Kandi Tempts Investors with Electric Vehicles

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As Kandi Technologies (NASDAQ: KNDI) announced the beginning of construction on the first pure electric vehicle charging facility and smart vertical parking center on June 17, many were wondering if this company is the real deal.

The firm has a five-year goal of setting up 100,000 rental electric vehicles throughout Hangzhou, China. That kind of confidence is hard to ignore, but do the possible gains justify buying this stock? Probably not.

But why not?

I say "probably" because if the firm does manage to gain mass appeal for the cars, then revenue would flood this Chinese company by storm. But if the business isn't able to firm up significant revenue from the electric vehicle rentals, then its current price isn't justified. Kandi's quarterly profit fell from $26 million in last year's final quarter to $15 million in the first quarter this year, indicating a possible downward trend in revenue. Much of the sales came from ATVs and go-carts, so banking on this company for EV prospects is a very dangerous game. Furthermore, the firm is due to pay $25 million by the end of June in payables and short-term debt. That's a lot of money for a company with just $65 million in revenue last year, and could result in a loss by the end of this year. The firm only made $6 million in profits in 2012.

Want in on electric vehicles?

While taking a chance on Kandi could land you huge gains, there is too much risk with this volatile stock. Those wanting to get in on the electric vehicle grid would be better off by sticking with the big guns like Nissan (NASDAQOTH: NSANY.PK) and General Motors (NYSE: GM) which have much more capital to pour into research and development.

While the potential upside to investing in Nissan and GM is much lower than that of Kandi, investors are much more secure. Nissan seems to be using its research and development money well with the unveiling of the ZEOD RC on June 21, which is the world's speediest electric racing vehicle that can move up to 185 mph. The market is very niche, but the release shows the type of electric vehicle technology that Nissan is capable of. Furthermore, the firm looks undervalued, with a price to book ratio at 1.1, which is below average in the sector and indicates that the price could hike on short notice. 

GM is also on the cutting edge of electric vehicle technology with its Chevrolet Volt. With a recent price cut of $6,000 for the vehicle, the return on equity on the car could be on the rise. Lower costs for manufacturing will allow GM to drop the price to a more attractive level for buyers. GM may have to rely on electric vehicles to increase profits, however. The firm only had a 3% net profit last year.

What it all boils down to

When it comes down to it, there could be major profits made in China in the electric vehicle market. This is not only because of the country's massive population, but also due to its poor air quality. State-initiated charging stations in China could help guide profits for Kandi, but the question is about how dedicated China is to decreasing pollution through electric vehicles. Nissan and GM, however, already have a lock on the electric vehicle market, and as people become more comfortable purchasing electric vehicles their sales will increase dramatically.

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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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