The last thing regular readers expect from me is an article praising a vehicle electrification plan, but I’ve seen one that overcomes most of the problems I’ve been writing about for the last couple years and is simply too intelligent to ignore. It’s a uniquely Chinese solution to their particular problems, which means it might not work in the U.S. or Europe, but the potential in the target market could be huge.
Kandi Technologies (KNDI) has developed the “KD5010” a two-passenger electric vehicle for city dwellers that looks a lot like a stretched Smart Car. Earlier versions of the KD5010 include a 60-unit plug-in fleet that Kandi delivered to the China Postal Service last summer and the Kandi-Coco, a shorter plug-in “neighborhood electric vehicle” that Kandi’s distributors are offering in the U.S. for $10,600 (before subsidies). From left to right, the following picture shows the China Post version, the KD5010 and the Kandi-Coco.
The KD5010 costs about $6,000 in China (without batteries and before subsidies) and has a 150-kilometer (100-mile) range with a top speed of 52 mph. Unlike its sexier cousins from Nissan (NSANY.PK), General Motors (GM) and Tesla (TSLA), the KD5010 doesn’t have a plug. Instead, it draws the needed power from six flat-profile lead-acid batteries that slide into horizontal slots under the driver and passenger doors and can be changed in minutes with simple and inexpensive equipment. Without batteries, the KD5010 tips the scale at 1,000 pounds. With batteries the total vehicle weight is closer to 2,000 pounds.
The genius of the KD5010 lies in the absence of a power cord and plug. Instead of giving the owner the ability to decide when and where he wants to recharge the batteries, the KD5010’s plug free design requires the owner to drive to the nearest battery swapping station and pay about $6.00 to have the discharged batteries replaced with fresh ones. The process only takes a few minutes and should a KD5010 run out of power on the road, an emergency roadside swapping service is available for a modest premium. Discharged batteries are then returned to a smart central charging facility with a high capacity grid connection that can adjust its demands as needed to optimize overall grid efficiencies.
The swapping stations and central charging facility are operated by a three-party joint venture between Kandi (30%), Tianneng Power International, China’s largest lead-acid battery manufacturer (30%), and Jinhua Bada Group, a unit of State Grid Power, a company that provides 91% of China’s electricity and ranks as the seventh largest corporation in the world. Kandi launched its unique vehicle electrification and battery swapping station plan in late November with its first sales to retail customers in the city of Jinhua, China, but it’s easy to predict a wider rollout if the demonstration is successful.
The principal end-user advantages of Kandi’s approach to vehicle electrification include:
- Offering automotive transportation to users who have no preconceived notions;
- Offering an electric alternative that’s cheaper and lighter than a conventional car; and
- Offering a battery swapping system that’s comparable to a quick fill-up with $3 gasoline.
The advantages to Kandi and its charging infrastructure partners include:
- Conducting battery charging in a dedicated facility that can optimize battery life and performance;
- Centralizing battery charging to eliminate infrastructure build out costs and grid stability issues;
- Facilitating the recycling of old batteries while alleviating raw material supply chain issues; and
- Generating recurring long-term revenue from battery swapping operations.
The battery-swapping plan is just plain smart. Since the KD5010 uses lead-acid batteries, the battery cost of roughly $1,500 per vehicle includes about $1,000 in lead and $500 in manufacturing costs. Once the lead is in the first KD5010 battery pack, it can be recycled over and over, reducing the consumable cost of the batteries to about $500. Even if the batteries only last for a few hundred cycles before they’re returned and recycled, the net battery cost per charge-discharge cycle will be in the $1 to $2 range, plus electricity for recharging and labor to operate the swapping infrastructure. With an end-user swapping fee of $6.00, Kandi and its partners should profit handsomely.
The following table presents summary income and cash flow data for the last twelve months, summary balance sheet data at the last reporting date, and market valuation metrics for Kandi and BYD Co. Ltd. (BYDDF.PK), the best-known Chinese automaker.
Kandi’s historical financial statements do not reflect major electric vehicle operations, I think its fair to expect substantial revenue growth over the next few quarters.
BYD has been a market darling since Warren Buffet’s Mid-America Holdings bought a 10% interest in 2009. The big difference between the two is Kandi is just starting out with a pair of extremely powerful partners while BYD is trying to grow a mature business. When I consider problems inherent in growing any business, I have to believe it will be easier for Kandi to ramp sales by a factor of ten than it will be for BYD to double sales. I’ve always taken a very conservative “wait and see” attitude when it comes to vehicle electrification in the U.S. and Europe, but when it comes to capitalizing on emerging vehicle electrification opportunities in China I have to believe that Kandi’s approach will be a hands-down winner.
In the final analysis, it’s a lot like the business dynamic that might have developed if Henry Ford had partnered with John D. Rockefeller or one of the other oil barons in the early 1900s.
This morning Automotive World is reporting:
Tuesday, December 07, 2010,
Chinese OEM BYD Auto has reportedly scrapped plans to build its F3e electric vehicle. According to caradvice.com, BYD Auto’s deputy general manager Wang Jianjun confirmed that a lack of support in China forced the company to abandon production plans for the eco-friendly model.
The F3e originally appeared in November 2006 at the Beijing Motor Show. The car is powered by an iron-based battery, which can have 70% of its power restored via a ten minute recharge. The vehicle was claimed to have a range of 250 miles per full charge.
In 2007, BYD said the F3e would likely enter full-scale production within three years. The model was expected to cost less than Yuan 150,000 (US$22,560).
BYD’s home market of China is keen to encourage electric vehicles in a bid to reduce its pollution levels, but a number of serious obstacles to their widespread adoption remain, such as insufficient charging infrastructure.
Pearl Harbor day for BYD EV.
John: You may have noticed that this morning, KNDI has diluted their stock by generating over 3,000,000 new shares (http://www.reuters.com/finance/stocks/keyDevelopments?rpc=66&symbol=KNDI.O×tamp=20101221130000). Is this a bad sign and should investors who already hold the stock be worried?
I always hate to see deals go off at even a small discount to market price, but when you consider Kandi’s September 30th book value of $1.19 per share and weak working capital position, a $16 million raise at a price of $5.50 is actually on very good terms. The month to date average closing price of Kandi’s stock was $5.75, so the placement price was only a 5% discount. Were I a stockholder I’d be dancing in the streets