Kandi Technologies fails to impress despite earnings increase
Shares of electric vehicle parts maker, Kandi Technologies, fell yesterday after the company reported its Q3 results; which showed EPS of 13 cents for the quarter, up from 12 cents in Q3 2014. The company’s revenue increased to $50.5m, up 14.3% compared to $49m in the third quarter of 2014, and it sold a total of 6,004 EV products in the third quarter, a 208% increase from last year. "The third quarter performance underscores our tremendous growth in EV parts and EV sales as we became China's top seller for EV products in September," Chairman and CEO Hu Xiaoming, said in a statement. However, it seems this news failed to impress the market, with shares down 18% in heavy trading after the news yesterday.

Kandi Technolgies (KNDI 2.26%) reported third-quarter results Monday morning. While management was "pleased" with the financial results, the quarter's performance wasn't impressive enough for the market, apparently. Shares are down about 18% on the trading day of the report.

It's worth noting, however, that the stock is up 16% over the trailing 30 days -- even after the stock's big decline on Monday. With the sharp rise in the company's share price ahead of the report, the pullback doesn't necessarily indicate major disappointment with the results.

The results

Q3 2015 Actuals Q3 2014 Actuals Growth (YOY) Revenue $50.5 million $44.2 million 14% Operating Income or Loss ($2.4 million) $2.6 million (192%) Non-GAAP EPS $0.13 $0.12 8%

Key details

Its third-quarter GAAP operating loss reflects significantly higher operating expenses, which its 10-Q says was "mainly due to the $7.0 million expenses for stock award compensation and $0.5 million in legal expenses in the third quarter of 2015."

Kandi's pursuit of improved scale seems to be panning out, with gross margin rising from 13.5% in Q2 to 14.1% in Q1. Management cites improving "cost control from battery packing production" for the margin hike.

Q3 electric-vehicle part sales increased 35.7% from the year-ago quarter.

Kandi Electric Vehicles Group Co., a joint venture in which Kandi Technologies Group has a 50% stake, saw product unit sales increase 208%, year over year.

What management had to say

Management believes its joint venture-developed Kandi Cyclone, or K17, represents a key catalyst, going forward:

During the third quarter, we obtained the approval for a vehicle purchase tax exemption for Kandi Cyclone ("K17"), while launching a successful promotion in Beijing and Shanghai. The initial market response has been extremely positive, and we believe K17 will become the Company's key driver for growth over the next year.

The company is bullish on government incentives and support:

Meanwhile, China's central government has extended its continuous support and confidence in developing the new energy vehicle (NEV) industry by releasing additional policies, including reducing traffic controls and purchase quotas on NEVs, encouraging government purchases, and promoting EV car-share programs. With the government's dedication, we see unprecedented opportunities ahead of us, and we are well-positioned to benefit from the EV adoption in China by leveraging our unique growth engines: the rapid expansion of our Micro Public Transportation program and the burgeoning direct sales program through the distribution channel.

Looking ahead

Investors should look for more revenue growth, higher margins, and a continued path toward consistent operating cash flow. While growing pains are expected, investors should watch small, fast-growing companies like Kandi closely to ensure that both growth and financial viability are well balanced.

The company's guidance for the fourth quarter, which calls for higher revenue and a gross margin around its improved Q3 level, is a good sign. Look for management to live up to this outlook for Q4 and report consistent financial improvements over the longer term, too.