Kandi Technologies Group Inc (KNDI) 2022 Q1 法說會逐字稿

Greetings. Welcome to Kandi Technologies First Quarter 2022 Financial Results Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to Kewa Luo, Director of Investor Relations. Thank you. You may begin.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the first quarter of 2022. Earlier today, we issued a press release covering the results. You can find the press release on the company's website as well as from the newswire services.

On the call with me today are Mr. Hu Xiaoming, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Mr. Hu will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a question-and-answer session.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars.

With that, let me now turn the call over to our CEO, Hu Xiaoming. Go ahead, Mr. Hu.

(foreign language)

[Interpreted] Hello, everyone. Good morning to those who are in the U.S. and good evening to those who are in Asia. Looking at this quarter, I think the highlight is our outstanding business performance. We generated nearly $25 million of revenue, a year-over-year increase of 56%. This is a great start to the year.

At this time, last year, we wanted to expand our business. We leveraged our technologies to develop new products and enter new markets. We are now seeing the fruits of that efforts, in particular, new all-electric luxury crossover golf carts, which are in high demand. And we see as sales revenue is kicking off, we will continue to launch more new models of those all-electric or battery powered vehicle products in a year to drive meaningful growth.

In February 2022, we established a company, Hainan Kandi Holding New Energy Technology Company, Ltd., in Hainan province to produce crossover electric golf carts. On February 22, our U.S. subsidiary, SC Autosports, signed a deal to supply Coleman Powersports with 5,000 vehicles, and another deal was over 20 other distributors to deliver another 5,000 units on March 3. The company, Hainan Kandi Holding, is already manufacturing the vehicles, and we delivered several 778 units by the end of April to our U.S. subsidiary and expect to ship another 2,000 in May. We are optimistic that this is just the start of what can be a large business for us.

Looking ahead, we are optimistic about Kandi's prospects in all-electric off-road vehicles. We also believe that our EV supported by our battery swapping technology will make a splash, and again, strong traction once the China EV market reaches a healthy and stable state. We will remain focused on innovative R&D that can improve our technologies and create new opportunities for our off-road vehicles and the electric vehicles with battery swapping.

(foreign language)

[Interpreted] Let's now start the Q&A session. Kewa will take any English question and translate for me and our CFO will translate the answer. Operator, please go ahead.

(Operator Instructions) Our first question is from [Harold Gaboury,] private investor.

On January 10, Kandi PR announced that Kandi enters framework agreement to produce battery swap-enabled electric vehicles, referencing a signed framework agreement with Hunan Hengrun Automobile Limited to jointly produce battery swap-enabled pure electric vehicles.

At first glance, it looks very positive as it appeared that it will provide Kandi earlier access to a required China EV license, originally projected on the last call not to be expected until April. This was the requirement that was holding back Kandi from building and selling passenger EVs in China to outlets such as the 300,000 EV -- Government Approved EV Ride-Hailing program. But upon further reading, it appears the vehicles in the JV will carry -- will all carry the Henghe, not the Kandi brand name. Now I have 4 questions. Firstly, has the deal been activated? That's the first question, has the deal been activated?

Okay, let me translate what you have so far. (foreign language)

(foreign language)

[Interpreted] First of all, thank you for your questions. The first question regarding the progress of our cooperation, the agreement, indeed, is in place and then we are working with them orderly. And then the application is already basically approved and then it's in public pronouncement stage right now in the Chinese government agency center.

Okay. And did I miss interpret the appearance -- that the Kandi brand in China will not be used even in the Kandi-founded Ride-Hailing program? Question.

(foreign language)

(foreign language)

[Interpreted] Okay. Let's put it this way. Even though we are working together with Hengrun and then the brand name of our vehicles that we work together is under the name of Henghe. Although, Kandi will take the major role of the whole corporation and the process in the manufacturing.

Okay. Now about the 300,000 Ride-Hailing program and the quick battery exchange, also talked about in the aforementioned PR, what exactly does Hengrun contribute to the Kandi's patented quick battery exchange?

(foreign language)

(foreign language)

[Interpreted] So what we're working with Hengrun is: we make the major part in the manufacturing process, including producing all the major parts, components of those batteries swap electric vehicles. And then those parts will be assembled by Hengrun when we deliver the parts to them. And then -- because they have the license to sell in China market. That's why once they assemble, they would sell the brand in Henghe to the PRC market. And that is the whole -- process of the whole -- of selling.

One last question. What does each partner primarily contribute and what percentage goes to Hengrun and what specific products and services? The PR seems enticing, but left a lot of questions. Hopefully, management can clear this up.

