In recent days, China-based electric vehicle (EV) maker Kandi Technologies (NASDAQ:KNDI) has been getting increased market attention. On July 28, KNDI stock closed at $3.87. The next day, it more than doubled to close at $9.32. And on July 30, KNDI shares hit an intra-day high of $17.40, only to finish the day at $8.66. Now they’re flirting with $9. Year-to-date (TYD), they are up over 110%.
2020 has seen shares of many electric car makers increase considerably in price and even hit 52-week highs. The growth in demand for EVs is in part behind the rally in the sector.
In 2019, sales of electric cars topped 2.1 million globally, accounting for 2.6% of global car sales and showing a 40% YoY increase. Between 2019-2027, the market is expected to grow from around $162 billion $802 billion, showing a CAGR of 22.6%.
Amid the increase in the number of EV makers, market participants are looking for the next Tesla (NASDAQ:TSLA), whose share price is up over 256% YTD. However, not all EV makers are created equal. Today, I’ll take a closer look at what long-term investors can expect of KNDI stock in the coming months.
How Kandi Makes Money
Kandi Technologies develops and sells various EV parts such as battery packs and air-conditioning systems, as well as off-road vehicles including all-terrain vehicles (ATVs), utility vehicles (UTVs), and go-karts, among others.
In early June, the group released first quarter FY20 results. Total revenues decreased 64.7% to $6.4 million from $18.1 million in the same period of 2019. Net loss for the first quarter of 2020 was $1.6 million, or a loss of 3 cents per fully-diluted share, compared with net loss of $4.4 million, or a loss of 9 cents per fully-diluted share in the same period in 2019. Cash and cash equivalents totaled $9.8 million as of March 31. Finally, gross margin stood at 18.3%.
Two segments contributed to revenue at Kandi Technologies:
- EV parts (revenue decreased 83.7% to $2.1 million, compared with $12.8 million in the same period of 2019);
- Off-road vehicles (revenue decreased 23.8% to $4.0 million, compared with $5.3 million in the same period of 2019).
CEO Mr.Hu Xiaoming said:
The COVID outbreak has seriously impacted the EV market in 2020, leading us to explore how to augment our business. As we conducted market research, we found potential in a number of ancillary products aimed at intelligent transportation. For example, Electric Scooters and Electric Self-Balancing Vehicles have distinct potential, with tens of millions of units sold each year around the world. We are pursuing these opportunities.
In summary, Kandi Technologies does not have much revenue or a clear path to profitability in the near future. As a result, management is wondering how else it can increase revenues. Following the earnings result, KNDI stock initially came under pressure and then gyrated between $3.70 and $3.
The group is expected to report Q2 results on Aug. 10 before the market open. Therefore, KNDI stock is likely to be volatile in the coming days.
What Could Derail KNDI Stock
KNDI stock’s 52-week range has been $2.17-$17.40. The recent run-up in the share price has followed several press releases.
On July 30, management announced the launch of two EVs for the U.S. market, i.e., the Kandi K27 and K23 models. On Aug. 18, the company is holding a virtual event to introduce the cars. K27 and K23 will be priced at $12,999 and $22,499 respectively, after federal tax credits.
Although this announcement is potentially exciting, at this point the Street does not know how many cars Kandi can expect to sell in the early part of the decade. In other words, the initial hype that pushed the stock higher is likely to die away soon.
Furthermore, in recent days, a class action lawsuit has been filed on behalf of shareholders who purchased KNDI stock from June 10, 2015 through March 13, 2017, inclusive. Various developments regarding this legal action may well put pressure on the stock in the coming weeks.
If you are not yet a shareholder, you may want to wait before new fundamental metrics are announced by the company that would enable you to gauge its financial health.
Those investors with paper profits may also want to take some money off the table now. Alternatively, those who already own the stock may also consider hedging their positions with monthly at-the-money (ATM) covered calls. Then, investors can benefit from a potential rally by KNDI stock following the Q2 results. At the same, they’d have some protection from subsequent profit-taking.
The Bottom Line on KNDI Stock
So far in 2020, shares of electric vehicle companies, such as KNDI stock, have been getting a lot of market attention. Despite various uncertainties posed by the COVID-19 pandemic, share prices of many of these firms have recently hit 52-week or even all-time highs.
However, KNDI stock remains a news-driven speculative investment. Long-term investors who are willing to wait 2-3 years may consider investing in the shares around $5.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.