Kandi (NASDAQ: KNDI) Stock is a Cheap Play on Cheap EVs

Electric vehicle (EV) company Kandi Technologies Group, Inc. (NASDAQ: KNDI) stock has seen interest in recent months as the EV craze pivoted from Tesla NASDAQ: TSLA to Chinese EV makers. With the recent earnings blowout momentum from Chinese EV makers like Xpeng NYSE: XPEV and Li Auto NYSE: LI, momentum has been flowing into the cheaper Chinese EV players.  Shares of Kandi have broken through its February pre-COVIDlevels to outperform the benchmark S&P 500 index NYSEARCA: SPY. Hype about its entry into the U.S. markets with its low-cost EV models selling for as low as $7,999 after federal and state subsidies has bolstered daily trading volumes and share price. Nimble traders can watch for opportunistic pullback levels to trade reversion bounces.

Q3 FY 2020 Earnings Release

On Nov. 11, 2020, Kandi released its fiscal third-quarter 2020 results for the quarter ending September 2020. The Company reported an adjusted earnings-per-share (EPS) loss of (-$0.03) excluding non-recurring items versus consensus analyst estimates for (-$0.11), beating estimates by $0.03. Revenues fell (-40.9%) year-over-year (YOY) to $18.72 million, missing analyst estimates by (-$2.88 million). Gross margins increased 42 basis points to 20.9%. Net loss was (-$1.5) million versus net income of $12.1 million or $0.23 EPS. Working capital was $79.8 million composed of $24.2 million in cash and cash equivalents and restricted cash. Off-road vehicles sales increased by 51.6% to $8.9 million while parts sales decreased (-67.4%) to $8.4 million. The Company established China Battery Exchange Technology Company, a wholly-owned subsidiary for battery swapping services for North America. On Aug. 18, 2020, Kandi America held a successful virtual launch event introducing its K23 and K27 EVs for the U.S. market.

Conference Call Takeaways

Kandi Co-Founder and CEO, Mr. Hu Xiaoming, provided color on the conference call about recent developments and more opportunities in smart EVs. The Company made headwinds in the ‘300,00 government accredited pure EV within 5-years rideshare’ program. Kandi has commenced its trial by delivering 1,000 EVs to the Hainan province and 2,500 EVs to the Zhejiang province. Each EV includes the battery swap feature through its CBETC subsidiary, which can further drive the sales of its EV parts and battery business. Kandi delivered its first fully automated intelligent battery exchange system to the rideshare operator in Haikou, Hainan in China. Xiaoming also plans to  list its battery exchange business, Zhejiang Kandi Smart Battery Swap Technology Company Limited on the Shanghai Stock Exchange’s STAR Board. An interesting point was made on the conference call in regard to battery recycling technology. The average lithium battery is 15% to 20% recyclable but the Jinhua An Kao technology (which was acquired by Kandi) is currently recycling at 50% to 60% efficiency. Kandi CFO, Alan Lim confirmed that the Hainan facilities have the capacity to produce 100,000 cars annually.

Kandi U.S. Distribution Plans

On Oct. 14, 2020, Kandi America, provided details of its U.S. distribution strategy. Kandi will offer market-exclusive agreements to a maximum of three dealer partners in Dallas, Fort Worth Metroplex. Plans to expand exclusive agreements also include San Antonio, Denver and Atlanta. Kandi will partner with a limited number of dealers in each market with exclusive rights to that territory. Pre-orders will be fulfilled by dealer partners when vehicles are available in Q4 2020.

Private Placement

On Nov. 10, 2020, Kandi announced a $60 million private placement with certain institutional investors for $60 million of common stock priced at $6.38 per share. The Company will also issue warrants for purchase of up to 3.76 million shares with an exercise price of $8.18 with a term of 30 months but aren’t exercisable for the first six months. The placement was completed around Nov. 12, 2020. These structural issues may place initial floor and ceiling levels on the shares but the momentum in the Chinese EV stocks could squeeze shares much higher. Fundamentally, Kandi is at the very low rung of Chinese EVs with compact vehicles made for city driving with average distances reaching around 60 miles on a single charge. Nimble traders and risk-tolerant investors can look for opportunistic pullback levels for exposure.

 KNDI Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for KNDI stock. The monthly rifle chart broke out into an uptrend on the monthly market structure low (MSL) buy triggers above $4.22 in June 2020. The massive July spike to the $17.41 Fibonacci (fib) level  and subsequent rug pull back down to $5.15 and recoil up through the monthly 5-period moving average (MA) triggered a stochastic mini pup. The weekly rifle chart has a pup breakout and a stochastic mini pup attempt if shares can bounce back above the $7.41 weekly MSL and 5-period MA. Traders can look for opportunistic pullback levels at the $7.41 fib, $6.53 fib, $6.12 monthly 5-period MA and the $5.54 fib. Be aware that momentum in the Chinese EV stocks will be key for KNDI to move higher, so watch the price action of peers NIO, XPEV and LI. Also, the $8.18 is the exercise price on the 3.74 million shares worth of warrants, which have a 6-month lock-up period and 30-month expiration. It shouldn’t represent too much of a ceiling if volume continues to expand. Institutions tend to collar profits by shorting the box above their exercise prices to cover after lock-up. This could pose a very near-term ceiling that can breakout with large enough volume.