Kandi Tech In A Parallel Universe? --With Only A $330 Million Market Cap --Again Announces An Interim Guidance Increase ...

As incredible as it sounds, a Parallel Universe is the only logical explanation . But why not? It seems the whole US is currently in some Parallel Universe. The US Economy is at best anemic, yet major stock averages are making daily new highs.  Politically; the Democrats almost nominated a Socialist on the Democratic side, but instead nominated an integrity deficient candidate who few like and who claims she wants to simultaneously “stay the course of Obama” while creating “major change”?  And on the Republican side, a candidate nominated that keeps shoving his foot in his mouth but both he and voters think he is eating filet mignon? So why shouldn’t China based, NASDAQ listed Kandi Technologies (KNDI)  share price defy the century of stock ownership logic that investing in a perennially profitable proven leader in a new innovated trillion dollar sector is a rare “holy grail” of investment opportunities” and go down instead of up? On the other hand, the only “other” pure stock play available to US investors in the hot EV sector, Tesla Motors, (TSLA)  has a Founder CEO who seems to have also been blessed with similar “foot in mouth” traits as the Republican candidate. TSLA has never had a profitable year, rarely ever hits guidance, sells equity every chance it gets, even the CEO sells his own shares above $200 increasing the lending float.  Why so he can pay taxes and exercise options below $7 and yet TSLA is still awarded with a Market Cap 110 time higher   than KNDI ! OK, my rant is over. Let’s look at some pertinent information.

 Kandi July Update

Three weeks ago, the China Media announced EV Sales in China for both July and Q2. No surprise to long time KNDI followers, Kandi branded EV’s once again , topped the Monthly list of Pure EV   (PEV) sales in China for July   with reports of 4,670 units sold  as you can see from the chart and table extracted below.  (This compares to TSLA June sales of    5,845). Also extracted from the image below, you will see that first half sales for Kandi branded PEV’s were reported as 7,797 .  While the article claims the KNDI sales were for six months, as the Company reported at the end of Q1, due to a late 2015 change in Subsidy and Sales Tax abatement requirements, KNDI shut down all sales in Q1, to include two new models this year; to complete upgrades. Therefore no EV sales were reported in Q1 as per the first quarter 10Q filed with the SEC  (pg. 36). So, it is likely that the 7,797 reported sold was all in Q2.

KNDI To Beat Guidance Again

On June 14, KNDI did put out a PR simply titled; “ Kandi Technologies Expects to Exceed Q2 EV Sales Forecast ”.  Q2 Sales Guidance given at the time of the Q1 press release and Conference Call was for 5,500 to 6,000 Q2 units. In the announcement, it stated that “the beat” would be around 10%. While frustrating at times, long time KNDI shareholders have come to expect its very conservative CEO to continue to leave room for further upside surprises. Case in point; in January, when based on China Media reports, it appeared that full year 2015 Guidance of 20,000 to 22,000 unit sales, originally reported at the end of Q3 was going to be exceeded, a company press release came out estimating the beat to be around 5%. When reported, it turned out that the beat was 10% or 24,200 causing a rare but short lived 3.4 million share stock spike from $7.75 to $9.41, with $9.23 close the day reported. (An event likley to repeat to some extent next Tuesday if my supposition that KNDI will further beat its recent Q2 upward Guidance noltification)

As in the case of TSLA, KNDI does not normally report Monthly sales to the Media, the Company says to expect some differences with early published reports and actual sales. Knowing this, it is safe to say that actual sales will be somewhere between 6,600 (10% beat) reported by the Company and the media reported 7,797. But in either case it will be another impressive “beat” that went unrewarded by the Market when initially raised.  For Full Year, 2016, KNDI has guided to “35,000 units or more”.

One other point. As you can see from the Media article, it credits all sales as being Panda’s (K11). The K11 is a model first released in 2013 and while now replaced by a new faster, extended range K11B, is mainly an EV used in KNDI’s fleet of 20,000+ EV‘s in car sharing programs. Upon query of KNDI management, while they would not address sales other than as reported in the PR, they did say that most Q2 sales were the new high-tech K17A.

Even if sales are only the reported increase of 10% or the higher China reported numbers, either will be by far the second best quarter ever reported, beating Q2 15 sales of 4442  by at least 50%. Net income per share last year was $.12 and should likely double to $.25-.30 for Q2 16. And based on current trajectory, likely between $1.00-$1.30 per share for full year 2016.

Kandi announced Friday  that they will report Q2 Results pre-market along with a Conference Call at 8am EDT, August 9th.

$1.2 Billion Agreement with China’s Largest Auto Dealer, Pang Da.

On June 25, KNDI put out a PR titled; “ Kandi’s JV Company Signs Framework Sales Agreement with Pang Da for 60,000 Electric Vehicles ” and as KNDI shareholders have grown to expect, very little movement in the stock price.  Likely for two reasons; 1) They didn’t put the potential dollar value in the PR; and 2) As KNDI short sellers and detractors are trying to spin, “it’s only a Framework Agreement”. (If you are interested in some detail on short manipulation in KNDI, I have added an addendum at the end of this article)

For those who are not taking the KNDI Pang Da 60,000, $1.2 Billion EV Framework Agreement Seriously. You Should. Here is why.

