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NIO Fizzles So Kandi Technologies (KNDI) With A New $5+ Billion 300,000 EV Agreement Burns? Only On Wall Street Can You Make This Stuff Up!

By: Arthur Porcari
Harvest Exchange
March 11, 2019

NIO Fizzles So Kandi Technologies (KNDI) With A New $5+ Billion 300,000 EV Agreement Burns? Only On Wall Street Can You Make This Stuff Up!

Abstract: Last September, I published an article welcoming NIO as the second US listed Pure EV Company. As an Eleven year close follower of China-based, Nasdaq listed Kandi Technologies (KNDI), China’s documented EV First Mover, I looked forward to the long overdue excitement of EVs in China, that NIO would bring to the US markets. I warned NIO followers in that article that based on bureaucratic trials and tribulations that KNDI has had to go through as the true “First Mover” in China EVs now NIO’s path might be easier, but still not smooth. I was excited because after more than a decade of preparation, KNDI had now fully traversed the full “Tech Start-up Valley of Death Curve” and was looking to 2019 as its “Blow-out” year. Little did I realize at that time how correct and fast my prognostication would begin to develop, at least from a business point of view. With less than a $360 million market cap (about 4% of NIOs $8+Billion or KNDI shares would have to be trading at $160 a share to match NIO’s current price ), KNDI has its own thriving and profitable OEM EV parts business, which alone should be valued at least $400 million. However, its real value lies in its 50% ownership in a five-year-old multi-billion valued Kandi-Geely Joint Venture (KNDI JV)  with Geely Holdings (GH) currently being given zero value by the Market.GH is China’s largest auto-oriented Holding Company, 100% owned by China Auto-industrialist and 9th wealthiest Li Shufu; and is sole owner of Volvo, London Black Cab, and some smaller entities. GH is also the controlling owner of Geely Auto (43%), Proton Auto (50%), Lotus (51%), and largest shareholder of Daimler (9.8%).   Over the past few years KNDI has invested $161M and GH $197M in the JV. It is this KNDI JV, which has to date designed, developed, and manufactured in four owned facilities (Annual Capacity 400,000) and sold some 80,000 EVs in China.  The JV, which currently has the largest pure EV manufacturing capacity of any pure EV maker in China, was recently was awarded one of only 17 OEM EV Manufacturing Licenses out of over 200 applicants.  This license allows the KNDI JV to make and sell EVs under its own brand; but also make licensed EVs for others. It is the KNDI JV that should be directly matched up with the likes of NIO, however, NIO does not have a license, and based on NIO’s recent decision to abandon building their own plant, would not be eligible for a license without plant ownership.

While investing in this very early stage of EVs in China with its multi-trillion dollar potential is exciting and prudent, it should not be done in a serious way without judicious due diligence; and preferably in a company with a significant operating history. It goes without saying that the “jury is still out” on NIO, but not so much KNDI which has stood the test of time and stunningly has just added a new $5+ Billion definitively identified Government project over the next 3 to 5 years in only a single agreement! 

If you cannot access the numerous Reference Links in the article, you are probably reading it on Yahoo Finance which drops all body links, I suggest you now Skip to the End of the actual article and use the sole link provided which take you to Harvest Exchange, the original article source with active links.

At the end of this article, I want you to ask yourself this question.  “If I want China EV stock exposure, will I sleep better with $380M market cap KNDI, or $9B market cap NIO?”  But don’t even think about answering the question, until you read this article.

 

Subjects to be discussed:

·         Recent Headlines for NIO & KNDI

·         NIO Near Term Risks

·         Irrespective Of Owning NIO, This Is Why You Want To Own Some KNDI

·         KNDI EVs, the Ford, or More Appropriately, the Volkswagen (Peoples Car) of China

·         With All The Good News, Why Is KNDI Stock Consistently Under Attack?

·         KNDI JV Adds Blockbuster $5+ Billion 300,000 EV Agreement With A Government Entity.

·         How is KNDI Financing All This? 

·         Some important links to continue with your KNDI Due Diligence.

