At one point, Tesla (NASDAQ:TSLA) was practically the only visible electric vehicle investment. But now, EV competitors are seemingly popping up every other week. One of the more interesting participants in the electric arena is Kandi Technologies Group (NASDAQ:KNDI). Though EVs represent one of the most groundbreaking technologies, they run into a critical issue: usually, they’re very expensive. Rather than attack Tesla straight on, KNDI stock is levered toward the budget-friendly aisle.
In this manner, Kandi is similar to Electrameccanica Vehicles (NASDAQ:SOLO) in that the company isn’t trying to go after the Tesla audience base. Rather, Electrameccanica is going after the urban commuter market with its one-seater, three-wheeled EV. Yes, it looks completely weird if you’re an automotive enthusiast. In theory, though, Electrameccanica serves its single purpose very well.
But what could set apart KNDI stock is that the underlying EVs are “normal” cars. Sure, they’re ultra-compact sized vehicles, but all the parts are there: four wheels, four doors. Therefore, Kandi is far more practical than Electrameccanica’s three-wheeled Solo.
Plus, Kandi is pricing its EVs extremely competitively. For instance, its economic model K27 retails for $20,499. But after a federal tax credit, the price drops to $13,000. For the higher end K23, it starts at $30,000 but drops to a more reasonable $20,000 in some key markets.
So, should investors take a spin with KNDI stock? Here are three reasons why I’m skeptical.
KNDI Stock Encumbered with Uninspiring Cars
I don’t know what it is about automakers. But at some point, you would expect a car manufacturer to make a killing providing an economy car with chic looks. I’m not talking Ferrari (NYSE:RACE) looks, of course. But anything that looks even modestly better than Kandi’s EVs would be a step in the right direction.
Does steel and aluminum automatically bend into the ugliest shape possible when automakers set out to produce economically priced cars? I’m not sure but that’s the impression I get when I look at the Kandi brand. Clearly, this is a headwind for KNDI stock.
EVs Favor the Rich
Let’s get a little more serious. No matter what you think about the aesthetics, Kandi is utilizing the EV platform in an intriguing manner. As you probably know, compared to their combustion-engine counterparts, EVs are more reliable. Mainly, electric cars have fewer moving parts, thus requiring less maintenance.
Outside of changing your tires, you’re probably not going to need to do much in the first few years of ownership. Obviously, you don’t need to change your oil, which is a major plus. In addition, “fuel” costs should be much lower, even compared to the deflated oil price environment.
Nevertheless, EVs cater to a more affluent user base. For people who have garages, electric cars are awesome. Simply plug your car in for the evening and when you wake up, you’re ready to go.
However, Kandi is aiming for the lower-income crowd. While 63% of housing units in the U.S. have garages or carports, that still leaves a considerable percentage going without. And those going without are surely concentrated among lower-income households.
Because of the inconvenience of having to seek out a charging station, the people whom Kandi is targeting may not like EVs, irrespective of their price. For this income bracket, combustion engine may provide superior conveniences, making KNDI stock a tough sell.
Range Anxiety Could Be an Issue
Although we’re not doing too much of it right now, presumably, when the pandemic fades, we’ll go back to commuting. Hardly anyone’s favorite activity, it’s an unfortunate reality. But lower-income people take the brunt of it. As The Atlantic explained:
Commuting, by and large, stinks. Congested roads can quickly turn what would be a scenic drive into a test of patience, and for those who use mass transit, the decision to put their trips in the hands of local public-transit systems can quickly go from freeing to aggravating thanks to late trains, crowded buses, or the bad behavior of fellow riders. But lengthy and burdensome commutes are awful for another reason, too—they disproportionately affect the poor, making it more difficult for them to reach and hold onto jobs.
This implies that more than a few lower wage earners have to travel greater distances for their jobs. That could be a challenge for KNDI stock, considering that the K27 only has a 100-mile range. Yeah, it’s great for urban living, assuming that your job and your home are close together. If not, 100 miles just doesn’t cut it as an electric car these days.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.