Kandi Technologies Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Kandi Technologies Third Quarter 2023 Financial Results Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kiwa Luo.

Operator

Kiwa, you may begin.

Speaker 1

Thank you. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the Q3 2023. 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 newswire services.

Speaker 1

On the call with me today are Mr. Xiaoming Hu, Chairman of the Board Doctor. Xue Qingdong, Chief Executive Officer and Ms. Allen Lin, Chief Financial Officer. Doctor.

Speaker 1

Dong will deliver prepared remarks in Chinese, which I will note that today's discussion will contain forward looking statements made under the safe harbor provisions 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.

Speaker 1

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.

Speaker 1

With that, let me now turn the call over to our CEO, Doctor. Xueqing Dong. Go ahead, Doctor. Dong. Hello, everyone.

Speaker 1

Welcome to our conference call today. I will begin to discussing some of the highlights in the Q3 in the wake of our successful transformation from a loss to a profit in the first half of twenty twenty three, our continued profitability this quarter underscores the positive outcomes we have gained from our product transformation initiative. These profitable operations serve as a testament to the strategic adjustments we have made in recent years, which have paved the way for our success in the fully electric off road vehicle market. Through the collective efforts of all employees, our company achieved a cumulative net income of approximately US6.3 million dollars during the 1st 3 quarters with diluted earnings per share of US0.08 dollars This marks a significant improvement compared to the net loss of approximately US2.4 million dollars or diluted loss per share of US0.03 dollars for the same period in 2022. Our subsidiary FC Autosports finished the acquisition of the Northern Group.

Speaker 1

This further enhanced our sales pipeline by leveraging their extensive sales expertise and distribution channel. This strategic move enabled us to further solidify our position in the market as demonstrated by our recently announced partnership with Rural King, a giant in the American farming and home retail industry. They are helping us expand by working with more stores, delivering our products to a broader customer base. In addition, we recently displayed our new fully electric off road vehicles at the Midstates Rental Route, a trade show that facilitates vendors' access to a large and influential network of independent farm, ranch and home retailers. We received positive feedback and further enhanced our presence across various distribution channels.

Speaker 1

Moreover, to foster SC Autosports marketing capabilities, in the Q3, we purchased a 75,000 square foot shipping center in Texas, which is now operating. This move will significantly boost our marketing capabilities in the United States. As we look forward to 2024, our primary focus remains to expand our presence in the North American market. With Kandi's commitment to innovation and quality, we are positioned to meet the increasing demand for fully electric off road vehicles, unlocking substantial growth potential and capitalizing on opportunities. Additionally, we are committed to entering global markets and are confident that our production and sales in 2024 will experience substantial growth compared to the current year.

Speaker 1

Now we will move on to the Q and A session. Chairman Hu Xiaoming and I will answer your questions and Ms. Qi Hua and Mr. Allen Lin will provide translation for English questions. Please go ahead and ask your questions.

Speaker 1

Operator, please go ahead.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Michael Pfeiffer from Oppenheimer and Company. Michael, please proceed.

Speaker 2

Hi. Thanks for taking my question. A lot of Wall Street pundits have been warning U. S. Investors away from China stocks as well as electric automakers, likely the cause of Kandi's poor stock action these last few months in spite of consecutive impressive jumps in quarterly performance.

Speaker 2

In reality, from a purely operational cash management view, management looks brilliant in both selling its legacy Jinhua facility for $60,000,000 cash profit, plus a government subsidy to build a new replacing facility and selling its China based EV auto JV Fangsheng interest to former partner Geely for an additional 40 plus 1,000,000 profit, both just as the COVID epidemic began slowing China's economy. The JV sale to Geely looks particularly smart since Fangsheng has not shown up in the China media for years and seems to now have been terminated. Maybe just translate them to get to my questions.

Speaker 1

Okay. Thank you. Go ahead.

