Year-to-date, Kandi Technologies (NASDAQ:KNDI) stock is up 83.1%, despite several downsides that make it a risky speculative investment. You could chalk that up to the times we live in since the electric-vehicle sector is red hot, with the momentum showing no signs of slowing down.
China’s government gave $100 billion in subsidies to its domestic electric-vehicle industry over the past decade. According to a draft policy published by the Ministry of Industry and Information Technology, the country wants approximately 25% of new cars sold by 2025 to be electrified. The China Society of Automotive Engineers (China-SAE) estimates sales of new energy vehicles (NEV) in China to increase to 20% of overall new car sales by 2025 and to 50% by 2035, a subnational uptick from just 5% at the moment.
It’s easy to get swept away with the euphoria surrounding the market. But not every company is a Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO). Kandi is more of an EV parts company. That business segment suffered the most due to the novel coronavirus pandemic.
Meanwhile, Kandi is bringing two of its EVs to the American market at a very economical price. However, the vehicles suffer from needing a lot of time to charge, reduced range and difficult highway travel.
All Eyes on China
Tesla, the biggest EV maker in the world, will soon rely on China for as much as 40% of its sales. Meanwhile, several other local manufacturers are looking to wrest away market share. Shanghai-based Nio is probably the biggest competitior. It boosted third-quarter sales by 146% to $628 million. It delivered 5,291 vehicles in November, a new monthly record representing a solid 109.3% year-over-year growth.
But where does Kandi fit into all of this? It is a pure-play, one of the smaller battery and electric vehicle manufacturers. Aspects of its business model are enticing. For instance, like Nio, it is developing battery-swap technology, a concept known as Battery-as-a-Service (BaaS). Meanwhile, its Texas-based subsidiary, Kandi America, announced two model EV cars, the K23 and K27.
The Texas Commission on Environmental Quality approved a state subsidy of $2,500 for the cars, which, on top of their price of $27,499 and $17,499, respectively, will make them very enticing in the U.S. market. Meanwhile, the Chinese government subsidizes EVs through official purchases and consumer subsidies. After a slump due to the pandemic, the government reinstituted inducements.
However, one has to separate the wheat from the chaff. At this point, this is positive news that hasn’t translated to sales. Kandi saw revenue fall 42% year-over-year for Q3 and down 14% on a trailing 12-month basis.
EV Performance Will Impact KNDI Stock
KNDI stock is attracting attention and investment as momentum picks up. But if you are a retail investor that values fundamentals, the company has questions to answer. Sales were recovering after falling by half from 2015 to 2017. But the pandemic dealt a swift blow to ambitions of a sustained recovery since the company relies heavily on EV parts and off-road vehicles.
And even though the price point is enticing, the performance leaves much to be desired. The battery only provides a range of 59 miles for the K27 and 111 miles for the K23. Charging times are between 7 to 7.5 hours, with the top speed limited to just 63 to 70 mph. This doesn’t compare favorably with the models batting for EV supremacy in the Chinese market and beyond. American consumers, in particular, want cars suitable for long, interstate commutes. There are pockets where the car can be helpful in the U.S., such as for in-town driving.
Mildly Interesting but More of a Growth Story Needed
There are aspects of the Kandi story that make me sit up and take notice. But there isn’t enough here to convince me that KNDI stock is a better investment than, say, Nio. Undoubtedly, several stocks are trading at hyperbolic premiums, but at least you know where they stand in terms of operations and sales.
Unfortunately, that is not the case with Kandi. Its product suffers from certain flaws, and although it has ambitious plans to expand into different business segments, they are just plans at this stage. When they start to materialize, there will be more incentive to invest. Until then, there is nothing to suggest that the kind of bull run the stock has been on is justified.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.