·         In Conclusion

 

Recent Headlines on NIO and KNDI

NIO

Mar-06-19  01:13PM  What Investors Need to Know About NIO's 20% Decline Wednesday Morning Motley Fool

01:05PM  NIO Sinks After Chinese Electric Carmaker Posts Wider-Than-Expected Loss TheStreet.com

11:10AM  Chinese Electric Car Maker NIO Plunges Most Since Its IPO Bloomberg

09:42AM  BRIEF-China Development Bank International Investment's Board Approves Disposal Of 4.7 Mln ADSs Of Nio Inc Reuters

09:12AM  Tesla competitor Nio abandons factory plans amid steep loss, shares plummet American City Business Journals

08:31AM  StockBeat: Nio in Sharp Reverse on Wider-Than-Expected Loss Investing.com

06:55AM  Nio stock sinks, as investors spooked by earnings miss, delivery slowdown MarketWatch

03:57AM  Edited Transcript of NIO.N earnings conference call or presentation 6-Mar-19 12:00am GMT Thomson Reuters StreetEvents

Mar-05-19 04:45PM  Chinese Tesla's Nio falls after wider quarterly loss, deliveries slowdown MarketWatch

 

KNDI

Mar-04-19 08:33AM  Kandi JV Company Signs Strategic Cooperative Agreement with China Resources (Zhejiang) Vehicle and Ship Natural Gas Co., Ltd GlobeNewswire

Feb-21-19 04:23PM  5 cheap stocks under $10 even high-rollers might like MarketWatch 

04:04PM  Kandi Races Higher As Chinese Electric Automaker Gears Up For American Sales Investor's Business Daily

02:18PM  Kandi Technologies Surges on U.S. Approval to Sell Electric Vehicles TheStreet.com

12:08PM  Kandi Technologies Shares Soar More Than 40% After NHTSA Approval Motley Fool

10:44AM  Chinese electric car maker Kandi shares rocket 40% on approval of US imports CNBC

10:44AM  Chinese electric automaker Kandi shares rocket 40% higher on approval to import cars to the US CNBC

 

Later I will provide links to another half dozen news releases put out by KNDI just since Jan. 4, but for now, take a few minutes and start a real Due-Diligence by clicking on some of the above links; first NIO than KNDI. 

NIO’s Near Term Risks

Heavy Stock Overhang:  In addition to the China Development Bank voting to sell their 5.7 million insider NIO shares, it is likely they will not be alone. Over and above the 160 million shares of NIO sold on the IPO, on March 11, 180 days after the NIO IPO, a Lockup covering up to the approximate 900 million shares to include registered shares underlying some 150 million employee options would be subject to release for sale. Of course most won’t sell, but it is likely some will and just the unknown surrounding this, on top of the disappointing news recently reported, will likely keep pressure on the NIO stock for a while.

From NIO IPO Offering Memorandum.

It is not my intention here to criticize NIO as a legitimate China EV Speculation. (only it’s Market Cap) In only three years, NIO has come a long way toward being one of the 30 or so likely survivors of the current 450+ China EV Maker “wanna-bes”. While the losses reported and cash burn seem staggering, I would blame that on Wall Street and the Tesla mindset that “it's OK to burn ‘insane’ amounts of money, as long as you building a World Class company”. But remember, TSLA was around the better part of a decade before becoming public; and then there is the charisma of Elon Musk. NIO Chairman Li is charismatic in China, but the jury is still out in the US; and he decided to list in the US. 

To me, the NIO loss exceeding its revenues was not surprising based on NIO’s financials in their IPO SEC Registration Statement which showed a 2018 first half cash burn of over $8.5 million a day. Even the soft Q1 19 guidance was to be expected and similar for all China EV companies due to the way subsidies are handled, but to also guide to a soft Q2 was a surprise.  However, my biggest surprise was the decision to scrap building its own Manufacturing Facility; a mandatory requirement under the new China guidelines to ultimately get an EV OEM License, the “Holy Grail” of EV Makers in China. Over the past four years, only 17 China EV companies have passed the stringent requirements to be awarded its own license. (Yes, KNDI just received its status as one of the 17 announced in January) Without a “license” an EV maker can compete, but must always rely on farming out its manufacturing to a license holder.  Currently NIO is having its EVs made by JAC Auto, a State Owned Enterprise (SOE) and one of China’s long-time automakers.