Speaker 2

Okay. Thanks. My question to management is to confirm or reject a theory that should clearly set Kandi apart from both the EV and China investor concerns mentioned before. The theory is Kandi with its new direction away from EV autos back to its decades ago export legacy off road business is in the best of both worlds, particularly since it no longer does have to rely on the internal sales in China. Kandi is a conglomerate manufacturing in house 90% of all parts for its electric fleet, including chassis, body parts, motors, lithium batteries and BMS.

Speaker 2

In China, where the economy and employment has slowed along with multiyear lows on commodities like copper, on rare earth minerals, then ships the vehicles on containers also at multiyear low prices to the U. S. Where the economy is much better. And there is a significant demand for low cost electric transportation. Is no wonder Candy CEO has predicted gross margins in the 38% area.

Speaker 2

If you could just translate that then to small more things. Does management agree with the stated observation? Is Kandi aggressively attempting to expand its global exposure? And if so, which markets do you expect to add over the next 12 months?

Speaker 1

Is that all your questions?

Speaker 2

I have one more after that, but I'd like to hear his answer to that.

Speaker 1

Okay.

Speaker 3

So thanks for your question. First of all, there are distributors in Chinese countries that are now test selling our products. The company estimates that within the next 12 months, there will be more supermarkets that are going to selling our products in the United States. And we expect there will be also be certain new sales in Europe and other regions. Thank you.

Speaker 2

And out of existing facilities, what would be the capacity for the bigger ticket items like golf carts, UTV, ATV, etcetera, using multiple shifts? Any big surprises over the next few months? And if so, what? Thank you.

Speaker 3

So we guided our production capacity as long as there's a market demand, our production capacity can meet the needs. And then the company estimate there will be certainly some surprises in the coming months. So please pay attention to the information we're going to release. Thank you.

Speaker 2

Thanks.

Speaker 1

Thank you.

Operator

Our next question comes from Joel Kramer, who is a private investor. Joel, please proceed. I apologize. The next question is from Mark Cano. Mark, please proceed.

Speaker 4

Yes. Hi. Good morning or good evening wherever you are in the world. While the last company conference call alluded to global expansion, we have seen no press release or 8 ks confirming our rollout has begun. Case in point, thought it appears it has.

Speaker 4

Over the past months, a deep dive in the Internet came up with some interesting findings. First, the discovery of a major United Kingdom dealer, Easy Shire UTV, began selling the Kandi E10 Boy under their brand name, Shire Max E UTV 4 wheel drive. However, Shire is selling their models for twice as much as in the U. S. For $28,303 including VAT.

Speaker 4

Then soon followed by distributor Fairway EV Limited that stays there, our U. K. Leading importer of high quality electric vehicles, serving the whole of the U. K, Republic and Ireland and Portugal. They also offer the Kandi brand side by side Calgary E10.

Speaker 4

And shortly thereafter, another discovery of a distributor in Austria, WAT Handelsgember that claims as of the 10th no, not 20th October 'twenty three has a large stock available of Kandi Cowboy E10 at €19,900 That's about USD 21,300 plus VAT. Kiwa, if you can first translate this and then I come to my questions.

Speaker 1

Thank you. Please go ahead with your question.

Speaker 4

Here are my questions. First, in the U. S, it appears the feature packed candy cowboys side by side is being retailed at $13,999 and incredibly cheap compared with the Polaris Kinetic Premium at $29,900 So only a 10% larger lithium battery with a higher speed but less range. Most addition specs about the same. Is Kandi using the cowboy at this very low price as a door opener to dealers for subsequent Kandi off road product?

Speaker 4

As in the case of the European dealers, they must have added a huge margin built in their final price. And second, is the company planning on ever announcing the opening of a new international location in the future to shareholders, which Kandi's website will carry in these global locations? And third question is, how is Kandi handling the international expansion? And does it have growth projections and possible countries for this sector over the next year? And the 4th and last question, lastly,

Speaker 1

since you're selling the cowboy soaps

Speaker 4

Yes. Okay. Then go ahead with the first

Speaker 1

Yes. I'm sorry. Can you slow down? Can you just start your first question? Let's do 1 by 1.

