Kandi Technologies Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 7 speakers on the call.

Operator

Good morning, and welcome to the Kandi Technologies First Quarter 2023 Financial Results Conference Call. All participants will be in the listen only Please note that this event is being recorded. I would now like to turn the conference over to Kiwa Luo, IR Director. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone. Thank you for joining us on today's conference call to discuss Kandi's results for the Q1 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. Xueqing Dong, Chief Executive Officer and Mr. Alan Lin, Chief Financial Officer. Doctor.

Speaker 1

Song will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q and A session. Before we continue, please 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.

Speaker 1

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 call are in the U.

Speaker 1

S. Dollars. With that, let me now turn the call over to our CEO, Qiuqing Dong. Go ahead, Doctor. Dong.

Speaker 1

Hello, everyone. I'm the CEO of Kandi Technologies. My name is Dong, Xu Qingdong. Welcome to today's conference call. Our first quarter revenue of $22,900,000 was down slightly from 1 year ago due to the strategic shift in business focus.

Speaker 1

Over 90% of the revenue was attributed to steadily increasing sales of our off road vehicles and associated parts, which nearly doubled year over year. The higher margins of off road vehicles boosted overall gross margin. Thanks to the strong growth prospects, we achieved positive net income for the quarter, a significant improvement from the loss experienced last year. Incorporating fully electric off road vehicles into our product line not only aligns with our values of environmental sustainability and social responsibility, but also positions us as a leader in the industry. We are confident that our focus on this market will benefit us in the future.

Speaker 1

Our strong balance sheet and financial position put us in a unique position to capitalize on opportunities in this market, and we are excited about the potential for growth. Looking ahead, we are committed to delivering innovative and sustainable solutions to meet the evolving needs of our customers and the market. Now we will move on to the Q and A session. Tianmen Hu and I will answer your questions and Ms. Qi Wei and Mr.

Speaker 1

Allen will provide translation for English questions. Please go ahead and ask your questions. If you have any questions and asking questions, feel free to ask the operator.

Operator

Thank you. We will now begin the question and answer session. Our first question is from the line of Mark McLaughlin, Private Investor. Please go ahead.

Speaker 2

Hi, good morning. I'm Mark McLaughlin. I run a family office in Jacksonville, Florida. A little bit of background. First, thank you, Mr.

Speaker 2

Hu for finally offering at least a partial unit guidance for 2023, unit guidance covering golf carts alone of 20,000 to 25,000 units. While not reported in the preferred press release or announcement, you are at least on record saying that the year end on the year end 2022 conference call to quote Mr. Hu, quote, So for the fiscal 2023, we expect the sales during this year roughly to be 20,000 to 25,000 pieces of golf carts to be sold in the U. S. Market because we have more in-depth discussions and cooperation with Lowe's directly.

Speaker 2

Great statement. However, it does beg the question, why haven't we seen this in news or press release? So again, to unpack your quote, 20,000 to 25,000 units would mean a quadrupling of 20 22's golf cart sales, which generated revenues of between which would generate revenues between $125,000,000 $150,000,000 And reviewing Kandi's data on ImportKey software for Q1, it appears you've already shipped 6,500 units in Q1. And this is at the high end of your forecast according to your earlier disclosure. So question, do you have a further guidance update for Q2 and for the balance of the year?

Speaker 2

I have a few other questions as well, but if you would answer that.

Speaker 1

Okay. Thank you.

Speaker 3

So thank you for your question. So our estimated sales for Q2 roughly around 6,000 piece of the golf cart. And for the half year twenty twenty three, we expect there will be a sales of roughly 10,000 pieces of the golf cart.

Speaker 2

How many pieces were sold in Q1 according to your press release today?

Speaker 3

So for the Q1 of this 2023, roughly around 3,000 pieces of the golf cart was sold.