 

As inferred above, my only serious concern about NIO right now is not the Company, it is the Market Cap. In my 45 years as a former ML Investment Banker and Broker-Dealer, I learned that 90% of all investors likely have no clue how many fully diluted shares are outstanding on their favorite stock holding. It is impressive to see TSLA trading in the $280 price range, but that is because there are only 173 million shares outstanding. Plus, since TSLA is a US C Corp trading on NASDAQ, this is significant in that the reported shares plus any in the money warrants, options or convertibles are not difficult to find in filings and on websites. Additionally, in this classic public company structure, typically shareholders votes do count. Let me also state that KNDI, though headquartered in China, is a US-based C Corp with full shareholder voting rights, just like TSLA.  If the US shareholders don’t like the way the Board or Chairman are performing, or the auditor, or any matter requiring shareholder approval, a vote at the mandatory Annual Meeting can remove all BOD members, Auditor, or vote down any proposed business matters. However, this is Not the case for NIO.

NIO’s share structure is quite different in that it trades in the US as an American Depository Share (ADS) Effectively, you own an electronic “piece of paper” in your brokerage account that promises you a share of the business. You really have no shareholder rights attached to your ADS; since NIO is a foreign company stock SEC oversight is somewhat limited. For starters, let’s look how many shares were outstanding after the IPO from its registration statement.

So, at that time, there were slightly over a billion shares outstanding.  However, based on a recent SEC Form S-8 filed last week, (An S-8 is typically used to register shares, or warrants or options, underlying shares for Officers, Directors and Employees of a company) another large tranche of shares have now been registered.

You will note around 100 million warrants with strike price of $2.83 or lower has now had their underlying shares registered for sale. So if an employee or executive wanted to exercise, they could immediately sell the shares keeping the difference between sale price and exercise price as a profit. Realistically, there are closer to 1.15 Billion shares and a recent convertible debenture issued brings the total to at least 1.2 Billion shares outstanding.

Note this section below from NIO IPO Risk Factors as to who has the voting shares:

Re. the cancellation of the NIO Shanghai Manufacturing Facility: A recent article came out on March 11, in China that gives likely rationales as to why NIO canceled the Shanghai Facility. One reason was due to the location being in Shanghai. The PRC would like to spread EV capacity around the Country as much as possible. Since TSLA also chose Shanghai, but actually broke ground first in January, with its large intended capacity, it pretty much “edged out” NIO. A second more concerning reason given and the more likely according to the article was NIO tenuous financial condition.

If you own NIO, I strongly suggest you read the whole translated article above. BTW, you will note that KNDI (Condi) is also mentioned in this article, but as one of the last to get its Manufacturing Qualifications (OEM License)

Irrespective Of Owning NIO, This Is Why You Want To Own Some KNDI

So you see, even at the recently reduced price to the $7 area, NIO still has a diluted Market Cap of $8+ Billion fully diluted. Now let me show below a table that I developed for a recent KNDI report which might be a real eye-opener as the type of competition NIO, and for that matter, TSLA as well, is up against in China competing for the middle to upper market. You can see from the table that while NIO was “first out of the box” to go public, there are at least six additional China Unicorns that have raised an amazing $9+Billion in Private Equity in addition to the $2.4 Billion NIO had raised prior to its IPO. You can bet that each of these other six also have a “sexy” EV story to tell or they would not have had so much purely speculative money thrown at them. Is there room for all of them to succeed? Well, China is a big place and growing; and unquestionably 100% behind getting rid of all gas-powered vehicles over the next 20 years and replacing them with Electric. So, most of the seven should make it. BUT, as an investor, the question you need to ask yourself is; “Why is it all these start-up unicorns eager to go after the market that basically addresses only the top 10% in China?” My answer again refers back to Tesla in the US. “High-End Sexy” can raise a lot more “back of the napkin” money than practical; but Sexy requires a lot more money to be risked.

