The document summarizes the analyst's short position in KNDI stock and arguments for why the company is overvalued. The analyst believes KNDI is overvalued because investors view it like Tesla, but EVs have failed in China previously and KNDI faces many competitors. The document provides background on KNDI, its electric vehicles, a car sharing service, and a joint venture. It discusses China's focus on green technology but past failures of EV subsidies to boost private demand. Overall the analyst argues KNDI is overvalued given competitive pressures, an SEC investigation, and reduced earnings potential.

1. Kandi Technologies
Group (KNDI)
Aloke Desai
April 6, 2014

2. Thesis
 Short position ($20,000) in KNDI
 KNDI is overvalued because of investors looking
for the next TSLA (looking at it is if it were an
American company)
 EVs have continuously failed in the past in China
 Lots of competitors, SEC investigation, and
reduced earnings don’t make KNDI one of the
better EV companies in the market

3. History
 Small-cap Chinese automotive company
founded in 2002 by Hu Xiaoming
 Built mostly electric go-carts until 2008
 Pivoting to low-cost EVs
 Currently China’s largest exporter of EVs to the US
(3,000/year)

4. Kandi Crush
 Two models:
 JNJ6290 (2 door): $6,800
 JL7001 (4 door): $14,500
 Quick battery exchange
 Battery is leased to reduce
cost

5. Car Sharing Service
 Meant to compete with popular
bike sharing services
 Hopes to convert nontraditional
drivers, especially during
weather (toxic haze, rain)
 $3.28/hour
 Extremely costly (400k, only holds
30 cars)
 Most people bike because of
lack of parking

6. Geely Joint Venture
 Recently formed a 50-50 joint venture with Geely
(largest Chinese car company, owner of Volvo)
 Geely has invested $170M, but KNDI will have to
finance much more than this even considered
the 50% equity
 Investors are most concerned about this deal
from conference call

7. Green Technology in China
 Common misconception that China isn’t
focusing on the environment
 China has been significantly outspending the US
in green technology by almost double
 Pew Research: “China is winning the clean
energy race”
 China has imposed auto efficiency standards,
subsidies, and clean energy tax incentives

8. Top 10 Countries in Clean Energy Investment
China $34.6B
United States $18.6B
United Kingdom $11.2B
Rest of EU-27 $10.8B
Spain $10.4B
Brazil $7.3B
Germany $4.3B
Canada $3.3B
Italy $2.6B
India $2.3B

9. Chinese Car Market
 China is world’s largest car manufacturer
 Only 8.5% of Chinese population owns car
 Same rate as America in 1940
 79.7% in America currently
 Urban areas are much more concentrated
 In urban areas many bike because finding a
parking space is incredibly inconvenient

10. EV Car Market
Name Annual
Capacity
City Price
Zhangjiagang
Haowin New
Energy
Technology
120,000 Shanghai $10,000
Jinan Qingong
International
Trade Co.
104,000 Qingdao $6,400-$8,600
Guangfeng
Xiaoni Trading
Im. And Ex. Co.
96,000 Tianjian $3,500-$7,650
Guangdong
Yatian Industrial
Co.
60,000 Qingdao $6,5000

11. China EV Reports
 WorldWatch: “China’s Electric Vehicle Development
Failing to Meet Ambitious Targets”
 “targets are overly optimistic and unattainable”
 Only 20,000 new energy vehicles were sold in 2011-
2012, meeting only 4% of the 2015 target
 McKinsey, July 2013
 “Government subsidies have failed to stimulate
consumer demand”
 EV buyers in Shenzhen only sold 600 Evs in 2012 even
though $8,000+ in subsidies
 Quartz
 “Scant sales have turned China away from focusing
on [electric cars] right now”

14. Parking
 Americans don’t realize how bad parking is in
urban China
 Shanghai: 40M, Beijing: 20M
 Many apartments don’t have attached garages

15. Chinese Subsidies
 China has planned on EV subsidies, up to $9,800,
until 2015
 Used to be higher, subsidies have been reduced
because of lack of demand
 WorldWarch and McKinsey both show that
subsidies haven’t change private demand—only
public

16. BYD Auto
 Considered the poster child for EV cars in China
 17B Chinese car manufacturer with heavy
emphasis on electric cars
 Has recently been de-emphasizing electric
vehicles because “hype for electric vehicles has
… gotten ahead of the realities”

17. 5 Year Trend
0
5
10
15
20
25
4/5/05 4/5/06 4/5/07 4/5/08 4/5/09
KNDI 5 Year Trend
Close

18. Past Month
0
5
10
15
20
25
3/5/10
3/6/10
3/7/10
3/8/10
3/9/10
3/10/10
3/11/10
3/12/10
3/13/10
3/14/10
3/15/10
3/16/10
3/17/10
3/18/10
3/19/10
3/20/10
3/21/10
3/22/10
3/23/10
3/24/10
3/25/10
3/26/10
3/27/10
3/28/10
3/29/10
3/30/10
3/31/10
4/1/10
4/2/10
4/3/10
KNDI 3/6-4/4
Close
4/6:
$14.08
3/6:
$19.5

19. Financials

20. Valuation
 Earnings Based:
 Comparables:
 Pre-2013 KNDI: 42
 SAIC (600104.Shanghai): 6.38
 Dongfeng (HK.0489): 8.19
 Great Wall Motors (HK.2333): 11.13

21. More Complicated Model
 Assume net profit increases by 75% (68% last
year): $30,983,775
 Future Company value: 15* 30,983,775=
$464,756,625
 WACC: 9.7% => discount factor of .831 over the
span of two years
 Current Value: $386,212,755
 Shares Outstanding: 37M
 $10

22. SEC Investigation
 Reasons for SEC Investigation not disclosed but
KNDI has been investigated by SEC since
November.
 From 10K:
 Investigation could “impose substantial distractions,
regardless of its outcome”

23. Risks
 Acquisition—very low chance after partnership
with Geely
 Increased subsidies that start working
 Suburbia

24. Questions