Speaker 4

Okay. We go 1 by 1 then. Yes, please. Just give me

Speaker 1

your first question. Yes.

Speaker 5

In the U.

Speaker 4

S, it appears the future packed candy cowbell side by side is being retailed at 13,999 dollars an incredible cheap price compared to the Polaris Kinetic Premium at $29,900 so only 10% larger lithium battery with the higher speed but less range. Most addition specs about the same. Is Candy using the cowboy at a very low price as a door opener to dealers for subsequent Candy Aqua products? As it is in case of the European dealers, they must have added a huge margin built in their financial price.

Speaker 3

So as per your questions, first of all, the models we're selling in U. S. And the models we're selling in Europe, they are the same. Then the reason why the price in U. S.

Speaker 3

Is rather lower because right now U. S. Market is our main focus. We try to tackle the more the market occupancy. That's why we try to lower the price.

Speaker 3

Plus, we are selling through our U. S. Subsidiary, SC Autosports, that have less layers of the channel distributors. And of course, the price will be considerably less. In Europe because there are certain markup by our distributors in Europe, that's why the price is higher.

Speaker 3

Hope that can resolve your question.

Speaker 4

Yes. Thank you for that. And then the second question. Is the company planning on ever announcing the opening of new international locations in the future to shareholders? Because right of now, we only know these kind of things happening because we search the Internet.

Speaker 4

And that's not so shareholder friendly. But which and if they do, which candy website will carry these global locations there?

Speaker 3

Currently, we are trying to promote our pure electric off road vehicles around the world, but it's still in a rather early stage at the moment. Those dealers you mentioned above have only purchased certain of our vehicle prototypes and they are in the test selling stage. So please stay tuned. We'll definitely keep the market and the shareholders posted with further update.

Speaker 4

Okay. And then my last question is, since you are selling the carboy so cheap and it appears to be perfect for independent dealers, it can be going to hold back the carboy from Loews, Walmart and Amazon and use as a bait to expand its independent dealer's network?

Speaker 3

So in the U. S. Market, we are selling our products through the different type of distributors on different channels. And of course, through the supermarket laws, we are discussing with certain other new supermarkets at the moment. But then the price will be consistent all over different channels and in a considerable and appropriate reasonable level.

Speaker 3

Thank you.

Speaker 4

Thank you for taking my questions.

Operator

Our next question comes from Joel Kramer, a Private Investor. Joel, please proceed.

Speaker 5

Yes, thank you. It seems to me that the most bullish press release is the recent announcement of the purchase of a new 75,000 square foot distribution facility in Dallas suburb Garland. Adding to its 2021 purchase of its first 50,000 square foot facility just a few miles away in Dallas. If correct, the initial facility though having 50,000 square feet is also being used as its headquarters, sales, marketing, support and showroom. I would assume that would only have left maybe 30,000 square feet for assembly and distribution.

Speaker 5

Yet this year, we should see some 20,000 or more units assembled and distributed from the original 30,000 square feet. Should I continue, Kiwa?

Speaker 1

Let me translate first. Please go ahead.

Speaker 5

Thank you. The additional 75,000 square feet for pure distribution and assembly could theoretically increase capacity by 150% or to some 50,000 units. And in the same press release, the CEO of Kandi North America also said, we now intend to drive growth through geographic penetration across the U. S. Additional distribution centers will be key to falling demand in a timely and costly effective manner.

Speaker 5

So my questions are: 1, am I interpreting the content of that recent press release along the line of management's thoughts? And if so, is it safe to assume if this capacity is reached over the next 2 years, revenues approaching $500,000,000 could be feasible?

Speaker 1

Okay. Let me translate so far. Okay.

