What happened
Shares of Chinese electric-car maker Kandi Technologies (KNDI -4.50%) jumped nearly 18% in early trading on NASDAQ Thursday before retracing to something more like a 4% gain as of 10:30 a.m. EST.
Investors reacted positively to the company's announcement that "one of its subsidiaries" will sell 3,000 model K23 electric cars to "an operating company in its ride-sharing alliance."
Image source: Getty Images.
So what
The news certainly sounds positive. According to Kandi, it's developing a program with the cumbersome title "300,000 government-accredited pure EVs within 5 years." A 3,000-car sale into that program seems to represent a 1% down payment on the program -- and a promise of great growth to come.
But here's the thing -- and here's the reason I suspect Kandi isn't holding on to its gains today: A Kandi subsidiary selling cars to Kandi's own "ride-sharing alliance?" That sounds a lot like Kandi is moving metal around, basically in-house -- one Kandi affiliate selling to another. Therefore, it doesn't necessarily seem to say much about Kandi's ability to sell electric cars to not-related parties.
Now what
In fact, if you read between the lines a bit, today's announced "sale" actually seems to reinforce arguments raised by Kandi short-seller Hindenburg Research last month. In that report, Hindenburg alleged that 55% of the company's "sales" last year went to a single Kandi subsidiary -- making them related-party transactions similar to what Kandi seems to be describing today.
Granted, even sales to a related party, which is a ride-hailing company, could ultimately benefit the company if the ridesharing market takes off for it. But as far as a material announcement of Kandi succeeding in expanding its sales, I suspect this isn't that.
And this, in a nutshell, is why the stock's price gains are evaporating today.
