Geely Ties Up with Kandi to Produce Low-Speed EVs

By Alysha Webb · February 05, 2013

KandiUSA.com says it has a large inventory of new vehicles—including electric low-speed cars, dirt bikes and tricycles—in its 70,000 square foot warehouse in the Los Angeles area.

It seems Chinese companies are making some smart moves where electric vehicles are concerned. Shanghai Maple Guorun, a passenger car subsidiary of Geely Group, announced yesterday that it would form a 50/50 joint venture with Kandi Technologies Inc., a producer of low-speed electric vehicles based in the east China province of Zhejiang.

When I initially read the news, I thought, “Great, Geely’s cheap cars combine with Kandi’s cheap and who knows how good EV technology. Not a winner.” Then I read some of the stories in the Chinese press about the JV and I started changing my mind. It might make sense for both companies, though I wouldn’t personally want to drive around in the tiny cheap low-speed EVs the JV will turn out.

On Kandi’s part, the NASDAQ-listed company seems a bit shaky, regardless of its many big announcements regarding government contracts for small, low-speed BEVs. According to website Seeking Alpha, which was a relentless promoter of Kandi’s stock until it wasn’t, Kandi did not deliver thousands of electric vehicles to the city of Hangzhou that Kandi had said it would. Seeking Alpha also said Kandi misrepresented a letter of intent for another business deal as an actual contract.

This latest announcement of the venture with the Geely subsidiary is real—since Geely says the same thing. But we should take a wait-and-see approach to see how well Kandi’s technology holds up when it actually has to produce vehicles in decent quantities. Indeed, I’m not sure what technology Kandi actually brings to the deal as Geely already has EV technology. I suppose Kandi’s low-speed EV technology is much less sophisticated (see: cheaper) than Geely’s.

Geely, for its part, made a statement admitting that the consumer market in China for electric passenger vehicles has not materialized, and was not likely to be viable for a long time. Geely launched both a plug-in hybrid and a battery electric passenger car, but sales have been between negligible and non-existent. However, said a Geely spokesperson, the company stated that it “took a fancy to Kandi’s smaller-sized low-cost and low-speed electric vehicles.” Geely believes electric vehicles will be a “major solution” for current energy and traffic congestion problems.

Geely was once known for producing cheap and cheerful ICE cars. Its chairman, Li Shufu, bragged about his vehicle’s low-cost and didn’t seem to worry much about quality. But Li is no dummy, and his company is now able to turn out decent-quality cars.

Nonetheless, I'm not yet fully convinced about Geely’s investment in Kandi. China has dozens of low-speed electric vehicle producers, of which about 90 percent are based in the north China province of Shandong. Okay, maybe 90 percent is a high number, but Shandong is LSEV central. And Kandi’s EV technology has never been tested for mass production. But, Geely’s investment is only about $80 million. I guess Li Shufu figures that the Kandi is a low-stakes wager—so he’s taking a chance.

Comments

· Arthur Porcari · 18 weeks ago

Alysha- Glad to see you are finally starting to recognize Kandi. Though it seems this Geely-Kandi JV has you in a quandary.

You obviously have high respect for Geely, but seem to question their competence in teaming up as an equal partner with KNDI. Did you ever think it is because they know more about Kandi than you or the short-sellers who have recently hijacked the Seeking Alpha website with a recent barrage of mis and dis-information due to their wrong way bet on the stock? I can assure you that "Seeking Alpha", is nothing more than a forum for any author with a personal opinion to publish an article and has no opinion of its own on any company. For each negative opinion on KNDI, there are many more positive and by many more authors.

Above you said: "Seeking Alpha also said Kandi misrepresented a letter of intent for another business deal as an actual contract." Let this be a warning to you to do your own DD before you write. Yes, a short seller in an article that you obviously read on SA said the above, but as is typical in these attack articles, he didn't do his homework. A month before he wrote the article, KNDI filed an SEC 8K with the actual contract as you can see on this SEC link.

http://goo.gl/NkTg3

The contract above was the one that KNDI referred to when it announced the 5000 EV's. As you may or may not know, the contract is with CALB a Division of PRC owned Lithium in the Air, a Fortune Global 500 company. As in the case of Geely, it was they who first announced the relationship with KNDI and the 5000 EV;s as the first tranche of 20,000 EV's to be delivered by this years end. While no public statement as to the delay has been published by CALB, a confirmation of the continuation of the full 20,000 EV order with KNDI was published by CALB on she Shezuan Stock Exchange two weeks ago,

But back to KNDI-Geely. Firstly, the picture you used above is that of a small LSEV called the Coco which KNDI has sold several thousand in the US, but not in China. In China, KNDI has developed and has approved both by the PRC and local governments nine (9) different mid-speed, highway approved EV's (cars trucks and van). You will see these on this translated China website:

http://goo.gl/JyZZx

FYI, as compared to TSLA, Fisker and Coda, who relieved on heavy Government subsidized financing to develop their EV's, KNDI developed all nine from scratch using their own cash resources.

