The electric vehicle market has gotten out of control. That’s especially the case in China, where it seems there’s a new EV to worship on virtually a daily basis. One of the latest comes from Kandi Technologies Group (NASDAQ:KNDI), a Chinese company who’re bringing two EVs to America by the end of 2020. As a result of all the excitement, KNDI stock is up 166% in the last three months alone.
As I look at the K23 and K27 models, I can’t help but think of the Yugo, dubbed the worst car in history by author Jason Vuic. His 2010 book, The Yugo: The Rise and Fall of the Worst Car in History, detailed the comedy of errors that led to the Yugo’s downfall.
In high school, the Yugo, the Lada, and possibly the Pinto, were three of the most ridiculed cars around. If you drove one of those, you weren’t going to the prom with anyone. I’m joking—sort of.
So, the fact that I’ve been asked to write about a company that’s facing possible class-action lawsuits for allegedly providing investors with inaccurate financial statements in 2014, 2015, and 2016, does not have me very enthusiastic about its stock, despite the tremendous gains in 2020.
A Closer Look at KNDI Stock
What do we know about Kandi? Well, it’s traded on Nasdaq since 2007, when it did a share exchange with Stone Mountain Resources.
In 2007, it had revenues of $34.7 million, which included sales of go-karts, all-terrain vehicles and the production of specialized automobile parts. In 2019, Kandi had revenues of $135.7 million, with 82% of its sales from EV parts, with the rest from off-road vehicles and electric scooters.
That’s a decent compound annual growth rate of 12.0%. However, the Kandi of 2007 was far more profitable than the Kandi of today — in 2019, it had operating income of $909,536 compared to $5.2 million in 2007 — so it would seem current management and the board are throwing up a bit of a Hail Mary.
And why not? EV stocks are hotter than a pistol right now.
InvestorPlace’s Luke Lango, who has a tech background, recently discussed why Kandi is an exciting play. In Luke’s opinion, he sees Kandi’s battery swap technology as a critical piece in China’s move to lower retail prices for EVs. By renting standardized batteries to consumers, who simply swap out an old, drained battery, for a new, fully-charged one, it will lower the cost of ownership.
In theory, I see his point, but if someone like Tesla comes up with a battery in the future that lasts forever and charges in mere minutes, I’m skeptical that the Chinese EV owner is going to continue to play along with the battery-swap model.
I guess we’ll see in about 5-10 years. What we do know is that Kandi is a legitimate player in the EV marketplace and has the capabilities to mass-produce the K23 and K27 for American consumption.
But Is KNDI Stock a Buy?
Both of the vehicles Kandi’s bringing to America sell for $30,000 or less to start, much lower than other small EVs such as the Nissan Leaf or Kia Kona. And that doesn’t even include the $7,500 federal income tax credit.
Targeting the middle class, if it doesn’t mess up and follow the Yugo game plan, it’s got a real shot to convert some small car owners who don’t do a lot of driving except for the daily commute.
“Electric vehicles have been valued for years for their efficiency, sustainability and innovation. However, owning the ‘it’ car often eluded consumers who desired a great EV alongside all the other comforts of modern living. Kandi is changing that by revolutionizing the EV-buying experience for many,” Kandi America CEO Johnny Ta said recently. “Kandi’s mission is to make electric cars accessible to all.”
I’m not sure Kandi will sell many of these vehicles in the U.S. but it ought to give exposure to Kandi stock and what it’s trying to accomplish with EV batteries in China. For my money, Kandi’s vehicles aren’t the second coming of the Yugo.
If you’re a speculative investor and can afford to lose your entire investment, an entry point below $8 ought to do the trick.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.