(foreign language)

(foreign language)

[Interpreted] So it's our corporation and Hengrun, because there's no definition of the shares proportion. So we don't really have the issue of the percentage of the contribution or the sharing of the profit. Instead, we're taking different parts. As you may know, we are producing all the parts and components, and we'll make the margin from those sales of the parts to Hengrun. And after that, they're assembling and then their own mark up to the PRC market. They will have their own margin as well. So we are taking different roles in the whole manufacturing and sales. So it's not really the percentage of the sales, but then we have our own profit, our own process.

Our next question is from Arthur Porcari with Corporate Strategies, Inc.

Okay. Well, my primary area I was going to try to get more information on is the quick battery exchange. We talked about in the last -- I'm not sure anybody really understands where we stand in that. But let me first say congratulations on an all-time record first quarter. With all the negativeness in the U.S. and China economies, it's incredible to think that we actually did a $25 million quarter in the first quarter by the Chinese New Year and all the rest that go along with it. But why did you -- why is it we find out now you have some $70 million in contracts you just signed just over the new electric golf carts, and we haven't seen any press releases on that? Ask that question first to Mr. Hu, please.

Okay. (foreign language)

(foreign language)

[Interpreted] So I guess in the past, maybe we have the different kind of press release of all the news and development. And ongoing, our strategy is we try to strengthen our fundamental businesses and operations. And once we have some achievement, then we will circulate the press release to all the investors, so basically in order to make the whole thing more positive.

Well, I'm not sure it would have done much good in the market environment we've been having lately anyway, but it's nice to know for the longer haul.

Also, we didn't see anything in the press release on share buybacks. Have we -- did we buy any shares back over the past quarter? Did we continue with the program?

(foreign language)

(foreign language)

[Interpreted] Yes, we did. We actually -- as a matter of fact, we have disclosed the share buyback in the subsequent events, but not in our 10-Q just released on the SEC website. The shares we repurchased from April 1 to May 5 is in total 603,000 shares of the company's stock.

Let me get on to my main area of discussion here. So my primary question, as I said, has to do with Kandi's decade-old discussion regarding its quick battery exchange. And a little bit of background first since I've been around long enough to see it from the beginning. Over a dozen years ago, Kandi patented and put into service its quick battery exchange program in Jinhua. Even today, there are a few YouTube videos accessible that I personally posted a decade ago showing Kandi battery exchange in action, both robotically and at a changing terminal at around 60 seconds, as well as a roadside mobile exchange in just a few minutes.

The mobile feature to this date, to my knowledge, has not been replicated by any subsequent competitor. What made this possible was Kandi's patented QBX, quick battery exchange, which allowed the batteries to be exchange simply by sliding in under the car doors between the wheels rather than requiring the car to be lifted or battery turned at specialized stations like NIO and all the rest, doesn't seem to have to do.

This was considered so revolutionary at the time that the PRC government published a white paper in September 2012, recommending for all of China only 3 charging methods as the preferred mode for EVs: the plug-in, which we still have today, obviously; lease just the battery. But the third one actually named Kandi in the official name of the project was called the Henghe Kandi Lease and Battery Swap Mode. Not surprising, it was the only mode that could allow a battery to be exchanged in minutes anywhere at any time by a mobile unit. Needless to say, this was an exciting time for Kandi stock when announced by the government.

With this background reminder, I got a few questions from Mr. Hu on the subject. Kewa, could you go ahead and share that with him? Did you all get my questions?

Okay, sure. Okay. (foreign language) Go ahead, start.

Okay. Okay. There are about 5 sub questions here. First 2, I'll take together. What happened at that time to cause Kandi to lose the momentum after its incredible nationwide government endorsement? And does today's Kandi QBX still use the slide by -- side sliding between the tires exchange model, which allows for the mobile change on the road side as well as the mechanical station?

(foreign language)

(foreign language)

[Interpreted] Okay. To answer your questions, our smart battery swap technology did have its advanced nature and practicality. So it was recognized by the relevant government agency at that time. However, prior to 2020, those relevant government departments in principle focused their support and promotion of the rechargeable EVs instead of the battery swap EVs. So basically, our battery swappable electric vehicles were somehow marginalized.

The government agencies did fund the issue and the question, and they noticed that the battery swappable vehicles is more advanced and then more practical. So until April of 2020, the 4 major state ministries and the commissions then announced their announcement to support the battery swap more instead. So at the moment, the battery swap more of the EVs has been promoted and supported by a number of the companies in China.

However, the progress is relatively slow. Why? Because it does take time, for years, for them to reinvent, develop those EV models, battery swappable. So they won't happen right away, but it takes time. But then we can foresee that the progress will be better and better.

At present, our intelligent battery swap exchange equipment, we're still using the original side-slide technology. We believe that this technology is definitely the direction of our future development. And we will never give up and we'll continue to develop and advance this technology in the upcoming future.