Speaker 2

Another key point that deserves a press release was that Kandi was able to close on a new contract directly with Lowe's and to bypass the middleman Coleman. Few questions. Looking at Lowe's website for a search of Kandi products, some 16 items show up under golf carts in the Kandi brand, which seem to be the 2 seat utility golf cart with dump bed and winch and the 6 passenger golf carts, which by the way are showing available at Lowe's with both the AGM lead acid for $12,999 and the lithium batteries for $1,000 more. The more conventional 4 passenger Kandi carts still show up under Coleman on the low sites with the AGM lead acid batteries. Question, did management give more detail as to how Kandi was able to secure this deal direct and where does this leave Kandi's relationship with Coleman and what is the likelihood Lowe's will pick up new Kandi products other than golf carts?

Speaker 1

Thank you for your question.

Speaker 3

So as for your concerning questions at present, under the brand of common, there's only one golf cart available in the market, which is a 4 seat less as it battery models. As for the consideration, primarily is the price and the gross profit. However, to those, they hope to become a leader and occupy more market in the field of the outdoor recreational electric vehicles. So Lowe's hopes that we, Kandi, can provide more diversified products to help them to achieve this goal. And because of the highly diversification of our products, we can customize the products for our customer common according to their need and yet there's no conflict for us to supply our products to the loads.

Speaker 3

So in this year, it's likely that you will see more Kandi products at Lowe's market.

Speaker 2

Thank you for your answer. To that end, the Kandy America website added a new $13,999 heavy duty utility vehicle under the EV link called the Cowboy E10 ks, the Husky lithium powered vehicle. It's perfect for the offer a perfect offering for the Lowe's demographic, but nothing's been mentioned yet. Do you anticipate Lowe's picking up this Cowboy line as well? And why aren't we telling the world how great we are?

Speaker 3

So Loews is well aware of our new product development. So yes, they know about our new model, the Cowboy E10 ks. And I believe that low this model considering this product. In the meantime, we have the plans to promote this product to other retail and chain stores to increase our sales channels.

Speaker 2

And what about more visibility from the company in terms of putting out press releases, introducing all this great news to the investing public, which I'm sure would be exceedingly interested in this great company.

Speaker 3

So based on our development and our operations, we will release the news in timely manner.

Speaker 2

But we haven't released anything about Lowe's and the development of selling to them directly, correct? And will we soon, so people can realize this development?

Speaker 3

So actually, at the moment, we are in the early stage of the cooperation with Loews. It's not like we're not going to disclose the news. However, we'd like to consolidate and get our fundamental done and wait until the corporations becomes a more massive volume, then we'll disclose accordingly. Our strategy is always getting to done first, then we release the news accordingly when it's fruitful and becomes more mature.

Speaker 2

I appreciate that answer. In any meal, there's always an appetizer. And to that end, perhaps you could put something out there relatively soon. Very good. Now when we go back to your numbers, the unit guidance for 2023 as given on the year end 2022 conference call, the unit guidance for golf carts alone was 20,000 to 25,000 pieces.

Speaker 2

And is that for golf carts alone via lows, I take it? What about all vehicle units from the K32 to golf carts to the Cowboy? What is the total unit projection?

Speaker 3

So yes, first of all for your questions, the estimate of sales, 20,000 to 25,000 pieces of sales only indicate for the model, the golf carts. It doesn't include any other UTVs such as the K32 or the E10. In the meantime, we try to expand our sales channels to consolidate our resources, hopefully we can have a better sales of this year.

Speaker 2

And how soon does Kandi expect to get the K32 pickup truck approved for sale under the farm truck rules as mentioned on the last conference call?

Speaker 3

So actually we have all the approval necessary for the sales of the launch of K-seventy two in the U. S. Market. We estimate there will be roughly 200 pieces of the K32 in this year, but then it's ready to be launched in the U. S.

Speaker 3

Market.

Speaker 2

That's very good news. I have to commend financially commend you your management skills. I'm looking at a huge jump in gross margins from $19,800,000 in 2021 to on $30,000,000 in sales to $22,600,000 in 2022 on $71,000,000 in sales, a bigger number this year and a bigger gross margin. That's spectacular when one considers a big inflationary jump in the supply chain, shipping and transportation. Most important question, when you add up these other product offerings in addition to the golf carts and things look like they're really going to ramp up here, a low end, what would you expect this year's approximate revenues, gross profits and margins to be on a low end, all in, all the product offerings?