I think Cramer on CNBC, Squawk on the Street Tuesday March 6, just prior to the opening bell, said it best referring to a question about NIO and its hard down premarket after the disappointing report the night before. To paraphrase him, ─You got EV start-ups trying to become the next Tesla, in a high-end China market that even Tesla is now finding it hard to make money. Maybe the way to go is Ford. ─Now that last comment was mumbled as they broke away for the opening bell, but I do not believe he was saying “Buy Ford”.  It appeared he was inferring that maybe investors should look to the China mass market of low to middle-class (Ford type) EV buyers as maybe the place to be.  So let’s segue to KNDI.   

Look at this table.  It is comparing the KNDI JV to Seven China EV Unicorns, that with little more than a back of the napkin pitch, have raised over $11 Billion US Dollars in Private Equity. NIO, who raised around $2.4 Billion, came to market in the US and so far has raised an additional $1.7 Billion with around $650 million in convertible debt. But from the looks of their recent cash burn report and slowing sales prospects, NIO is likely going to have to raise some more money soon.

But let’s get back to the KNDI JV that has never raised a dime in Private Equity. In fact, other than Founders capital contributed by Geely Holding/Li Shufu and KNDI, no additional equity has been sold to anyone by the JV; yet they have managed to sell some 80,000 EVs and more than NIO in 2018 alone, and also built from scratch three pure EV plants and acquired a fourth. As mentioned above, KNDI recently captured one of the rare China EV OEM licenses.

Would you really feel more comfortable having all of your “EV Eggs” in just the NIO basket? Or any of the other Unicorns? This table is covered in detail on my last report.

KNDI EVs, the Ford, or More Appropriately, the Volkswagen (Peoples Car) of China

 

Many do not realize that the automaker that developed the longtime World-Class Porsche, Ferdinand Porsche, was also the conceptualizer and developer of the top-selling “peoples car” of all times, the Volkswagen Beetle.  Neither KNDI nor the KNDI JV has ever had an inclination to build and sell high-end EVs. In fact, what KNDI prefers to do is to provide transportation to the 650 million middle to lower class China City Dwellers; not so much by selling them cars, but to provide CarShare and RideShare vehicles that can be very comfortable, but used for as little as a few dollars an hour.  As of now, KNDI JV has provided EVs for several KNDI exclusive CarShare programs with KNDI EVs now totaling over 40,000 in sixteen cities, with KNDI JV CarShare cars on the road. It may not be “Sexy”, but as you can see from the table above, as compared to NIO’s first year which showed a $1.3 Billion loss, KNDI had a very profitable first year with sales of some $215 million and a nice profit. If you are curious why KNDI’s growth, which took off like a rocket in 2015 has slowed, I can assure you it was not KNDI’s fault.  This all explained in detail in the two prior articles, but this situation has now changed as you will see later in this report. 

Over the past month, I have published two in-depth reports on KNDI, which can be found on Harvest Investors as well as under the KNDI news retrieval on Yahoo finance. I am not going to rehash all the extensive details provided in those two reports about both KNDI and EVs in China. However, if you are a serious investor, who is willing to spend an hour of your time doing a solid Due Diligence on KNDI, I suggest you read the two reports along with a recent China article about KNDI and KNDI JV Chairman Hu’s 35 year EV experiences. I will provide links at the end here. If you are not aware, I have been writing on KNDI for eight years now covering 50+ published articles. If you have read my past reports, you know that I try to provide back-up link verification to any point I make that might be open to dispute. Trust me when I say ─If you would have told me when I wrote my first KNDI report in 2011 that I would still be writing on KNDI with a less than multi-billion market cap in 2019, I would have accused you of brain damage.