Secondly, regarding your "shaky" comment. Have you looked at their public SEC filings? Even after developing the 9 EV's with their own resources while staying income positive for 28 of their last 30 quarters , KNDI ended last quarter quarter with cash, unused credit facilities and inventory totaling some $44 million. Maybe not a lot to you, but enough to build a lot of EV's even without factoring in new sales at a construction price of under $5k.

Thirdly, you ignore KNDI's contribution to the JV of its patented Disruptive Technology for Quick Battery Exchange which is the reason PRC owed giant electric utility State Grid has partnered up with KNDI. SG did this due to its compatibility with SG's Vehicle To Grid (V2G) infrastructure plan. Which was reported by Nomura Securities analysts Steve Mann and Joseph Wong as a likely reason for the JV on Feb. 4 in a research note confirming their "Buy" opinion on Geely's stock:

From their report:

-- Geely announced it has entered into an agreement to form a 50/50
joint venture with Kandi Technologies (KNDI.US, not rated), to develop
and market electric vehicles (EV). We do not expect the JV will make
any contributions to Geely's 2013 earnings; however, we believe this
is positive for Geely in the long run.

-- Given the recent headlines on smog, we believe China will continue to
aggressively push for the adoption of alternative vehicles, including
EV, in the long term. In our opinion, Geely and other automakers must
remain at the forefront in the development of EV. Since EV technology
has yet to reach marketwide acceptance, we believe a JV is the best
strategy to minimize development costs and risks.

-- Kandi Technologies has embraced a concept similar to the vehicle-togrid (V2G) technology. Other than the fact that both companies are
based in Hangzhou, we believe Kandi's application of V2G is a major
reason for the cooperation. We believe V2G is one of the more viable
concepts in the EV industry. In Kandi's case, used EV batteries are
swapped with recharged batteries. Recharged, unused batteries are
connected to the grid to balance loads during peak load demands.

· ampedzz · 18 weeks ago

Alysha,

I hope you will lets Art's comment stand as your article elevated the opponents of KNDI in the Seeking Alpha blogs to that of a representative view of the Seeking Alpha Publication. I ask you to offer some proof of that. The facts are that the bloggers that you are referencing HAVE and WILL say the most absurd things to discredit KNDI. They have repeatedly published 'Hit Pieces' timed to manipulate the stock price down and at strategic times to their greatest advantage. It is odd that you would seek to validate them. Leaving Art's comment will, however, go along way to providing some balance.

Please allow me to labor one additional point of the many to choose from.

You said: "though I wouldn’t personally want to drive around in the tiny cheap low-speed EVs the JV will turn out."

I do not believe that Mr. Hu has targeted you for a sale. You probably make more than $10,000 per year. Any ICE that you would choose to buy would have more speed, power and range than any KNDI car. Though you would pay more for it, you would pay more to fuel it and you would pay more to maintain it. The car that you pictured was one of the very first models. They have come a long way since that model as Art has pointed out. Most people in Mr. Hu's sights make less than $10,000 and live in China. Their choices right now are busses taxi cabs or electric motor scooters. There are millions of people in that category in China. The cars that Mr Hu is designing is for them. They will certainly be saver on 4 wheels than two, they will be able to haul more things when they go shopping and be more comfortable in weather. For them, it would seem to be a great option.

· Alysha Webb · 18 weeks ago

I do not have "high respect" for Geely. Li Shufu may be wasting his company's money, but he is a risk-taker and he figures that as China's government is still intent on promoting EVs and clearly the market for passenger cars hasn't taken off, this may be his best shot to participate in what he hopes will be a growing market.

Re: Kandi. The company has delivered several hundred of its small electric cars to the Hangzhou government, it seems. Hardly the thousands the initial announcements suggested would be delivered. Will they be delivered in the future? Perhaps. Kandi's technology is tested for go carts (its main source of income) not mini cars. In any case, Kandi had net income of $3.88 million in the first nine months of 2012 vs. $9.94 million in the same period in 2011. Kandi says the fall income is because it invested that money in R&D in hopes of establishing a leading position in the EV market.

According to its 10Q, Kandi borrowed heavily the first three quarters of 2012, as well as standing as guarantor for $19.7 million in loans for local companies (who also stood as guarantors for Kandi's loans) "It is a common business practice among companies in the region of China where Kandi is located to exchange guarantees for bank debt with no consideration given," says the 10Q. Perhaps, but it looks like a pyramid scheme to me.

In any case, I stand by my posting. We do know now if Kandi's technology is any good and it remains to be seen if it can produce the vehicles it has promised. By the way, the September sales contract with China Aviation Lithium Battery Co. is for the JNJ6290 model. I can't find that on Kandi's (Chinese language) website and am not sure what it is is.

Kandi may have the best intentions. But where Chinese companies are concerned the proof, as they say, is in the pudding. Consider BYD. How many e6 BEVs are driving around?

As for me not being the target market for the Kandi cars, Chinese consumers are very concerned about their safety, and about untested new technology. They are not going to rush to buy a product they don't have confidence in. Note the falling market share of domestic brand in the ICE market as foreign OEs come out with less-expensive models.

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Geely Ties Up with Kandi to Produce Low-Speed EVs

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