Fundamentally, Kandi Technology Sizzles While Tesla Disappoints…
2015 was an incredible year for fundamental performance for China Based, NASDAQ listed Kandi Technologies (KNDI), which is one of only two Pure EV (PEV) Companies listed on US stock exchanges. The other being NASDAQ listed Tesla (TSLA). If Kandi revelations over the first five weeks in 2016 are any indication, another blowout year is in the making.
While neither Company has yet reported their 2015 Financial Statements as of this writing, both have given public statements revising “guidance”. In Tesla’s Case, at the time of reporting Q3 numbers, its start of the year guidance was lowered from 55,000 units to 50-52,000. As recently reported, sales came in at the low end of that guidance at around 50,580. On the other hand, Kandi who gave full year guidance at the same time of 20-22,000 units, notified shareholders that it would be beating its guidance “by at least 5%”. Subsequently it was reported at the time Kandi’s Chairman, Xiaoming Hu, was giving one of the keynote speeches at the 2015 China Green New Energy Vehicle Conference Jan. 16 that KNDI sold some 25,000 units in 2015. BTW, at the same conference, Kandi’s new high tech K17 Cyclone which officially goes on sale this month, was named “China 2015 Pure Electric Passenger Vehicle of the Year”. (The K17 is KNDI’s third PEV model in production)
Now you would think that in a Country like China with such an incredible potential market, a Country with five times the adult population of the US due to past one child policy, to win such an honor virtually assuring major sales beginning this year, that the US stock market would reward the accomplishment. But not so in this case. The stock actually dropped 4% followed by another 3% down the following day. After all, it was shortly after the Tesla Model S received a similar award in the US, that its stock began its meteoric ride up.
Additionally this year, Kandi also upped its guidance on New Cities added for their MPT CarShare program expansion in China from 15 Cities to 16, up from7 in 2014. (BTW, the stock went down on that news as well.) How big is this? Very big. The 16 Cities that Kandi is now rolling out has a total population of 206 million! To put this in even better perspective, the top 50 Cities in the US have only 49 million. Also announce in the past few weeks was the Groundbreaking for its fourth 100,000 Annual Capacity Assembly facility in the City of Haikou, Hainan Province. Most startling about this is that the groundbreaking came only 45 days after the original deal with the City was signed. Debt Funding is already in place for this facility.
And also this year, two more major pacts were signed. One with Pang Da, the largest independent auto dealer in China covering 28 Provinces and some 1200 locations, to not only sell and lease KNDI branded EVs, but also assist in developing a new rental model customized for College Campuses. The Second with a Division of State Owned, China High Speed Rail to effectively provide the “last mile” link from China’s Massive Intercity High Speed Rail System to final destination. This a key accomplishment for Chairman Hu in that he first mentioned this as a major goal at the 2012 Shareholders Day in Atlanta. As most of the Kandi MPT Programs are already tied in with City Municipal Transit Authorities for registration and scheduling for local use, the “End Game” to this first step with Rail is to expand the MPT to all the major “train stops Nationwide.
So, in spite of all the above being announced in just the last several weeks, KNDI stock has steadily declined, just since year end by some 35% and almost 70% from its 2013 high of 22.46.
Now let’s see what great things Tesla has brought fourth since January 1st? Well, other than giving the tepid full year sales, really nothing noteworthy from the Company. Certainly in this market environment where even the best performing tech stocks are being hacked for high PE ratios, there should be no wonder that TSLA has finally joined the Club.
Now let’s look at a table primarily oriented at EV Sales I put together covering the last four years showing KNDI’s Incredible but orderly 140% compound unit sales growth. (Kind of brings back memories of the childhood fable of the “Tortoise and the Hare.”)
Now to be clear, Kandi the public company does not directly sell EV’s. At least not yet. They have applied along with the likes of China Auto Parts giant, Wanxiang Group, owner of Fisker and A123, to get a special EV Manufacturers license to be able to directly manufacture and sell EV’s. The National Government has opened up a limited number of licenses specifically for EV’s which are expected to be awarded late Q1 or early Q2. However, for all intents and purposes, Kandi, through its Chairman CEO does run all of the Kandi-Geely 50-50 Joint Venture Manufacturing facilities. Now Kandi does manufacture and sell critical parts, such as the motor, AC, and some lesser parts, along with the batteries and Battery Management Systems (BMS) to the JV but at a competitive lower margin made up for by its ownership in the JV. Because of the 50-50 nature of the JV, neither KNDI nor Geely can consolidate revenues, only bottom line profit or loss. So when you look at the above table, the revenues for KNDI only includes its own direct parts sales. But as you can see, from the below table, KNDI shares at current prices do not even give full valuation for its own core business let alone give any value at all for its 50% ownership in the JV. BTW, last year the Company reported that the JV would be applying for an “in country” IPO, likely on the Shanghai Stock Exchange once it fill the two year Audited Financial Statement requirement which will be out in March. This was reconfirmed at last quarters Conference Call.
