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Take a Wait-and-See Approach with Kaixin Auto Holdings

2020 was a huge year for electric vehicle (EV) companies. Kaixin Auto Holdings (NASDAQ:KXIN) is not one of the more famous stocks within the sector. However, it did make a splash this fall. KXIN stock shot up as much as 1,000% at one point, soaring from under a buck up to $8. Shares have given back much of their gains but were still up huge for 2020 as a whole.

White chalk on pavement shows a plug-in electric vehicle.
Source: Shutterstock

There appear to be several reasons for the rise in KXIN stock. One is the general excitement around EV stocks. Tesla’s (NASDAQ:TSLA) inclusion in the S&P 500 certainly helped drum up more interest as well. Kaixin in particular also announced a deal with Haitaoche. First though, it’s worth examining Kaixin’s back story as a public company before its recent strategic realignment.

Kaixin’s Beginnings

Kaixin began as a side venture for Chinese social media and software company Renren (NYSE:RENN). For whatever reason, Renren ventured far afield from its primary online businesses, and began selling used cars as well. This effort turned into the Kaixin auto brand. Kaixin subsequently went public via a special purpose acquisition company (SPAC) and shares floundered until a couple of months ago.

Kaixin operates more than a dozen car dealerships, primarily for luxury models. However, this business appears to have been struggling, as evidenced by legal disputes between Kaixin and several of its largest dealerships. Perhaps because of this, Kaixin now appears intent on pivoting its business model. That brings us to its recently announced merger.

The Haitaoche Deal

In November, Kaixin announced a strategic deal with Haitaoche. As a result of the deal, Haitaoche will become a fully owned subsidiary of Kaixin. Kaixin will, in turn, issue enough new stock that Haitaoche’s old shareholders will own 51% of the combined company. At the same time it announced the deal, Kaixin also made changes to its senior management team. These things, when looked at together, suggest that Kaixin is intent on shifting its strategic outlook.

What’s the appeal to Haitaoche? According to Kaixin, Haitaoche is a leader in importing vehicles from other countries. It then uses its e-commerce platform to distribute vehicles through digital platforms. You can see how this would fit in nicely with Kaixin’s existing network of physical car dealerships.

Kaixin also said that Haitaoche will focus more on EVs and newly emerging technology opportunities as the auto landscape continues to shift. Perhaps the companies’ combined resources will make it easier for the new Kaixin to establish a dominant position in the overall Chinese car dealership market. Or perhaps not. The press release gave very few details about the current scope or profitability of Haitaoche’s operations at this time.

Given the huge surge in anything with an electric vehicle spin, it’s not surprising that traders latched onto KXIN stock on this news release. But investors really need more specifics about Haitaoche and the combined company’s plans before this will get too exciting.

KXIN Stock Verdict

Kaixin could end up being a big winner. But there’s also a decent chance that it never amounts to much of anything. One press release is not enough to demonstrate a successful change in a company’s business model. Kaixin simply doesn’t have much of a track record to work with yet. The fact that it’s internationally based means that it requires further scrutiny as well.

The biggest point in Kaixin’s favor is that superstar Japanese tech investor Softbank (OTCMKTS:SFTBY) is involved. Softbank has a large stake in Renren, which in turn has its holding in Kaixin. This gives investors the hope that Softbank might be working on something behind the scenes that will help Kaixin to prosper.

But until we see more tangible evidence of that, it’s best to be careful with KXIN stock. There simply isn’t enough information yet to judge how realistic Kaixin’s odds of success are. In the fast-moving EV space, not all of these emerging companies are going to end up being worthy investments. For now, other EV stocks offer a clearer path forward.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

Article printed from InvestorPlace Media, https://investorplace.com/2021/01/take-a-wait-and-see-approach-with-kaixin-auto/.

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