Speaker 3

Thank you. So due to our gradual advancements of our strategic adjustments, right, we believe that the revenue of this year definitely increased significantly. And then the gross margin will release roughly around the same level of the Q1 of this year.

Speaker 2

Well, I really appreciate your patience and I have a great deal of respect for your skills, your management and I congratulate you.

Speaker 1

Thank you. Thank you for your time.

Speaker 2

I have no other questions.

Speaker 1

Thank you. Operator, next.

Operator

Thank you. Our next question is from the line of Khan Now, Private Investor. Please go ahead. Mr. Khan, your line has been unmuted.

Operator

Please go ahead with your question. Mr. Khan, now your line has been unmuted. You can go ahead with your question. As there is no response from the participants line, may I request the management that we move to the next question?

Operator

Sorry. Our next question is from the line of Mike Pfeffer from Oppenheimer. Please go ahead.

Speaker 4

Good morning. Thanks for taking my question, which has to do with Kandi's new emerging lithium battery business. From the 10 ks, it seems that this is another hot sector for Kandi. The company reported battery sales in 2021 of only $4,500,000 with a 10.8% margin. This impressively jumped 5 fold to $24,000,000 in 20 22.

Speaker 4

However, the gross margin went down to 4.6%. From what I can get out of the 10 ks, it appears that almost all of last year's battery sales were sold to 3rd parties, which in the current competitive environment and lithium vehicle batteries in China squeezes the margins. However, this year as can be seen by Lowe's now offering a lithium battery option for Kandi golf carts in the U. S, one would think Kandi's margins would increase significantly as would likely be reflected in total battery sales. If you could just pass that on and I'll ask 3 brief questions, please.

Speaker 1

Thank you.

Speaker 4

Thank you. Am I correct in my assumption that last year's battery sales went to 3rd parties?

Speaker 3

So for past year 2022, it's true that primarily of lithium ion sales was slowed to the 3rd party customers. We cannot strip our strategy for this year. We're going to have more demand from our own intercompany sales. So of course, in this case, it will not be reflected on the consolidated sales on the financial statement. So it will show a less or decrease of the sales in the lithium ion sales sector because there is more demand from our own in the company transaction.

Speaker 4

Thank you. And so is Kandi batteries only lithium? And is it the goal to have all the company's vehicles powered by its own lithium batteries?

Speaker 3

Yes. So basically, we're going to develop clear directions of adopting the lithium ion cells.

Speaker 4

And then could you give us a forward look at what the company is expecting from the battery division this quarter and full year? And that's all for me. Thank you.

Speaker 3

And during the past year due to the surge of the raw material price of those iron and then other sales materials in our China market, it caused all the uncertainty in the market. Of course, it hurts the demand and then ourselves. From the Q4 of last year until April of this year, our battery sector was in a state of net loss. At present, the domestic market, the Chinese market of the raw material price of the batteries was in a decreasing trend. So hopefully, it will have a positive impact to the market and then hopefully, our sales will be improved.

Speaker 3

Thank you.

Speaker 1

Thank you.

Operator

Our next question is from the line of Walter Hill from Cottey and Co. Please go ahead.

Speaker 5

Thank you. My question comes under 2 topics. The first has to do with the opening comment Mr. Hu made on a prior conference call. Specifically, he said, we will constantly launch new products in electric vehicle business to gain share and create more value for our shareholders.

Speaker 5

I have questions in 2 related topics. First, while there was no company PR as previously mentioned on the new hefty off road vehicle, the Kandi Cowboy E10 selling for 13,900, which recently appeared on the Kandi website with no publicity available to shareholders. Are there any other major surprises like the cowboy on the near horizon?

Speaker 1

Okay. Thank you.