As China’s uncontested First Mover in EVs, my thought at that time about KNDI 2020 would have been either “out of business” or $100 Billion market cap. Yet, here we are, a year away from 2020 sitting with less than a $400 million market cap. It has been quite the journey these many years, however, I can honestly say the journey while having its share of frustrations; has been an invaluable learning experience watching KNDI’s incredibly honest, persistent, hard-working, and brilliant Founder/CEO, Hu Xiaoming, blaze the trail.  A trail starting as the documented China EV first mover in 2010, ─then on to a 2013 formation of a 50-50% JV with China’s uncontested top Automaker, ─to developing a Nationally recognized one minute battery change solution, ─to now being a China licensed OEM with Four Manufacturing Facilities in four Provinces and an all-new 2019 fleet of four EVs priced from $10,000 to $25,000.  If that wasn’t enough, KNDI itself is now again a “first mover” being the first China EV Company to have its KNDI JV EVs certified for US sale, with full US consumer cash Incentives (Today KNDI announced its US Federal $7500 incentive program has received an extension update through 2020). All of this started coming to light to US investors over the past few weeks with KNDI shares making a stout move up to a high of $9.27 just a few weeks ago. However, in spite of making a most amazing announcement four days ago, that should have launched the stock above $10, the NIO debacle seems to have given the short sellers a “guilt by nationality” hook to attack KNDI.

With All The Good News, Why Is KNDI Stock Under Attack?

KNDI’s business, seriously cranking up in China, has been keeping a relatively quiet profile in the US due to its CEO not speaking English. Beginning some six years ago, as KNDI stock made a huge move from sub $5 to over $22 in just five months, a significant short position appeared. (Currently the short is at the high end of the range around $6.2 million shares.)  Since that time, some 30+ attack articles, likely sponsored by short sellers, have been launched against both KNDI and its Chairman. This began at a time when there were a number of shady Chinese companies listing in the US due to lax listing rules; which, in recent years, have been tightened.  It appears that most of the bad apples have left the US markets over the intervening years. It seems that KNDI, due only to the fact it is a Chinese Company, had consistently been included in attacks based only on innuendo and out of context accusations. I must state, however, that these short-sellers, by and large, did a big favor to US investors by weeding out the bad actors.

Over the past six years, KNDI has not only survived the short seller attacks but at one time back in 2013, the short-sellers even managed to entice the SEC to start a formal investigation action against the Company. Having nothing to hide, Chairman Hu did something very few CEO with this situation would have done, he put out a public disclosure announcing the start of the SEC investigation in its 10-K. Not only is this not required by the Commission during the investigation phase, but somewhat frowned upon as it creates confusion and might give heads up to potential targets.  Mr. Hu, however, felt his shareholders should be made aware of this. While it did cause a severe drop in KNDI stock price at the time, 15 months later the SEC did something very rare by formally ending the investigation while finding no wrongdoings with KNDI.  Usually, the SEC winds down these investigations but does not terminate them in case something later comes up.  As painful as it was to see the stock get attacked so aggressively on the first announcement, I can assure you that the “sunlight” put on the Company by the investigation, has become another reason for all KNDI shareholder to sleep well.

Are the shorts ready to throw in the towel on KNDI? Not yet. You may have noticed that after hitting its high of $9.23 on Friday, Feb 22, on Feb 25, the stock took a big drop beginning in the aftermarket followed by a 20%+ drop the next two days. Some young writer, I assume commissioned by some short-sellers, published another attack article against KNDI; the first attack in a year and a half. What was stunning was that aside from the old tricks of ignoring facts; this article had all the old allegations from before the SEC investigation; Even going so far as to state as a “fact” that Chairman Hu in 2010 was involved in a fraudulent transaction giving 350,000 shares of stock under the table to two stock promoters.  Yes, this was on the original charge sheet issued by the SEC when they started their investigation, but later, along with many accusations, the investigation proved all allegations false. But in typical short seller fashion, ignore the facts when fake news is available. Anyway, two days later, after the stock had been knocked down to the mid $7 level, Seeking Alpha did something they rarely do; they took down the article only leaving what you see below and this one line comment.  “This article has been removed due to a material error of fact.” Of course, the serious technical damage to the upward momentum had already been done.

KNDI JV Adds Blockbuster $5+ Billion 300,000 EV Agreement With A Government Entity.

