GeoInvesting Alleges Chinese Subsidy Fraud At Kandi Technologies

Shares of Kandi Technologies Group Inc KNDI fell 6 percent on Thursday. The Chinese Minister of Finance announced it was conducting an investigation on five companies that were found defrauding the government for approximately $150 million in electric vehicle subsidies.

According to Bloomberg, the firms involved will be punished. Although the penalties weren't specified, people familiar with the issue are expecting fines, the cancellation for national subsidy eligibility and even the repossession of previously handed subsidies by the Chinese government.

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Chinese site Sohu Finance added that there might be more than five companies involved in the scandal. On top of the first fraud category, the Minister of Finance pointed out two others.

"The second category was for vehicles that were found to have no batteries or have their batteries potentially moved. The third category is for vehicles with batteries installed that do not match what the company claimed [a more subtle way to cheat]. The second category has 12 auto companies’ names and the third category has 8 companies' names under it," according to a report from GeoInvesting.

Authorities haven't confirmed all of these details as precise. However, if they are, Kandi could be facing serious trouble, as it might have to give back the national subsidy cash it received in 2013 and 2014, and even lose the subsidy going forward, GeoInvesting continued.

"One caveat is that we have not vetted that the Geely mentioned in this article is the Geely JV with Kandi, although the article states that the scrutiny on Geely is due to Kandi’s micro electric vehicle," the firm concluded.

GeoInvesting has established a speculative short position in Kandi.