industry.(Read the article for further details about sanctions and repercussions / De Facto complete shutdown of these 5 Companies).

Chinese Media add more details: This is where KANDI /Geely JV involvement in the Subsides Scandal Probe appears to become real

*KANDI/Geely JV name = Kandi Electric Vehicles Group Co.

See SINA FINANCE Article published on September 8, 2016. This news is also reported by many mainstream Financial Outlets in Mainland China (here, here, here)

According the news, in addition to the five (5) companies reported in the Bloomberg Article (Companies in Category 1) there are many more companies (20 Cases / Companies) involved in subsidy fraud (Companies in Category 2 and Category 3)

Category 2 (12 Companies) includes manufacturer whose vehicles were found with no battery inside or had batteries had been swapped.

Category 3 (8 Companies) includes manufacturer whose is for vehicles with batteries installed that do not match what the company claimed and the specific requirements to be eligible for subsidies.

Gleey Name (KNDI JV Partner) Name is mentioned in both Categories: Category 2 and Category 3.

According to Securities Daily(证券日报) In Category 2 next to Geely is also reported the name of KNDI.

Assuming Categories order correspond to the severity of issue, seeing KANDI mentioned in Category 2 is everything but encouraging for the Company. Remember Companies in Category 1 got de facto shut down.

Severe sanctions suggested for the 20 Companies in Categories 2 and 3 (Meaning KNDI and Geely too)

Source: http://money.163.com/16/0909/10/C0H1MSIQ002580S6.html

1. Cancel EV Advance Subsidy Payments eligibility for the companies for year 2016

2. Non Payment of Questionable EV subsidies for year 2015 Company

3. Ordering to repay EV Subsidies received by the Government in 2013 and 2014

4. EV in compliance with regulations can to be sold without however the subsidies prepayment (Payment only later)

Subsidies are vital for KNDI business model, as the company reports in its 10-K for FY2015 (page 12)

No subsidies ... No Business … Opsss

"Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles generally and performance EVs specifically … Purchasers of Kandi's SMA7000BEV and SMA7001BEV models are the ultimate beneficiaries, on a per car basis, the national government subsidy of RMB 45,000.00 (Approximately $6,931) in 2015, many cities also provide local subsidies, which differ according to the related local policies. Additionally, these two vehicle models also qualify for free license plates in many cities. Especially in Shanghai, the license plates in Shanghai are auctioned to the public at an average price between RMB74,000 to RMB85,300 ($11,400 to $13,140) per license plate."

Geely AUTO CEO (Gui Sheng Yue) comments to Bloomberg do not pose good for KANDI and its JV:

The CEO only stated that the Government investigation did not find any wrongdoing in sales of Geely EMGRAND Electric Cars (Not produced by KNDI/Geely JV). Why did the not say that the investigation did not find any Wrongdoing in sales of EV produced by the KNDI/Geely JV?

Why did Geely CEO Decline to confirm whether Kandi JV were found in violation of EV regulation in the Probe? To a skeptical investor like me this looks like an implicit admission of Guilt.

Why did Geely CEO point out that Geely Auto (the listed Company) is distantiating itself from the KANDI/Geely JV by selling the JV back to the Not-Listed Parent Company?

The timing of this transaction is also very interesting, since it was only recently announced (First announced in June 2016, less than 3 months ago). For a skeptical investor it become even more interesting when the Investigation into the EV Subsidies Scandal is brought into the Picture. As reported by media the Government investigation took over 6 months.

" 骗补名单方面,工信部、财政部等四部委此前历时 半年多 调查发现存在三种骗补和违规谋补行为:"

Skeptical investors would probably ask if the Listed Company not want to be exposed to bad publicity in case of a Scandal?

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KAND has 40m in Debt, less than 20m in Cash and barely generates any Operating Cash flow or Profits (>100x PE LTM as per Q2 2016).

How will the Company be able to survive the Sanctions proposed for Companies in Category 2 and 3 (see above)?

1. Cancel EV Advance Subsidy Payments eligibility for the companies for year 2016

2. Non Payment of Questionable EV subsidies for year 2015 Company

3. Ordering to repay EV Subsidies received by the Government in 2013 and 2014

4. EV in compliance with regulations can to be sold without however the subsidies prepayment (Payment only later)

And FYI … basically all KNDI Revenue is dependent on the KANDI/Geely JV ( Kandi Electric Vehicles Group Co.,). 10-K for FY2015 (page 9)

BOTTOM LINE: If KANDI/Geely JV is in trouble (as recent developments seem to point out) then KANDI is trouble too … Doomed I would say!

Based on my Due Diligence I SEE NO FUTURE FOR KANDI! This is why I am short.

But hey, do not trust me … I am a simple guy without a job writing from a hotel room. I might be completely wrong … … do your Own Due Diligence, vet the info out there … and make your own investment Decisions.

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------ UPDATE ------

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09/09/2014 KANDI President comments to blomberg Reporters were published:

- It is funny that the President is happy that the current probe is helping elimnte incompetent companies (Since I do really believe KANDI is one of them)

- Why did the company never tell invesotrs it had been contacted by authorities rethis EV Subsidies Scandal?

- The 2nd point in the bloomberg notes (Kandi used to switch batteries for Charging of tis EVs) ... per my understanding is what Category 2 mentioned before concerns.

---> Did the President of KANDI finally admit wrongdoings prepetrated by the Company?

Media outlets in China mentined strict sanctions (see 4 poitns cited before) to be incurred by Companies in Category 2 (and 3) - ( here, here, here)

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Geely AUTO CEO (Gui Sheng Yue) comments to Bloomberg do not pose good for KANDI and its JV (Complete):

*I find it quite funny how the CEO saids … "No Impart on ITS business" … and then spendt all the time pointing out how in one month Kandi/Geely JV will not be part anymore of the listed Geely Auto (175 HK).