Speaker 3

So our new model, the E10 JV TV is a pure electric model that was developed to tackle 500cc field UTV market. We have started to have mass production of this model since April this year. Then you will be sold through the retail store of the loads and other dealer channels. So whether there will be a major surprise like what we have for the cost, it depends on the market direction. We do believe that this model will be a very competitive model in the market.

Speaker 5

My second topic is regarding to the haiku Henan 100,000 capacity EV manufacturing facility designed and built by Kandi a few years ago. At that time, it appeared Kandi was going to produce most of its own fleet of EVs. Questions on the topic are, A, what vehicles and or parts specifically are being manufactured or assembled in this facility? B, how many units of various vehicles were built in this facility in 2022? And what are your expectations in units do you expect to be built this year?

Speaker 5

C, does Kandi also make its chassis and body parts in this facility? Or is it just a vehicle assembly? And do you attribute these this facility's close proximity to only a mile or 2 from the export shipping port of Haiku as being a major reason Kandi was able to have such a great year in China in 2022, while 90% of the China manufacturers have a bad or terrible year due to supply chain and transportation problems.

Speaker 3

So as for your first question, so basically, the company's electric vehicles, including the electric vehicle components and then the off highway vehicles like the low speed vehicles, the pure electric facility vehicles, those, the golf carts, the ATV, UTVs as well as the components of our electric vehicle K23 are all produced and manufactured in high end facilities. So as for the second question, during the 2022, our high NAND plant mainly produced the golf cart with more than 10,000 of pieces. So, moreover, certain parts of the K23 electric vehicle package and then the K30 products have also been manufactured during last year. This year, we expected that the production for the golf cart product will be roughly 200,000 to 25,000 pieces. And then there will be also 200 pieces for the Case 32 UDVs.

Speaker 3

As for the Case 23 UV package, we expect there will be small amount to the manufacturer as well. So our high NAND plant, the facility actually is a comprehensive production site that includes all 4 major processes of the car manufacturing, including the stamping, the welding, the painting and then the final assembly of the vehicle's components. Yes. And as for your last question, that export shipping port in Haikou is close to a facility. That's not the major reason that we are able to have a great year during 20 22.

Speaker 3

Indeed, the capacity of the export in high coal is relatively small. It doesn't meet our full unit. During the past year, 2022, roughly 50% of our products were shipped from the Shenzhen port. So hopefully that can address your questions.

Speaker 5

Thank you. Yes, that answers my question. Thank you.

Speaker 3

Thank you.

Operator

Thank you. Our next question is from the line of Arthur Porphyry with Corporate Strategies. Please go ahead.

Speaker 6

Good morning, all. Sorry, I've got a sore throat over here, so I'll do the best I can here. I want to end with some questions on reported Q1 numbers, which we just saw. But first, I want to make a few points to management. For years, Kandi's investors have suffered in the stock market.

Speaker 6

I know this sounds like a broken record, but it requires repeating again, not because of business failure, quite the contrary, as the uncandescent NASDAQ EV first mover a dozen years ago in the global EV sector, Kandi survived against all odds where there is a 90% likelihood any undercapitalized first mover will fail or be bought out. However, Kandi not only survived these 14 years, but finds itself today in some parallel universe where this debt free company stock is trading around $3 about $1 off its all time low and 85% below its 22 $50 all time high, which was I think 2014. It's also trading at discount to 3.2 cash. Just a second here. It's also trading at discount to $3.21 cash, a 45% discount to the 5.25 percent book value.

Speaker 6

And all this at a time when Kandi is now rapidly growing with its eGolf cart business at Lowe's and others as well. While 90% of tech stops, particularly in the EV sector are seeing a significant business in stock deploying. Clearly, this has to change. I'll pass that part on to Mr. Hu, please or whoever.

Speaker 6

Okay. Well, as we know, Kandi has never had used an actual full service sell side brokerage or invested banking firm to raise any money. But in turn, that just means Kandi has no accredited analysts to apply and give comfort to funds. So they avoid the stocks. What is the company going to do if anything to try to attract all 3 analysts?

Speaker 6

Not putting out press releases is not the solution.

Speaker 3

That's question 1.

