Short seller who exposed Nikola Motor takes aim at Chinese electric vehicle stock Kandi
A major short-selling firm has alleged that the Chinese electric vehicle maker Kandi Technologies ( KNDI 11.54% ) falsified revenue by recording transfers to affiliates as sales.
Hindenburg Research, the short seller whose allegations against the electric truck start-up Nicholas ( NKLA 11.35% ) led to the departure of the Nikola founder and a federal investigation, published a report on Monday, alleging that a large percentage of Kandi’s reported sales were actually transfers to affiliates.
If true, that would mean that Kandi reported revenue that he didn’t actually generate.
Here are the main allegations of the Hindenburg report:
- An on-site inspection showed that the reported address of Kandi’s largest customer, accounting for approximately 55% of sales over the past 12 months, is a small building next to the Kandi factory. The customer shares a phone number with a known affiliate of Kandi.
- This small building previously housed another entity used by Kandi as part of a 2015 scheme to collect undeserved subsidies for electric vehicles from the Chinese government by exaggerating its sales, Hindenburg said. Kandi was forced to cancel about $3.3 million in grants at the end of 2016 as part of a deal with the Chinese government.
- Another customer, accounting for about 9% of last year’s sales, was once 100% owned by Kandi.
- Kandi’s running days of sales, a measure of when it collects revenue, is far higher than most peers, suggesting it may be revenue it can’t collect .
Kandi has long been plagued with questions about his financial reports and business plan. As the Hindenburg Report notes, the US Public Company Accounting Oversight Board revoked the registration of longtime auditor Kandi in Hong Kong in 2016, after finding that the auditor had overlooked signs of potential fraud in the Kandi accounting.
As of press time, Kandi has yet to respond to the allegations.
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