short kndi
TRANSCRIPT
Kandi Technologies
Group (KNDI) Aloke Desai April 6, 2014
Thesis
Short position ($20,000) in KNDI
KNDI is overvalued because of investors looking
for the next TSLA (looking at it is if it were an
American company)
EVs have continuously failed in the past in China
Lots of competitors, SEC investigation, and reduced earnings don’t make KNDI one of the
better EV companies in the market
History
Small-cap Chinese automotive company
founded in 2002 by Hu Xiaoming
Built mostly electric go-carts until 2008
Pivoting to low-cost EVs
Currently China’s largest exporter of EVs to the US
(3,000/year)
Kandi Crush
Two models:
JNJ6290 (2 door): $6,800
JL7001 (4 door): $14,500
Quick battery exchange
Battery is leased to reduce
cost
Car Sharing Service
Meant to compete with popular
bike sharing services
Hopes to convert nontraditional
drivers, especially during
weather (toxic haze, rain)
$3.28/hour
Extremely costly (400k, only holds
30 cars)
Most people bike because of
lack of parking
Geely Joint Venture
Recently formed a 50-50 joint venture with Geely
(largest Chinese car company, owner of Volvo)
Geely has invested $170M, but KNDI will have to finance much more than this even considered
the 50% equity
Investors are most concerned about this deal
from conference call
Green Technology in China
Common misconception that China isn’t
focusing on the environment
China has been significantly outspending the US in green technology by almost double
Pew Research: “China is winning the clean
energy race”
China has imposed auto efficiency standards,
subsidies, and clean energy tax incentives
Top 10 Countries in Clean Energy Investment
China $34.6B
United States $18.6B
United Kingdom $11.2B
Rest of EU-27 $10.8B
Spain $10.4B
Brazil $7.3B
Germany $4.3B
Canada $3.3B
Italy $2.6B
India $2.3B
Chinese Car Market
China is world’s largest car manufacturer
Only 8.5% of Chinese population owns car
Same rate as America in 1940
79.7% in America currently
Urban areas are much more concentrated
In urban areas many bike because finding a
parking space is incredibly inconvenient
EV Car Market
Name Annual
Capacity
City Price
Zhangjiagang
Haowin New
Energy
Technology
120,000 Shanghai $10,000
Jinan Qingong
International
Trade Co.
104,000 Qingdao $6,400-$8,600
Guangfeng
Xiaoni Trading
Im. And Ex. Co.
96,000 Tianjian $3,500-$7,650
Guangdong
Yatian Industrial
Co.
60,000 Qingdao $6,5000
China EV Reports WorldWatch: “China’s Electric Vehicle Development
Failing to Meet Ambitious Targets”
“targets are overly optimistic and unattainable”
Only 20,000 new energy vehicles were sold in 2011-2012, meeting only 4% of the 2015 target
McKinsey, July 2013 “Government subsidies have failed to stimulate
consumer demand”
EV buyers in Shenzhen only sold 600 Evs in 2012 even though $8,000+ in subsidies
Quartz “Scant sales have turned China away from focusing
on [electric cars] right now”
Parking
Americans don’t realize how bad parking is in
urban China
Shanghai: 40M, Beijing: 20M
Many apartments don’t have attached garages
Chinese Subsidies
China has planned on EV subsidies, up to $9,800,
until 2015
Used to be higher, subsidies have been reduced because of lack of demand
WorldWarch and McKinsey both show that
subsidies haven’t change private demand—only public
BYD Auto
Considered the poster child for EV cars in China
17B Chinese car manufacturer with heavy
emphasis on electric cars
Has recently been de-emphasizing electric
vehicles because “hype for electric vehicles has
… gotten ahead of the realities”
5 Year Trend
0
5
10
15
20
25
4/5/05 4/5/06 4/5/07 4/5/08 4/5/09
KNDI 5 Year Trend
Close
Past Month
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/10
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/10
KNDI 3/6-4/4
Close
4/6: $14.08
3/6: $19.5
Financials
Valuation
Earnings Based:
Comparables:
Pre-2013 KNDI: 42
SAIC (600104.Shanghai): 6.38
Dongfeng (HK.0489): 8.19
Great Wall Motors (HK.2333): 11.13
More Complicated Model
Assume net profit increases by 75% (68% last year): $30,983,775
Future Company value: 15* 30,983,775= $464,756,625
WACC: 9.7% => discount factor of .831 over the span of two years
Current Value: $386,212,755
Shares Outstanding: 37M
$10
SEC Investigation
Reasons for SEC Investigation not disclosed but
KNDI has been investigated by SEC since
November.
From 10K:
Investigation could “impose substantial distractions,
regardless of its outcome”
Risks
Acquisition—very low chance after partnership
with Geely
Increased subsidies that start working
Suburbia
Questions