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Author: TMFRichDad Big gold star, 5000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 20721  
Subject: Re: Need help valuing car makers Date: 11/16/2012 6:18 AM
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Hi Denny,

I'm not familiar with Kandi so not sure if this is on target. Also, this may be a no sh!t Sherlock comment for you too. If so, just ignore.

Many manufacturer's (autos, heavy equipment, etc) that rely on dealers for sales to customers "finance" their dealers stock. The dealers pay the manufacturer after the sale is made for the item. So, this relationship requires there be a large inventory on dealers lots and is mostly financed by the manufacturer. It's a necessity in that people won't buy unless they can see what they are getting.

It strikes me that ATVs would experience seasonal sales trends from year to year. No use buying a summer time recreational vehicle during the winter. In anticipation of the seasonal buying season, its not uncommon for manufacturers to prime the pump and stuff the channel to the brim (fill dealer's lots). Once they do that, if the sales don't eventually materialize it can mean some pain resulting from discounts or worse. At this point manufacturing lines need to close until inventory clears.

With DSO in the neighborhood of 190 to 300 days (seems very excessive), it would seem to me that Kandi has stuffed the channel to the brim plus kept right on manufacturing full tilt in spite of lackluster sales.

That does not seem to be a rational way to handle shareholders money.

The 10K should elaborate to some extent on the business model (relationship with dealers) and allow you to make an informed decision wrt all of this.

Rich
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