Speaker 1

What's your question?

Speaker 3

That was the question. What is the

Speaker 6

company doing if anything to attract Wall Street outlets?

Speaker 3

First of all, thank you very much for your concern and support for our company. Of course, we appreciate your suggestions. In recent years, due to the disorderly competition in our Chinese the China electric vehicle market, right, we have been forced to make some very difficult strategic adjustments in order to survive. Well, in the end, I think the capital market, we need data to support, right? We always adopt the model of the few words, many deep.

Speaker 3

So our goal is always to enhance our fundamental in case ourselves. So you can tell that from this quarter finally we can turn our net deficit, the net income to net loss to net income in this current quarter. So hopefully with our stronger fundamentals, better performance in terms of the management and then our revenues, this kind of data can be recognized by the market and also by the analysts. So then they'll come back to us and our company. So yes, basically, our goal is to open that momentum stronger and better.

Speaker 6

Okay. Lack of breaking news types of press releases. We've only had 2 in the past 12 months. Can't use to do 30 or 40 of these when they were doing stuff in just China. Now, we've added just in the last few months, we've Caddy has added 3 new $10,000 to $15,000 vehicles.

Speaker 6

No press releases on any of these 3, just since the last conference call. By the way, that's how many we've added. So I asked Kayla why none of these U. S. Based vehicles were being press released, her response was along the lines of the responsibility to announce these products go through Kandy America, not Kandy the parent company.

Speaker 6

It has its own Candy America referred to has its own PR company. While this sounds totally ridiculous, if true, this policy has got to change. Putting PRs out in the U. S. When more than 75% of your product sales are big ticket items in the U.

Speaker 6

S. Should even further increase product sales. Think of where Tesla stock would be if they ignored sharing new products and updates through news releases with its shareholders. They wouldn't exist. They don't advertise.

Speaker 6

They don't have dealerships. Anyway, pass that on, please.

Speaker 3

Thanks again for your concern and advice. Again, usually we take the strategy and the model of few words and many deep in terms of our operations and then our promotions. But then we definitely will take your advice and consideration in our upcoming IO plan. And yes, we try to fine tune it accordingly. That's our plan too.

Speaker 3

Thank you.

Speaker 6

Okay. Let me just kind of get wrapping up here with a few questions that have to do with the numbers that just came out today. I just had a chance to take a quick brief look at it. We mentioned on the last conference call about this import key software that's available to, I guess, those of us who are members of our chat boards, subscribe to it. And they're pretty good about carrying all the shipments back and forth what's going through internationally through containers.

Speaker 6

According to their software that tracks the global movements and international container shipping sector, Kandi exports some 6,600 vehicles to include 5,900 golf carts and 700 LSEs in Q1, which would put it on par to reach the high end of Mr. Hu's 25,000 unit guidance for the year.

Speaker 1

I'm sorry, Ar, can you slow down with the number? You said 6,600. Yes, yes.

Speaker 6

6,600 vehicles were showing up as being in golf carts. Now maybe that's mislabeled when we put them in containers, but

Speaker 3

I think you have to

Speaker 6

be pretty honest about that. And some 700 were LSEVs. So in Q1, I would put them on par to reach the high end of Mr. Hu's 25,000 guidance for the year. And I'll see if you have some of that and I have more to add.

Speaker 6

Okay. In Q let's see here, it would seem that the revenues would be higher in that we only reported $22,000,000 this quarter in total revenues, but we seem to have done about the same according to import fee about the same number of vehicles, dollars 14,000 to 15,000 total. Now, I guess what we really need to know is with the company showing such high margins to start with, we've been told that Kandi's goal is to provide almost all the drivetrain parts and batteries, that numbers should increasing overall for total revenues. But even now, Kandi batteries appeared in the U. S.

Speaker 6

Vehicles. So if we take an average retail price of say $10,000 per unit, how much is Kandi gross of this and what is the timeframe between shipments to the U. S. And anticipated sales to retailers?

Speaker 3

Do I need to do that again?