On March 4th, just prior to the NIO debacle, KNDI put out what is probably the most significant announcement since the formation of the JV with Geely Holdings and Li Shufu. It struck a five year deal with a China State Owned Enterprise with $160 billion in assets; China Recourses Group, ranked number 86 in the Fortune Global 500, supervised by a Government Agency, the State-owned Assets Supervision and Administration Commission of the State Council. (image capture below)

The announcement calls for some 300,000 KNDI JV supplied EVs over 5 years. While it says “mostly” supplied by KNDI, that is likely just Chairman Hu understating for the benefit of the Government agencies involved in this project.  Based on my knowledge of KNDI and its background, I found this one line compelling enough to state all the EVs will be KNDI EVs.  …delivering pure electric vehicles with quick battery exchange features.  On top of all the other “First Mover” events I have witnessed KNDI deliver, KNDI is also the first EV Company in China to have its own patented Quick Battery Exchange system, not only approved by the National Government, but actually endorsed as a preferred mode in September 2012. “..by the State Council Development Research Center Enterprise Research Institute issued the "China's exploration of the innovation of electric vehicle business model and the policy should be adopted", (coined the Condi-Hangzhou, for power mode,) pointed out that in the current battery technology In the absence of major technological breakthroughs, exploring the innovation of business models is of great significance for the commercialization and large-scale development of electric vehicles..”

In 2010, KNDI patented a unique “side-slide Quick Battery Exchange technology” (QBEX) which called for the use of two flat battery pack panels that would each slide in and out of the EV through a wide slot that can be opened or closed through the EVs “rocker panels”, the area between the wheels but directly under the driver’s seat and passengers seat.  Because of this handy location, not only can the batteries be changed out robotically in about 45 seconds as you can see from the video below, but they can also be changed manually from a mobile rescue unit virtually anywhere in three to four minutes. Below are two older Youtube videos, one of which I took myself on a visit to the Company in China in 2013; the other was from a TV news report. These videos are several years old as are the KNDI EVs. While the mobile technology was put into use in Hangzhou CarShare in 2012, it was tabled for expansion to other cities until State Grid expanded its high-pressure power locations citywide for ready access by the fixed QBEX locations. It is easy to see why the KNDI proprietary patented technology is so useful as compared to the NIO version of Battery Exchange, particularly if one gets stranded on the road.

In KNDI’s version, if a driver runs out of battery power, the driver simply accesses the Mobile Rescue Base through a phone app and within minutes a van with a new set of batteries arrives and the change is made “on location” a few minutes later.

As far as the fixed Robotic change locations, as you can see, it does not take much; just a Carport, two robotic arms, and a movable charging cabinet. All it would take is a day or two to have a fully functioning robotic one-minute QBEX.

KNDI One Minute Quick Battery Exchange

 

 

 KNDI Mobil 3 minute Quick Battery Exchange

 

As far as the NIO and other QBEX technology, since KNDI has patented the “real estate” in the only logical easily accessible location through the rocker panels, the others have to basically set up something similar to a Quick Lube change building with a drive in and then run all sorts of hydraulics to reach in under the car to get the old battery out and new one in. OK for a fixed location, but still would require a “tow-in” to a changing station if a rescue was involved.

 

NIO Battery Exchange Station Video

 

 OK, so now we know why KNDI’s patented QBEX with it true mobile versatility makes more sense than any competitor technology.  Just to be clear, it is KNDI itself that holds the patent on the QBEX technology, not the JV. So there could be something extra in this for KNDI.  But how does this 300,000 EV project work?

While maybe extreme, I have always had a personal moratorium against contacting anyone in Management until after the quarter ends and earnings are announced.  Therefore,  I can only give an opinion based on past history and the actual wording of the PR.  China Resources Gas subsidiary of $160 B State Owned China Resources Group, has service stations in 25 provinces throughout China. It has always been Chairman Hu’s goal to have QBEX stations located at service stations, so it appears he has succeeded with this deal. Initially, the QBEX locations will be to service a new Government Sanctioned Ride-Hailing Alliance (similar to UBER, but Government run). “The mission of the Accredited Vehicle Alliance is to provide 300,000 government-accredited vehicles for the ride-hailing service within five years. The (KNDI) JV Company will be the primary vehicle supplier in the Accredited Vehicle Alliance, responsible for delivering pure electric vehicles with quick battery exchange features.”

I said initially since I do believe that once the stations are up and operating, all KNDI EVs will have access to the QBEX stations.

