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February 2, 2013

The Kandi Story Continues

Top Ranked Auto Makers
Rank Company (Country)

  1. General Motors Company (United States)
  2. Volkswagen Group AG (Germany)
  3. Toyota Motor Corporation (Japan)
  4. Hyundai Automotive Group (South Korea)
  5. Ford Motor Company (United States)
  6. Nissan Motor Company (Japan)
  7. PSA Peugeot Citro╬n S.A. (France)
  8. Honda Motor Company (Japan)
  9. Renault S.A. (France)
  10. Suzuki Motor Corporation (Japan)
  11. Fiat (Italy)
  12. Chrysler Group, LLC (United States)
  13. BMW (Germany)
  14. Daimler AG (Germany)
  15. Mazda Motor Corporation (Japan)
  16. Mitsubishi Motors Corporation (Japan)
  17. Dongfeng Motor Corporation (People's Republic of China)
  18. Tata Motors Ltd (India)
  19. GEELY Motors (China)
  20. Beijing Automotive (People's Republic of China)
On Friday February 1st., Geely Automobile Holdings Ltd. (Geely), the second ranked Chinese auto maker and 19th ranked world wide, announced a joint venture (JV) with microcap electric vehicle (EV) specialist Kandi Technologies Group, Inc. (Kandi). Last November Kandi had disclosed that Mr. Hu, Kandi's Chairman and principal stockholder, was in conversations with his counterpart at Geely. It didn't take long for them to reach a deal.
On 1 February 2013, Shanghai Maple Guorun, an indirectly 99% owned subsidiary of the Company, entered into the Framework Agreement with Kandi Vehicles, an indirect wholly-owned subsidiary of Kandi Technologies, pursuant to which the parties agreed to establish the JV Company to engage in the investment, research and development, production, marketing and sales of electric vehicles in the PRC.

Pursuant to the terms of the Framework Agreement, the JV Company will be owned as to 50% by Shanghai Maple Guorun and as to 50% by Kandi Vehicles. The registered capital of the JV Company will be RMB1,000,000,000 and will be contributed by the parties as to 50% each. Upon the establishment of the JV Company, the JV Company will acquire certain assets from each of the Group and Kandi Group so that the JV Company will possess the necessary properties, assets and technologies to commence the electric vehicle business. To enable the proposed acquisitions to take place, both the Group and Kandi Group will establish new wholly-owned subsidiaries and inject certain assets into these companies. The JV Company will then acquire all the equity interests in each of these companies. The transfer of the equity interest in the newly established subsidiary of the Group to the JV Company will constitute a disposal of a subsidiary by the Group. As the principal terms of the Potential Disposal are yet to be finalized, the Company will make further announcement in relation to the Potential Disposal pursuant to the requirements of the Listing Rules as and when appropriate.

Registered Capital

Kandi's 50% share of the registered capital is just under US$80 million.

The registered capital does not have to be paid in full in cash, it can be any kind of asset agreeable to the founding partners. The minimum down payment in China is 15% with a minimum of 30% in cash which comes to less than US$3.6 million. Clearly this is not an outrageous amount even for microcap Kandi.
Why do I care? Because Geely made the list as the second largest China based automaker, because it is a private Hong Kong listed company, not a PRC state owned enterprise, and because they've seen fit to partner in a joint venture with pip-squeak Kandi Technologies [KNDI] to develop electric vehicles which are missing from their current lineup.

The Kandi Story continues to evolve more or less according to the screen play. The car industry is capital intensive and a tiny startup has little or no chance of making the big leagues on their own, specially in such a mature industry where consolidation and not diversification is the rule. The only way Kandi can grow fast is by making alliances with established and better funded companies which is precisely what Kandi has been doing these past two or three years since they got into the pure EV business. Kandi is partnering with provincial governments, the largest Chinese electric utilities, battery makers and with other auto makers. Kandi has also bought up some production facilities for their own use. The biggest danger I see for individual investors is KNDI being bought out. With each joint venture this risk lessens as the purchase price rises and more partners have a reason to oppose Kandi getting acquired.

Denny Schlesinger

Geely announces joint venture with Kandi (pdf)
Geely Company Brief
World Top Ranking Car Companies
Registered Capital in China (pdf)

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Last updated March 8, 2009.