On Nov 24, 2015, KNDI put out a PR titled, “ Kandi Technologies Announces Initial Direct Sales of Model K10 Units to Tianjin .” If you read that PR, you will note it was with Pang Da. To Quote:

“…signed a direct sales contract with Tianjin Pang Da, a subsidiary of Pang Da Automobile Trade Co., Ltd. ("Pang Da Company"), for an initial order of 1,000 Kandi-brand model K10 pure electric vehicles ("EVs"). The delivery of the 1,000 EV units is expected to be completed by the end of 2015. ..”

Press Release goes on to say:

“…Pang Da Company is one of China's Top 500 Enterprises with a vast distribution network. As of June 30, 2014, Pang Da Company owned 1,248 sales distribution points , including 1,046 auto dealerships and 202 auto market places throughout 28 provinces, municipalities, autonomous regions in China and Mongolia. In 2014, Pang Da was the only car dealership selected as one of the world's Top 100 Automotive Brands…”

On Jan 26, 2016 KNDI put out a PR titled “ Kandi JV Company enters Into Strategic Partnership with Pang Da ”  To Quote:

“…signed a Strategic Cooperation Framework Agreement with Pang Da Automobile Trade Co. Ltd. (“Pang Da”). The scope of the agreement includes, but is not limited to, establishment of Kandi and Pang Da sales teams that will share marketing resources, development of customized new energy vehicle for use at campus , and additionally, Pang Da is authorized to sell Kandi Brand pure electric vehicles (“EVs”) in specific regions.

Press Release goes on to say:

“…Pang Da, listed on Shanghai Stock Exchange (601258.SS), is China’s leading auto dealership, and has been recognized as one of China’s Top 500 Enterprises. Pang Da began selling Kandi Brand EVs in September 2015, and as of year-end 2015, had sold more than 2,000 Kandi Brand EVs…”

It is noteworthy that Pang Da, DOUBLED the 1,000 contracted sales in just over a month that they had committed to on Nov. 24, 2015 by years end .

Now how do I get to the $1.2 Billion potential valuation?  Last year Q4, KNDI JV was selling the old 80kmph 100KM range K10’s and K11’s. In Q4 15, 12,200 EVs were sold generating $165 million in sales and $19.3 million in After Tax Net income (50% NI to KNDI), (From 2015 10k ) which works out to an average $13,200 per EV. This year, all Sales will be the new 100kmph, 150+ km range EVs with around 75% being the $21,000 K17, 10% $19,500 K12 and around 15% $19,000 K11. So it is safe to say that over 4 years, the average price of EV sold will exceed $20,000 each or at least $1.2 billion total if 60,000 EVs are sold over the 4 years.

However, from Monday’s PR ;  “ Pang Da anticipates purchasing not less than 60,000 EVs from the JV Company in the next four years for its time-sharing campus EV lease program.” So is it not realistic to assume since last year Pang Da doubled what they said they would sell and those EV’s were for a normal CarShare and they are the largest National Dealer in China with huge Consumer retail, one should take serious the “not less than..” comment and look for well over 60,000 ( works out to around one (1) EV sale per location per month over 4 years ). And all this is just ONE Major Non-exclusive Dealership!

So, while the massive KNDI Short and its Social Media Minions might be stupid enough to gamble that Pang Da won’t deliver, I suggest you look at KNDI’s past history with Pang Da, act using your own common sense, and let the short suffer the consequences of very likely being wrong.

Author Disclosure : I am Long KNDI Common Shares and Publically Traded Options.

Addendum Re. Short Seller Manipulation.

(I have reprinted the below from a post I made on a KNDI blog a couple of weeks ago. I thought it might be of interest to those currently unfamiliar with the stock and its lackluster trading.  KNDI which has a reported short of 5.4 million shares or around 17% of the non-inside float and based on recent average daily volume,  around 20 days to cover. Share borrowing rate approximately 24%)

Over the last five trading days, KNDI has traded well each day making daily highs significantly above end of day closing price. For example yesterday it hit a high of 7.09 and traded above 7 all afternoon until the last three trades, managing to officially close below at 6.99 on just a few hundred shares. Same pattern each day over the past week or so. However, during these days, days relative volume has picked up considerably in the last ten to fifteen minutes averaging at least 20% of the whole days volume.

It is my opinion this trading action is a desperation effort by the large short who is saving his selling power for the last few minutes. (So if you are in a buying state of mind, do save some for the last few minutes).