How big is this for KNDI specific?  Great question. While this 300,000 unit deal should generate KNDI JV revenues of over $5 Billion based on current EV prices, it is much bigger than this for KNDI. As I discussed in past articles, KNDI over and above the JV has a nicely profitable EV Parts OEM business. KNDI is also a Government licensed Battery Provider. As of now, around half of KNDI’s revenues come from providing the JV with parts such as batteries, EV motors, EV AC units and a host of other lesser parts.  KNDI is likely providing around 60% of the total cost of EV parts (including batteries) to the JV.  So inherently, as the EV sales ramp up, KNDI’s own revenues and Net will climb as well.

HOWEVER, though a normal EV sale to a consumer only requires two battery packs, if used in a QBEX environment, four (4) batteries per EV are required, two in the EV and two in the charging rack. Since the battery is the most expensive item on the EV, KNDI’s sales of batteries to the JV for this contract alone would go from 600,000 battery pack to 1.2 million. So a conservative estimate might give KNDI revenues of around $8000 per EV or $2.4 Billion from this one project alone. By law KNDI does not consolidate the JV revenues since it owns only 50% of the JV, but it must book the JV bottom line Profit or Loss. While very profitable to the JV booking a likely bottom line of $400-500 million over the contract,  KNDI itself would first book half of that directly to its bottom line, plus at least another $150-200 million for selling parts and batteries to this project, or a total of maybe $350-450 Million bottom line to KNDI specifically; over the next five years. And remember that is just from this one project alone.

How is  KNDI Financing All This? 

In my last report, I detailed step-by-step how I see a fast move in KNDI stock to the first level around $18 a share by mid-2019 and a second move to the $30 per share level by late 2019, early 2020.  It is my belief that sometime mid-2019 the JV will want to do a Private Equity Financing. In my last report, which was before this blockbuster $5B plus agreement was entered, I speculated the “A” Round Private Equity financing would be small, maybe 10% for a $200 million raise. With this new deal in place, Li Shufu who you remember owns half of the JV, may very well want the A Round to fund at a higher level. But for now, let’s stick with a $200 million A Round. Since KNDI would still retain 45% of the JV after the first round, KNDI’s Market Cap would have to increase to at least $900 million which would be parity to the JV valuation only, ignoring the rest of KNDI’s very valuable assets.

In my prognostication the second financing round would be an IPO around a $3 Billion valuation for around 15%, thus raising $450 Million and the value of KNDI to around the $30 level to again, just be at parity to $3B valuation. I would assume the listing would be on either a US Exchange or on the New Shanghai OTC exchange, which is opening this quarter primarily for tech companies that cannot meet the mandatory three successive years of positive earnings for a standard Shanghai SE listing (This is the reason both BABA and BIDU listed in the US they could not meet the Shanghai SE listing requirements). NOW TO BE CLEAR these financings will be for the JV NOT KNDI.

Rumors have been running rampant lately, spread by the shorts as was seen in the taken down Seeking Alpha article that KNDI, due to its high debt level was running the stock up to do an equity financing.

KNDI has not done an equity financing since 2013, although hardly a quarter has gone by since 2013, that there has not been a rumor of KNDI financial condition would require such financing. The short-sellers know this will not happen in that most of the KNDI debt is debt owed to it by the JV, as is clearly explained in my prior article. But let me give a cliff notes version why there is zero chance KNDI itself would do a financing.

Firstly, KNDI Chairman Hu is KNDI’s largest shareholder owning around 14 million or around 27%. Over the past two years he has bought around 630,000 open market shares at a cost of some $2.5 million USD though never having sold a share. Hu also happens to be the Chairman of the KNDI JV where he owns NO sharesIf cash ever goes so tight for KNDI that funds need be raised, you can bet Hu would get it from the JV, which as of the last report had positive working capital of some $140 million. Either that or foreclose on the JV. So use your common sense over the desperate rantings of trapped short sellers. NO KNDI EQUITY FINANCING.

Some important links to continue with your KNDI Due Diligence:

Here is an article published in China last week, detailing even as to specific dates, KNDI and KNDI JV Chairman Xiaoming Hu’s amazing 35 year EV credentials going back as far as 1984, up to and including KNDI’s recent entrance as First Mover for Chinese EVs in the US. 