Regarding my above estimate for 2016, knowing how conservative Chairman Hu is and his desire to give upside surprises, I would be surprised if he gave full year’s unit sales guidance of much over a double 2015 plus some. Though from both China and US Media sources, estimates for Kandi branded unit sales run as high as 90,000 units for 2016. Revenues and margins per unit will also likely increase, maybe significantly for as you can see from the linked higher estimates articles above, KNDI will be selling two new higher priced EVs this year, the K17 Cyclone, K30 SUV and also likely a similar valued two door K12, alongside the current K10 and K11. (How long and how much money do you think it would take for TSLA to have five (5) vehicles on the market?) But just a word to the wise here. Now that KNDI branded EV’s are being sold to consumers, historic seasonality will start going away, but not all at once. As I mentioned, until recently all the KNDI branded EV’s went into MPT CarShare. Because of this, paired with a PRC “programed” annual reduction in Subsidies each January 1st, Q4 has always been strongest and Q1 weakest. For example; last year KNDI JV sold no cars in January, 200 in February, 1400 in March for a total of around 1600 cars in Q1. Pretty much the same as in 2014 but a lessor total. But as you now know, that didn’t stop KNDI EV’s from ending both years in 1st place and either in 1st or 2nd place in each the final four months of 2015 and selling more EV’s in Q4 then the prior three quarters. Now this is the JV. In Q1 15, KNDI itself came in with a quarter topping the JV in total revenues by some 30%. This because KNDI as the primary provider of parts and batteries to the JV had to replenish the JV’s Inventory after the year-end sales rush. While I truly have no idea what Q1 16 will look like, IMO, a YoY triple in Q1 EV sales with a thousand cars in January would assure me that my 55,000 2016 full year guestimate will be easily beat.
Chart Courtesy of EV Blog Spot
Chart Courtesy of EV Blog Spot
Why Kandi Is The Perfect Stock For Long Term Investors In The Current Indecisive Market
Last August, long before the year end recovery in overall markets, I published an article titled “Kandi Technologies: A Rare “Defensive” and Hyper-Growth Company..” I am not going to rehash the whole article here, just repeat a few points of my prophetic writing at that time. (But I do strongly suggest if you didn’t read it before, do it now if you have overall market concerns.)
At the time of that writing, I had no serious inclination that more KNDI branded EV’s would be sold in Q4, than the total of the prior three quarters. I would have been happy had the Company just met its 20-22,000 guidance. At that time through even today, not a segment goes by on CNBC without warning of the “impending doom” of the China Economy. (Now it seems those talking heads have spread the contagion to the World). But what I did know based on eight years of closely following and researching KNDI along with a couple of Company visits in China, was that the TOP problem needing to be dealt with by China Politicos is not the economy, since the constituency, doesn’t wake up each morning with concern on that subject. It is the deadly urban pollution. Something the constituency only need look out his condo window to be reminded.
As mentioned above, until the second half of 2015, all KNDI branded EVs were being sold into what is now by far the largest CarShare program in the World. Bigger in fact than #2 & 3, Zip Car and Cars to Go combined. Beginning in H2 2015, retail sales and long term leases have been underway, in the 16+ Cities mentioned above. My guess is some 40% of Q4 sales have been made outside the MPT CarShare. However, the Municipal MPT CarShare expansion has incredible upside potential. I mentioned above that the 16 Cities KNDI has already begun MPT expansion alone have over 200 million population. One of the Cities, though not yet even announced with a PR by the company is Chongqing. This a city that has grown in population from less than 10 million in 2000 to over 27 million by 2013. Two weeks ago, the China Media was awash in this article “Chongqing City, the new energy of pure electric "public rental" project was officially launched” Not surprisingly, KNDI shareholder had no idea the Company had entered this huge market. Yet with a quick read it appears KNDI had placed 600 EVs in a trial MPT program in late 2015 and achieved so much rapid success that an official launching ceremony was held where the Deputy Mayor announced that over the next two years at least 10,000 additional KNDI EVs would be put in service for a CarShare MPT program.
