The electric vehicle maker's largest customer was found to share a phone number with its own subsidiary, according to the report.
Kandi America
Shares in Kandi Technologies tanked nearly 30% on Monday after a scathing report accused the Chinese automaker of faking sales and hyping its electric vehicle growth story.
The drop in the shares continued in pre-market trading on Tuesday. Kandi fell 9% to around $9.08 a share, as traders digested short-seller Hindenburg Research's claim that the company was "using fake sales to undisclosed affiliates."
The Chinese manufacturer, which went public on the NASDAQ in 2008, raised $160 million from US investors in November alone.
Hindenburg said it had spoken to a dozen former employees and business partners to investigate Kandi's business, when it became apparent that the company's top customers were undisclosed entities. It found that almost 64% of Kandi's sales in the last twelve months were made to its own subsidiaries.
The company's largest customer, which accounted for about 55% of its sales in the last year, shared a phone number with a Kandi subsidiary, and an executive with the company, according to the Hindenburg report.
"We visited the 'customer.' It is based in a tiny building right next to Kandi's factory with a sign indicating that it's a Kandi company," Hindenburg Research said. "The same building housed another entity used by Kandi as part of a separate fake sales scheme to collect illegitimate subsidies from the Chinese government, for which it was fined and sanctioned."
Kandi told Business Insider it takes seriously any allegations of impropriety, and it would study Hindenburg's report. "We intend to thoroughly research the accusations, investigate internally as needed, and offer a public response in the near future," a spokesperson said.
Hindenburg, who has taken a short position in Kandi after extensive research, said it has photographic evidence to back up any claims of Kandi's "customer" inventory sitting in its own warehouse.
In addition to its concerns about Kandi's customer base, Hindenburg said the company had consistently booked revenue it can't collect and had a constantly-changing stream of executives at the top. It has had three auditors in the past five years, and four chief financial officers in the past four years.
The current auditor, Marcum, was recently banned by a regulatory authority from auditing Chinese companies. But instead of firing the auditor, Kandi reported an intention to renew its engagement.
Furthermore, the Chinese auto company has been "launching" in the US for over a decade. "Its first US vehicles were imported illegally and seized by customs. A former distribution partner said every single car that eventually made it into the country broke," the report said.
In September, Hindenburg accused electric-truck maker Nikola of lying for years about its products and deals with other companies, days after the EV-maker announced a $2 billion deal with General Motors. Nikola's shares fell by more than 70% in just two weeks and have struggled to recover ever since.