How does the Condit electric car realize the "American Dream"?

 

Links to My Last Two Articles Plus the September Article I referenced in the opening.

Feb-19-19 01:11PM  Kandi Technologies (KNDI) And Its 50% JV Partner Geely Holdings Face A Conundrum With Bringing Their $3 Billion Kandi-Geely JV Public Harvest Exchange

Feb-07-19 01:39PM  Kandi Technologies (KNDI) Wins Coveted China OEM EV License, Triggering 320,000 EVs Sales Agreements, $237 Million Government Credit Facility, Exec Upgrades and $14.5 Million Cash And the stock goes down? Not for long. Harvest Exchange

Sep-14-18 01:57PM  NIO Inc, Chinas $12 Billion EV Startup Becomes 2nd US Exclusive Listed Pure EV Maker --After 10 Years of Successful EV Trailblazing, NASDAQ Listed Kandi Technologies Shareholders Welcomes NIO Aboard. Harvest Exchange 

 

Links to the balance of KNDI’s Announcements from January 1 to current.

 

     Mar-11-19 08:38AM  Kandi Pure EV Models EX3 and K22 Qualify for Full $7,500 U.S. Federal Tax Credit in 2020 GlobeNewswire

     Feb-04-19 08:37AM  Kandi Technologies Announces the Receipt of Extend Supply Chain Finance Program of RMB 1.6 Billion (USD 237.2 Million) GlobeNewswire

     Feb-01-19 04:08PM  Kandi Announces Appointments of Interim Chief Financial Officer and Vice President of Finance GlobeNewswire

     Jan-29-19 08:32AM  Kandi JV Company Signs a Cooperation Agreement with Youxing Technology to Provide 20,000 Electric Vehicles Within 3 Years for Cao Cao Zhuan Che Ride-sharing PlatformGlobeNewswire

     Jan-22-19 08:33AM  Kandi Signs Framework Agreement with Zhejiang Ruibo to Serve as the Primary Vehicle Provider of 300,000 Electric Vehicles Within 5 Years GlobeNewswire

China's Kandi Will Use These 2 Electric Cars To Launch U.S. Broadside Investor's Business Daily

     Jan-09-19 07:03PM  Kandi Pure Electric Vehicle Project Received Approval GlobeNewswire

    Jan-02-19 08:32AM  Kandi Technologies Reports the Receipt of RMB 100 Million (USD 14.5 Million) in Third Subsidy for R&D Expenditures GlobeNewswire 

 

In Conclusion

If you are serious about taking a real shot at making a five or ten to one return on a somewhat speculative investment, in my 45 years as a market pro, I have never seen a stock with so much near term upside potential than KNDI as it sits today. For KNDI just to get to NIO’s market cap even after the disaster for the past few days, it would have to go to around $180 a share. Now I am not saying that KNDI will go to $180 in the near future, only trying to make the point on just how undervalued KNDI really is compared to NIO.

On Friday, March 15,2019, at 8:00 ET, KNDI will be hosting its 2018 Full Year Financial Results Investor Conference Call. Attendance Information is as follows:

  • Toll-free dial-in number: +1-888-394-8218
  • International dial-in number: + 1-323-701-0225
  • Webcast and replay: http://public.viavid.com/index.php?id=133596

Results are expected to be quite profitable and the strongest in three years.  And with all of the recent news, so far this year, it appears a truly exciting year is ahead.

So now it is time to ask yourself the following question.

“If I want China EV stock exposure, will I sleep better with $380M market cap KNDI, or $9B market cap NIO?” 

Writers Disclosure.  Long Stock and Public Options.

Writers Note:  This Report has a number of reference links throughout, if you do not see the links, it is likely you are seeing the report on Yahoo Finance which for some unknown reason, often drops all body links.  If you are seeing this on Yahoo, you will see a sole link at the end of the expanded article that credits the original source, Harvest Finance, and does provide a link to the original article. If you are using this article as part of your Due Diligence, I suggest you read it with links on Harvest.



Originally Published at: NIO Fizzles So Kandi Technologies (KNDI) With A New $5+ Billion 300,000 EV Agreement Burns? Only On Wall Street Can You Make This Stuff Up!