Now do you have to be a “Big” city to host an MPT CarShare? It seems not so. Just last week, the City of Changxing, Population of only 320,000 also had a ceremony announcing the start of a 5000 EV CarShare. Just imagine, if a City this small can handle 5000 cars, the roll out potential over the whole country’s 700 million urbanites could easily total in the seven digits. Now what makes the MPT CarShare such a dynamic program for KNDI and Geely is it is a “one off” from a “razor blades” model. Unlike US car rental Companies who usually flip their cars every 18 months or so, the durable small K10s, K11s and K17’s in KNDI’s MPT have an expected service life of 3-4 years. But the difference being from a KNDI MPT and a conventional rental is that ALL of the cars in the KNDI MPT programs are Kandi Branded vehicles. So the JV has a “captured” market to replace the cars every three to four years with no remarketing expense. This compared to an auto dealer like a Ford, GM and even Tesla that have to pay dearly to entice a repeat buyer.
The PRC has stated that they expect to have at least 5 million EV’s on the road in China by 2020. KNDI, currently has three major assembly facilities (two new built from scratch) with annual capacity of 100,000 each. By late next year the Haikou 100,000 EV facility discussed above will be operational. This makes KNDI by far the most flexible EV Manufacturer in China. Even Warren Buffets BYD, who already was one of China’s top ICE automakers whose principle EV sold last year was a hybrid, felt some EV manufacturing constraints late last year around the 50,000 unit level. No such worry for KNDI. And, if your concern is for battery availability, in 2013-2014, Kandi signed strategic partnership agreements with 5 of China’s largest Battery Makers. IF China is going to hit that 5 million level by 2020, you can bet at least 15-20% of those EV’s are going to have to come from KNDI branded EV’s. And many would come from replacement of EVs put in service from 2013-2017.
If I had to put my finger on one issue that has caused the explosive expansion of sales and MPT roll-outs in Q4, I would think it would be the credibility achieved by Chairman Hu formulating and striking a blockbuster multi-party agreement with Alibaba (BABA), ZTE, UBER and several others in launching "Car-Share 4.0"connected EV eco-system” In a November article I published titled “Kandi Technologies (KNDI), Can It Possibly Get Any Better Than This? Don’t Bet Against It!” I go in depth describing this amazing accomplishment along with other 2015 events to include KNDI’s first venture with a European partner to develop a modern EV version of the iconic Isetta from the late 1950’s. But under the old adage that a picture is worth a thousand worlds and a video 10,000, here is a video recently released by KNDI in China with translated English “overdub” that give you a flavor of what is involved to include wireless charging and autonomous self-driving EVs. “Kandi Taking the Electric Car into the Future”.
Why This Should Be The Break-Out Year For Kandi’s Share Price.
If you have been following KNDI for any length of time, you would likely know that it currently has little Institutional following and no Brokerage Firm Analysts covering. In a normal Bull Market environment as we have had for the past several years, expecting this to change in 2016 might just be a “coin-flip” in spite of stellar performance. But I don’t have to tell you that is not the way the Market is shaping up this year. This year will likely be an analyst dreaded “Stock-Pickers” market. Let me explain.
In a Bull Market, Fund Managers and “run of the mill” Analysts usually sleep well simply by “piggybacking” on the hard work of “others”. As long at the stocks they buy and follow go up, their job is likely secure. Not so in a Stock-pickers market. Be assured, well over half the Analysts on Wall Street have not been sleeping well lately. Making a living by telling investors to sell or hold won’t last long and doesn’t make any money for the “pockets” that pay analysts. Having been an owner of a full service brokerage firm years ago, I can assure you what I say here is true.
What will make money and give job security is to find the always available, but often hidden gems that will make money in any kind of market. Usually these type of stocks are boring “staple” type of stocks with little exciting growth opportunity. But when you come across a stock with incredible upside growth and an eight year history of success; yet priced as a “value” stock, like KNDI, it won’t take more than a quarter or two to be “discovered” by that first Analyst who likes job security. Once the first one is on board, the “herd” will follow. The same goes for Fund Managers. To even help “sweeten the ride”, is KNDI, due to its past “orphan” status, has a reported short position approaching 6 million shares. Now this is down from its all-time high of around eight million shares reported short, from a few years ago, but at that time KNDI had average daily volume of over a million shares. As of late, it’s down to around 300,000 shares a day making it extremely hard for a large short seller to cover much without spring the stock into action. When that first Analyst, Major Fund, or even a capitalistic deep pocketed former short seller who knows the agony of trying to “keep the price down” on this gem, decides to step up and in on the long side, explosive upside moves of over 100% in a month like was seen both in 2013 and again just last October, will happen, but with “Staying Power” the next time.
Full Disclosure: I am long KNDI stock and Stock Options