Can Kandi's Electric Vehicles Keep It Up?

Can Kandi's Electric Vehicles Keep It Up?

Kandi Technologies was one of last week's biggest winners, soaring 23% after China's State Council introduced financial incentives to promote electric vehicles.

China's government will pay $9,800 toward the purchase of all-electric vehicles, while a much larger $81,700 subsidy will be available for buyers of electric buses. The program will continue until 2015. Yes, that's more generous than the $7,500 rebate that we have in place here, but have you seen the air in some of China's largest cities? There's a reason for that unusual car ban during the 2008 Olympics in Beijing, when only half of the cars were allowed on the road on any given day to curb the smog.

Vehicle buyers also won't have to pay until filing taxes the following year to collect these subsidies. The subsidies are being distributed to automakers on a quarterly basis, and they're passed on directly to consumers. The plan will be in place through 2015 with a clear aim of reducing the number of cars running internal combustion engines.

Kandi is an obvious winner here.

It was a lightly traded stock until earlier this year when it announced its entry into the electric sedan market. Until that point, Kandi was a small company making mostly go-karts and ATVs in China's Zhejiang province. It's still small, generating $12.2 million in revenue in its latest quarter, only $2 million of which coming from the sale of electric vehicles. However, its plan to team up with Geely Automotive to produce electric cars turned heads when the partnership's sedan was approved by China's Ministry of Industry and Information Technology in June. A month later, Kandi announced the delivery of the first 100 Kandi-Geely vehicles for a public car-sharing system in Hangzhou City.

Kandi obviously isn't the only company that will cash in as China tries to improve the air quality of its largest cities. Stateside darling Tesla Motors began taking orders in China last month, in a market where LMC Automotive claims that electric cars made up just 22,000 of the 18 million cars sold last year.

Clearly we're still in the early innings here, and the benefit will be substantial for Kandi if it does evolve into a major player. China's subsidy program will naturally make electric cars more financially feasible. It doesn't solve the "range anxiety" issue that's kept sales in check around the world, but it will put enough cars on the road to make charging solutions more viable. Isn't that what Tesla did with its growing Supercharger network of high-speed charging stations?

Kandi shares are trading 49% higher since I singled it out last month in my "5 Stocks Under $10" column. There's plenty of risk in owning a small company that's just dipping its toes into the electric sedan market, but investors should expect wild trading swings as it grows closer to satisfying the demand for clean cars in a country that just made ownership a bit easier for the next couple of years.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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