Well, I'm really happy to hear that. In fact, one of the YouTube videos that's up there shows the mobile unit being used in downtown -- one of the cities where the change was made in about 2 minutes -- 2.5 minutes with 2 guys in a little hand kind of lift type gadget over there. And I mean, you can break down -- you can run out of charge anywhere. Any other battery change program seems to have to tow the car in the station. Here, it can be done in a couple of minutes.

But aside from that, let me expand on. And I'm really happy to hear that. Okay. So Kandi still controls this patent. Would that mean the third-party automakers who use the technology would have to pay royalties to Kandi to use this side-slide mode? And you've already said, this is the same one that China Battery Exchange is using. So I'll skip that part of my question. And by saying, can the China Battery Exchange subsidiary also custom make QBX stations for other battery exchange modes?

(foreign language)

(foreign language)

[Interpreted] So our company does own currently the pattern for all the side-slide battery swap technology. Although in China market, there are not many products or vehicles adopting the side-slide technology at the moment. Rather, there are more vehicles using the battery exchange from other formats like chassis. So therefore, at the moment, the impact or the effect of the side-slide battery swap patent is not so significant, I would say.

And as for our subsidiary, the China Battery Exchange Technology Company Limited, yes, we are developing the third-party commercialization. It adopts the side-slide battery swap mode, of course, and we are trying to explore the optimal way that can develop for the third-party to commercialize on our pure EV in the side-slide battery swap mode.

I said I was going to finish, but I want to do a follow-up on that. It would just seem to me, again, no other model can be done where they could change it in place. I mean you can have road call -- roadside assistant on your cell phone. They can have a unit out there to swap the batteries in a few minutes, even in downtown Beijing. But why is it that such logical technology is not being used or even being endorsed or being promoted? It seems like it could be done with any sized vehicle? Anyway, try to address that if you could, please?

Okay. (foreign language)

(foreign language)

[Interpreted] So as for the development in China market, as you may know, back in maybe a decade -- or more than 15 years ago, the EV is a new topic in China. So at that time, the relevant government agency they may have not too much experience in this aspect. At that time, they didn't really buy the idea of the battery swap mode. Even though they recognized it, but it's not their focus. And through the development and experience of the past decade, over the past decade, since 2020, they finally recognized that the rechargeable EV may not be the ideal or optimal way of promoting the EV in the market. That's why they start to recognize and promote the battery swap mode.

At that time, the 4 major state-owned councils, the commissions and the ministries, they all released their pronouncement to support the battery swap mode. And since it's been in the rechargeable EV market for the last decade, it does take time for them to change. And besides, the current market is not quite healthy yet. You may see many companies, they try to compete the occupancy of the market share, they spend a lot of money and even though they sell all the products with the negative margin. To us, that doesn't make sense. In order to protect our investors, we have to spend wisely. We cannot just go in and compete like there's no tomorrow.

So we are waiting for the development to become more healthy and more orderly. We think it will be soon. So once that healthy market becomes more obvious, more viable, we will then go in and compete with others. So that's our plan in the market development.

Okay. Well, I can't argue with that. I think it's wise. But again, it's just amazing to see the stock trading at a $50 million, $60 million under cash in the bank with hardly any debt. And -- I mean, at least at the rate you're going, it will take a couple of hundred years or something to use up the cash you have in the bank if you keep having losses of only $600,000 with all the cash. It's just frustrating. But a great, great quarter and we're looking forward to a great year.

(Operator Instructions)

(foreign language)

(foreign language)

(foreign language)

Operator, if we have more in queue, please go ahead.

Our next question is from [Fred Bracher with Cleantech Equities.]

Congratulations on a great quarter. Considering everything happening in China, this is just fantastic. Several years ago, with the stock trading at well over double the current price, the company contracted with an IR firm called Blueshirt Group.

Aside from the fact that the stock is now trading at a 5-year low, while top and bottom line have improved considerably and Kandi is trading at a huge discount to both book value and even cash, they seem to be on the payroll. Why is that? Blueshirt puts out a monthly market letter of highlighted stocks. Kandi is nowhere to be seen. You would think Blueshirt would be able to get the attention at least of 1 or 2 legitimate analysts to look at Kandi with such an undervalued profile. This is especially true with this current quarter. What is management -- how does management plan to get this message out?

(foreign language)

(foreign language)

[Interpreted] I guess our main target or main role is always trying to do a good job in our business operation and strengthen our fundamentals. As for the stock price, it's true that the overall trend in the market right now is not very good for the Chinese stocks, although we believe that the share price for the -- for our company is undervalued. We believe that as long as we're doing our best and we are continuing doing good business and the performance in the financial statements, the share price of our company will naturally rise and get back to a more reasonable price.

Regarding the IR firm, The Blueshirt, we have been working with them for a few years. Indeed, they have a pretty good reputation in the U.S. capital market, and I think they are one of the best out there. They are working with some other leading companies in our industry as well, such as like Lucid or Arrival or [Too Simple]. So the expertise and connections in the market is pretty good, we believe. And we are overall satisfied, of course, with the cooperation in the past few years. They give us advice. They give us all the opinion. However, the final decision maker is always the management of the company.