Speaker 3

So the purpose of purchasing a new warehouse in Gallant of Texas is to increase our sales capacity. With the better fundamental, our sales in the states will definitely increase in a more significant manner. Our goal of the sales target is estimated to be close to $500,000,000 within next 2 years. Thank you.

Speaker 5

Okay. On a prior conference call, the CEO anticipated the continuation of Kandi's 38 percent gross margin through year end. Does this still look to be realistic? And also, while it was just a small piece, Wall Street veteran growth investor, Louis Navalier included Kandi in a strong buy recommendation a couple of weeks ago and projected a compound annual growth rate, CAGR, for Kandi of 25% from now to the year 2030. Could he be correct?

Speaker 5

Thank you.

Speaker 1

Okay.

Speaker 3

So first of all, regarding our gross profit margin, actually in the Q2 of this year, the margin was 30 0.2%. And the average gross profit margin from January to September 9 months was 34.3%. So it depends on the development of market and conditions. It is estimated that the gross profit margin for the whole year 2023 will be above 30%. And then regarding the estimate from Louis, Neville, we believe that in certain years of the foreseeable futures, we can meet or even exceed 25%.

Speaker 3

But of course, it's hard to tell if we can meet such target year and yield. So we try our best to achieve definitely. Thank you.

Speaker 5

Thank you.

Operator

Our next question comes from Arthur Porcari from Corporate Strategies. Arthur, please proceed.

Speaker 6

Thank you. Glad to see this week that Kandi America announced the Rural King hardware store chain with 130 stores, 13 states calling it a milestone for Kandi in strategic expansion. However, when Kandi added to Lowe's Corp, Walmart and opened an Amazon store over this past year, though having already sold thousands of golf carts through these outlets, to date Kandi has yet to even publicly announce any of these relationships, let alone call those mega relationships a milestone. It is to understand it's hard to understand the logic behind Kandi's stealth growth business plan, hiding potentially 1,000,000 of dollars of effectively free additional publicity for Kandi's new products affecting dealers, consumers and shareholders. Keiko, go ahead and give them that right now.

Speaker 6

October, on a personal visit to Lowe's, I noticed some golf carts out front, not even knowing the Kandi was even making golf carts at that time. I took a closer look and to my surprise, I found the Kandi name and logo on the inspection plate. I posted this with pictures on the Kandi private chat. As most know, Lowe's is the nation's top retailer with 2,300 stores. I've been checking back with the product manager who tells me the candy golf carts have been hot sellers in his store.

Speaker 6

This past August, 1 week after the last conference call, another member of our chat board discovered the world's top retailer Walmart with 4,600 stores have just added candy golf carts to their online store with free delivery within 5 days. And curiously, both Lowe's and Walmart, at least for now, are offering candy golf carts exclusively. A few days later, another stealth release of Kandi Golf Carts, this time through Kandi opening its own store at Amazon, in each case, not only full line of golf carts, but also full offering of Kandi parts and accessories, but never a word from Kandi in the media about any of these 3. Go ahead with that right now. Okay.

Speaker 6

While it's no surprise to U. S. Consumers and independent dealers that most golf carts are made in China, what could be a surprise is that candy carts and other off road vehicles that they're offering. As I think somebody already said earlier today, Kandi is a conglomerate that makes virtually 90% of each golf cart. But on top of that, it's also on NASDAQ.

Speaker 6

And that to me is a big sales point. I doubt seriously if any of the other people out there that are making these golf carts and trying to compete with us and other similar type stuff have been on NASDAQ for 15 years. Anyway, obviously, neither Lowe's or Walmart are trying to keep Kandi's name on the quiet since each have numerous sponsored ads all over Google and other websites highlighting the Kandi brand along with their name. And by the way, most of them have 4 plus star ratings, which is a real compliment to the company. Okay, pass that on, then I'll give my questions.

