While Tesla is Heading into the Valley of Death, Kandi has Already Crossed
Tom Konrad CFAMy friend and frequent electric vehicle (EV) critic John Petersen recently worried that Tesla (NASD:TSLA) shareholders now buying the stock because of the launch of the company’s new Model S were doomed to lose money, since the company is just entering the “trough of disillusionment,” as shown in this stylized diagram of the losses a company suffers in the Valley of Death from Osawa and Miyazaki.
Although Petersen is relentlessly negative on EVs, he has a great depth of experience with launching new technologies, and investors ignore him at their peril.
Fortunately, Tesla is not the only EV game in town, and there is another EV company at a much more auspicious stage of the product cycle. That company is Chinese mini-EV manufacturer Kandi Technologies (NASD:KNDI.) Incidentally, Kandi is the only EV company Petersen has ever written a positive article about.
|Model S: Fast like a hare. Photo courtesy Tesla Motor|
Today, Kandi Technologies announced that they had signed a framework agreement with the government of Weifang Binhai Economic Development Zone in Wei Fang City of Shandong Province under which Kandi will build a factory in the Zone. The Zone will provide support in the form of infrastructure, promotion, and incentives in order to help the company sell no less than 20,000 EVs per year in Shandong Province. The factory will have capacity to manufacture key components of up to 100,000 vehicles per year, and is expected to be completed within two years.
According to Wikipedia, Shandong province is one of the most populous and affluent in China. Shandong is also new territory for Kandi, which recently signed a deal to sell 20,000 EVs for a leasing program in the city of Hangzhou in Zheijiang Province. More details of that deal emerged yesterday, when it was said (unfortunately in Chinese PDF only) that the order would proceed with 1000 EVs per month for September to December 2012, and 2000 EVs per month from January to August 2013. Since we can expect a gross profit of about $1300 to $1700 per vehicle, that should amount to an additional $0.15-0.20 a share profit in 2012, and additional $0.60 to $0.80 cents a share in 2013.
|The Kandi KD5011 Mini-EV to be leased in Hangzhou. Kind of looks like a tortoise, doesn't it? Photo by Marc Chang.|
Kandi was already profitable on the basis of its growing off-road vehicle business. It earned $0.20 a share over the last 12 months with only minimal EV sales. With rapidly growing sales of EVs underwritten by Shandong and Hangzhou, Kandi has had the kind of help across the Valley of Death that Tesla can only dream of.
Tesla CEO Elon Musk may expect the company to sell 20,000 EVs in 2013, but such sales depend on fickle consumers. Analysts expect a loss of $2.44 a share this year, and a profit of only $0.63 a share next year. Further, it will cost you over $30 a share to buy TSLA, which has a book value of only $1.46 a share.
Meanwhile, Kandi already has an order to sell 16,000 EVs in 2013, and more are likely to follow. I expect the company to earn between $0.40-$0.60 a share in 2012, and $1.20 to $2.00 a share in 2013. It only costs $4.05 to buy the stock as I write (although the stock has been advancing rapidly on the recent news). Kandi’s book value easily exceeds Tesla’s at $2.14 a share.
So why is anyone bothering with Tesla?
Disclosure: Long KNDI.
DISCLAIMER: Past performance is
not a guarantee or a reliable indicator of future results.
This article contains the current opinions of the author and
such opinions are subject to change without notice. This
article has been distributed for informational purposes only.
Forecasts, estimates, and certain information contained herein
should not be considered as investment advice or a
recommendation of any particular security, strategy or
investment product. Information contained herein has been
obtained from sources believed to be reliable, but not