Apart from the opinion from the IR firm, we also take into consideration the advice from -- or opinion from the lawyers, from auditors and from relevant departments and then the operation team. So as you may know, we're doing our best and we're trying to work the best for the company, for the investors. So hopefully, in the foreseeable future, our share price will get back to the reasonable level.

Our next question is from [Frank Blatterman,] private investor.

Can you hear me okay?

Yes.

Okay. My first question was already answered. I have one question. A while back, you had mentioned about the K23 and K27 coming into the U.S, and then that was halted because of an airbag problem. So my question is, do you have an expected time frame for the full speed K23 and K27 to be released to America with the airbag problem resolved to the satisfaction of U.S. regulators?

Okay. (foreign language)

(foreign language)

[Interpreted] Yes. So at the moment, our airbag safety requirement standard has still not met the requirement from the DOT from U.S. yet. We think that the requirement standard is way too high. There's another Chinese company having over 180 numbers of tests and still not passed. So at the moment, we cannot tell the exact time line that we can meet with the latest requirement.

However, in order to strip out a strategy and the market approach, we did adjust our models of K23 and K27 to a NEV, the neighborhood EV models, and the sales is doing okay at the moment. So that's the update about K27.

I understand about the NEV, but I'm really surprised that the regulations are so difficult for Kandi because other companies appear to be selling into the United States satisfactorily. They have met the regulations. It seems to me, if you bought a Chevrolet car, you could reverse engineer the airbag description and mechanism. But Okay. Would you like to comment on that?

(foreign language)

(foreign language)

[Interpreted] Well, the major reason we cannot meet the standard is not really just for Kandi, but for overall the EV makers from the PRC market. As you may know, the requirements and the standard of the airbag safety is different between U.S. and China and also the European countries. They have more requirements of the airbag based on the size or the weight of the driver and the passengers.

So at the moment, we don't believe that any one of the manufacturers for the EVs and then the gasoline vehicle manufactured in China is being sold in U.S. yet.

Our next question is from [Francis Ford], private investor.

About 2 years ago, the company spent about $40 million or more for a -- on a design contract for a new EV model. And I wondered if Hengrun will be assembling that model? Or if there are some other plans for that expenditure?

(foreign language)

(foreign language) Alan? (foreign language) Kewa?

[Interpreted] Mr. Hu is saying that any car that will be sold in the China market will be sold through Henghe.

Okay. And will this model be sold in the China market?

(foreign language)

(foreign language)

[Interpreted] Yes. Yes, it will be.

Any time frame on that?

(foreign language)

(foreign language)

[Interpreted] Like I mentioned earlier on the call, in China right now it's a game about -- game of losing money in order to achieve certain sales volume in the market, and we are definitely not in that kind of game and we just don't have that kind of money to compete with these peers. But however, we're not out of the game. We are still going to try test the water to start with a small volume of EV product in China. So I don't have exact time frame of when. But however, this is our plan. And you are not going to see a large volume of the EV or EV models we're going to launch.

Okay. And what is the status of that very important strategic cooperation agreement between Kandi and the Zhejiang State Grid EV Service Company? It was PR-ed in 2020, and Mr. Hu emphasized how important this agreement is to the future of Kandi and QBX. So what's the status of that now, please?

I guess let me -- so you say, in 2020, a strategic partnership with Zhejiang...

Yes, I'm asking what's the status of the strategic cooperation agreement between Kandi and State Grid.

Oh, State Grid. Okay. (foreign language)

(foreign language)

[Interpreted] The scope of the work for this strategic agreement is to realize the battery exchange. However, it hasn't been launched in a great deal of volumes yet because, like I mentioned earlier, the market is right now not ready for us. But however, we have had some trial projects going on in Shaanxi. But going forward, I believe when the market condition is stable and State Grid will be the one who playing the key role in this project to make great investment into this to promote the battery exchange, because that will be the way to go for EV.

Great. I'm glad to hear that it's still alive at least.

Yes.

And last quick question. When the F-4 is approved at some point in the future, does the company plan to call a special meeting for shareholders to vote on the reincorporation in BVI?

Okay. (foreign language)

(foreign language)

[Interpreted] We are still right now in the process of going through the F-4. It's not being approved yet. But once it's been approved, of course, you have to go through the shareholder meeting to -- in order to get approved there's a vote to execute.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Kewa for closing comments.

Thank you again for attending today's conference call. If you have any more questions, please feel free to contact us via the e-mail ir@kandigroup.com, or you can also contact our IR consultant, Blueshirt. We look forward to updating you on our next earnings call in August. This will conclude our call for today. You may now all disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]