Headquartered in Jinhua, China, Kandi Technologies Group, Inc. (KNDI - Get Rating)  develops, produces and markets electric vehicle (EV) products and parts and electric scooters and EV battery packs internationally. KNDI’s stock has gained 114.9% over the past year. This gain is attributable primarily to the optimism surrounding the company’s new product development initiatives and EV industry tailwinds in China.

However, its shares have declined 7.8% year-to-date. The company reported a loss in its first quarter financial results. Meanwhile, because the global semiconductor chip shortage is expected to persist, it could hamper KNDI’s production lineup. In addition, because competition in the sector is intensifying, KNDI’s poor profit margin could cause the stock to continue declining .

Click here to checkout our Electric Vehicle Industry Report for 2021

The stock is currently trading at $6.36, which is 63.6% below its 52-week high of $17.45. Here is what we think could influence KNDI’s performance in the near term:

Growing Competition in Chinese EV Market

The electric vehicle market in China has been growing at an impressive pace  lately, underpinned by President Xi Jinping’s plans to cut carbon emissions to nearly zero by 2060 and favorable price subsidies. This backdrop has created a competitive landscape in the EV space as more companies invest vast resources to grab market share. And as dominant players continue to ramp up production to outmaneuver foreign competition, relatively smaller EV players like KNDI, with weak cash balances and profitability could  face powerful  challenges in a crowded market.

Global Chip Shortage Can Slowdown Deliveries

The global semiconductor shortage has been exacerbated by a fire at a Japanese semiconductor factory—owned by Renesas Electronics Corp—in March. According to IHS, production disruptions  are expected to impact nearly 1.3 million global light vehicles, up from a prior forecast of 1 million in the first quarter. As the situation is not expected to stabilize before next year, EV makers such as KNDI may have to idle their production. This could negatively impact the company’s EV deliveries and revenues in the near-term.

Inadequate Financial Strength

KNDI’s total revenues came in at $16 million for the first quarter, ended March 31, 2021, representing a 150.7% improvement year-over-year. However, it generated a $22.8 million loss from operations, compared to a $3.4 million loss a year ago. Also, the company’s operating expenses increased 493.2% year-over-year to $27.2 million, while its net loss came in at $6.4 million. It reported an $0.08  loss per share for this period.

Poor Profitability

KNDI’s net income margin, ROE, ROA and ROTC came in at negative 17.6%, 5%, 3.1% and 6.1%, respectively. Its 19.3% trailing-12-month gross profit margin is 44.3% lower than the 34.6% industry average. KNDI’s EBIT margin and levered free cash flow margin are negative 38% and 18.7%, respectively. Also, the company’s trailing-12-month cash from operations came in at a negative $30.37 million.

POWR Ratings Reflect Bleak Prospects

KNDI has an overall F rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. KNDI has an F grade for Quality and Stability. The stock’s weak profitability and higher volatility are reflected in these grades.

Also, KNDI  has a C grade for Value. This is consistent with the company’s 3.98x forward Price/Sales, which is 192.2% higher than the 1.36x industry average.

Beyond what we’ve highlighted, one can check out additional KNDI ratings for Sentiment, Momentum and Growth here.

KNDI is ranked #50 of 57 stocks in the C-rated Auto & Vehicle Manufacturers industry.

Click here to view the top-rated stocks in the Auto & Vehicle Manufacturers group.

Click here to check out our Automotive Industry Report for 2021

Bottom Line

KNDI’s new product development, which includes  five prototypes of its new K32 Utility Terrain Vehicle, has helped its stock price soar 25.7% over the past month. However, the aggressive  EV market penetration of local and foreign players and the ongoing semiconductor shortage have raised investors’ concerns. Additionally, KNDI’s  weak profitability and financials could limit its growth prospects. As such, we think the stock is best avoided now.

Click here to checkout our Electric Vehicle Industry Report for 2021

KNDI shares were trading at $6.34 per share on Monday morning, down $0.02 (-0.31%). Year-to-date, KNDI has declined -8.12%, versus a 13.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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