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

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KNDI 5 Year Trend

Close

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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