Speaker 6

Okay. Here's my questions. Why has Kandi been hiding its special relationships with 3 of these top world's largest retailers? It would seem that something as simple as a Kandi public press release announcing affiliations and products will not only be greatly great publicity for Kandi and its stock price, but also drive new business from shareholders and others who see these news releases connecting to these retailers, giving even more comfort to prospective buyers knowing that China's e carts are from a long time NASDAQ listed company. This release of Rural King's Signal Candy will once again start putting out more press releases on these type of new location openings?

Speaker 3

So first of all, definitely we are not hiding anything, not at all. It does when we try to publish news, as you may know, we have to consider interest of other parties like our customers or our partners. Sometimes those parties may have their own concern, whether they feel comfortable or they have any other thoughts for us to release the names in the press release. And sometimes because if they don't want to do that, we would rather not publish than taking the chance or risk to do that. We definitely don't want to jeopardize our relationships with our customers and our partners.

Speaker 3

That is the reason why we gained trust from our partners. We would not try to gain our own interest at expense of other parties. And that's it we don't want to cause any inconvenience to the others. So moreover regarding the Walmart and Amazon, they actually are still in the rather early stage of selling our products, 6 months of the market testing, the product testing before they move on to the next step. The reason why we have not published those statements in the past, we try to maintain a rather conservative approach.

Speaker 3

We want to wait until everything is clear, is concrete before we make further news. So hope you understand our approach. Thank you.

Speaker 6

Yes, that does make sense. And curiously, watching the Walmart website, they started out with just 4 carts on it. Now as of about a week and a half, 2 weeks ago, now they have like all our products as far as golf carts. They have the 6 passenger on there. They've got the one with the dump trucks on there, plus they have a lot of our parts.

Speaker 6

So they went from effectively 4 locations, which you can click on to now it's more up around 30 ish. So I guess that's a good sign that they feel like we're moving along pretty well. But anyway, let me get on to my next question here then. Let's see. Just 2 years ago, not much was happening.

Speaker 6

Kandi was putting out as many as 45 press releases a year. Since that time, it appears that Kandi, the parent company, is no longer putting out much in a way of PRs other than financial releases. Instead, now what PRs we are getting seem to be generated by Kandi America. But there seems to be some confusion in here. Both companies are using different PR reps and wire services.

Speaker 6

So many investors using Kandi used Kandi are used to seeing on the global business wire press releases, where Kandi America uses the business wire. So they don't necessarily show up in the same services. Considering Kandi, the parent has both a VP of Investor Relations and in my opinion, a worthless international PR firm, Blue Shirt Group, why is Kandi now putting out less news now that it's growing exponentially?

Speaker 3

In the past 2, we have adhered to the approach of few words, many deep. Ongoing, we will plan to refine fine tune our related capacity method and make certain adjustments based on your suggestions. So thank you for your opinions.

Speaker 6

Okay. Just a couple of last here. I am intrigued by your comment. I think it was your comment earlier for us to stand by for a big announcement. I guess you wouldn't want to share any more on that for now.

Speaker 6

So let me just go on to my last question, which I'd like to direct to Mr. Hu. Over the past few years, Kandi has brought back some 3,500,000 shares in open market purchases. With its record growth spurt underway, cash of $245,000,000 which seems to be going up every quarter or about $3 a share in cash, profitable, stock trading at $2 under book value and below working capital. Is management prepared to at least take a look at reinstituting possible share buybacks?

Speaker 3

We are considering this issue and we will take action in appropriate time line. Thank you.

Speaker 6

Very good. Thank you very much and really looking forward to that $500,000,000 over the next 2 years. Thank you. Good job.

Speaker 1

Hi, operator, do we have any additional questions?

Operator

It does not look like we have any other questions. So this will conclude our question and answer session. I would like to turn the floor back over to Mikaeluo for closing comments.

Speaker 1

Thank you. Thank you again for attending today's conference call. If you have any more questions, you may contact us via email at irkandigroup.com. We look forward to updating you on our next earnings call. This concludes our call for today.

Speaker 1

You may now disconnect.

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