Just like KNDI is winning the ultimate war of selling EVs in China, its stock will also win. Nobody knows this better than the short sellers who know by now that they are not going to win the hold-out war of attrition against intelligent long shareholders. There is a good reason we have not seen any published attack articles in months. Every inferred accusation against fundamentals that has been launched in the 60+ attack articles against KNDI over the past few years have been debunked by exceptional fundamental performance. All that is left for major short sellers is to have their anonymous minions launch un-documented mini-attacks by the tens and sometime hundreds on Social Media outlets like Twitter or Stock Twits, and their own feeble end of day compressed short attacks. The extremely light volume over the past month or so, which really is a two edge sword, has made these timed mini-attacks possible, but the other edge of the sword which is keeping the short up at night is the realization that no matter how hard the short tries to shake out real holders, each day the pool of ignorant holders willing to sell at these ridiculous prices shrinks causing lighter and lighter volume.

Over the last few short interest reporting periods, we have seen a reduction in the overall short position but only by a few hundred thousand shares. Today another report will be published after the close and I suspect it will go down some more. But with this light volume, it cannot go down very much. Based on my past experience as an OTC market maker who watches KNDI trading closely on my Level II quote system, I can tell by the way the stock is being manipulated, that at least some of the shorts are trying to cover. A lot of the old tricks I have disclosed here in the past like letting the stock spike up very early in trading to reach a high of the day then reversing it hard to the low of the day to demoralize hopeful longs, is then usually followed by a small uptick then solid bids appear that absorb most of the mid-day selling. This is classic short covering.

As I have said many times over the years, “A short does not cover when a stock is going down hard, he shorts more. Also, a short doesn’t cover when a stock is spiking up, he shorts more. A buried deep pocket short will only voluntarily cover 1) if the target Company goes out of business. 2) He can drive the price down of a company that is desperate to raise cash to such a level that massive dilution creates overhead of shares for sale 3) When he creates so much “shareholder apathy” that even the most loyal holders throw in the towel and sell into the shorts bid. With the short now realizing the first two options are not going to happen, for the past several months the third option has been in effect as the reported outstanding short has been trickling down.

Above I gave the three voluntary options for a short to cover. With shorts knowledge that two of the three options now are obviously not available and the third closing rapidly, a 4th begrudging option and 5th involuntary option are about all that is left. In the 4th option, a short will initiate a sharp run up in the stock by buying the stock himself aggressively.  He might even take it up double digits very quickly.  This is likely what happened the day KNDI raised guidance and the stock opened up $.56, with a Pre-market hi up $.97, then immediately and sharply reversed.  This when the short started selling what he bought on his run-up into the bids of the weak handed momentum traders. The psychology behind this stunt is that even some of the solid long holders will succumb to the temptation of selling some into the higher but rapidly disappearing bids.  In turn, this loosening up some stock for the short to cover. This stunt historically works and works well in a company that doesn’t have a lot of positive happenings. To try this on KNDI for more than just a short hard run up could be dangerous to a short due to all of its rapidly advancing positives and a large past audience currently watching. The 5th option which either borders on, or becomes reality is “forced buy-ins”. This borders on is the case where a fund’s trader has overextended himself in the eyes of a superior manager monitoring high cash cost of the shares that have been borrowed and then instructs the trader to be more aggressive in covering. And finally, the forced buy-ins are when there is no stock left to borrow.

It is my opinion we are rapidly approach the 4th phase. In most circumstances, a somewhat aggressive 4th phase culminates into the 5thphase. KNDI saw this back in late 2013 to mid-2014 where the stock went up some 600% to over $22 on heavy volume. This move in spite of 2014 being its worst and only losing year ever losing $.61 a share. It was this loss, non-eventful SEC Fact Finding Investigation and a large Hangzhou order cancellation that began the long descent in 2015 to sub $10 levels. For a while  in this past Q1 when production was halted for almost four months, in spite of an incredibly strong Q4 15, which saw the stock more than double to $12, it appeared to all that there might be real pervasive problems with  “more to the story” then just upgrading EVs; thus giving “hope” to the short. KNDI’s rapid resumption to its EV leadership position in just the past two plus months, has for all intents and purposes, quashed that short hope.

Rest assured right now, NO large short in KNDI is feeling anything but anxiety about the unknown upside that is ominously materializing much faster than anyone could have expected. With this low volume and still large 5.5 million share short, days to cover are now averaging over 20 days. A Published number that opportunistic vulture hedge funds, smelling potential “blood in the street” by wrong way shorts, start to take note. With few institutions and no “tiered” analysts to date, the deep pocket short hedge fund has had only retail KNDI shareholders to battle. But he knows that if a deep pocket fund steps in on the Buy side for whatever reason, the consequences of a major move up becomes much more likely.

Many uninvolved shareholders wonder why TSLA, in spite of their continuing disappointments and public attacks by some of the most high profile short sellers like Citron and Jim Chanos has acted so well.  Quite simply, the short battle at TSLA is between Deep pocket funds on both sides. And invariably, there are ten times more deep pocket funds the trade primarily on the long side than the short.

Now the Handwriting is on the Wall. Due to unexpected continuing stellar performance, KNDI’s day is about to arrive.

JMHO