Speaker 1

Alan, did you get a part?

Speaker 3

Yes, that'd be great if we can come again. The question is so to kind of silence. Okay. But is there anything else you can go on?

Speaker 6

It appears that we have shipped almost 15,000 units in the 2 years according to import key to the United States. And in the last two quarters, I'm sure sorry, I think 14,000 to 15,000 in just the last quarter of last year and the Q1 of this year, but we've only booked so far maybe 10,000 or so or even maybe less. I don't know what 22,000 is because company doesn't break that out. But I'm just kind of curious if the average price is $10,000 in retail, what should that generate per unit to Kandi?

Speaker 1

Okay.

Speaker 3

Got it. So when you talk about our competitors' data of the import and then our sales, of course, there is some kind of the lag time because we recognize ourselves based on the revenue generation methodologies for the U. S. GAAP. And of course, there will be some kind of timing difference between the sales and then the import I mean, of the export to the U.

Speaker 3

S. Market?

Speaker 6

Can you be more specific? Is it like 90 plus 90 days, 60 days? And also basically, bottom line, if it's $10,000 sticker price, what do we actually sell it for $3,000 $4,000 $5,000 that we would ultimately book in revenues?

Speaker 3

So as for your question, it really depends on the actual sales. There's no really standard time frame. It depends on how we fulfill our terms and how we can meet the requirement to recognize the revenue. So it depends on how the transaction get closed in the U. S.

Speaker 3

So that's the timing of how like 30 days or 60 days to exchange the export and the sales organization. So again, we recognize all the sales based on the U. S. GAAP requirements and so to make sure the numbers are fairly presented. As for the margin, roughly for each pieces of the golf carts model, roughly over 30 percent of the gross margin for each pieces of the golf carts.

Speaker 6

That's an incredible number. I mean that's great. That's an incredible number. If you do 25,000 golf carts alone this year, if you can somehow get $5,000 per cart, that's $125,000,000 with a 30% margin. Anyway, the last question has to do with could you address the drop in lithium battery sales and expectations for this division, the balance of the years?

Speaker 3

So as a question, we look at our similar answers to our former questions from another investor. So basically there are 2 reasons contribute to the decrease of the sales of lithium ion cells. First of all is the uncertainty in the Chinese market. During the past year of 2022, the raw material price of the batteries has surged significantly. So and that caused all the uncertainty and hurt the demand and of the sales in the domestic market of China.

Speaker 3

2nd of all, we have started to adopt more and more of our lithium ion cells to our own products of such as the golf carts and other products. And because that's considered as an intercompany sales, we have not recognized that as our consolidated financials because they'll be eliminated. So basically, we recognize those sales as per U. S. GAAP and so certain sales with the intercompany transactions will not be presented separately.

Speaker 6

Okay. Well, one actually, I said that was the last question. I just one other comment over here. If you is it unreasonable to expect $150,000,000 to $200,000,000 in revenues this year? I mean, just based on just the golf carts alone, not just based on the loan, but overall?

Speaker 1

Are you asking are we expecting $150,000,000 to $200,000,000 revenue forecasting for this whole year? Right. Including everything, right?

Speaker 3

So for our forecast, we believe that there now will be roughly $150,000,000 even more, the top end with $200,000,000 of USD sales for this year. I think we can achieve that goal.

Speaker 6

Fantastic. One last thing, it's been 9 years since we've had a Shareholders Day in the United States with Mr. Hu and management. I think we're due for another one. What's your thoughts on that?

Speaker 3

So our plan is once the transition succeeds, if our whole the fundamental becomes stronger, then we'll come to the U. S. Market to meet up with all the investors.

Speaker 6

Sounds like you're already almost there. If you can do $150,000,000 to $200,000,000 this year, it should be a record all the time for the company and with great margins. Anyway, just an observation. Thank you very much and hey, we did a great job on getting this new product line in. Please, some press releases, let the public know, it'll help your dealers, it'll help everybody.

Speaker 6

They'll sell more vehicles, shareholders who want to go buy 1 maybe, the more shareholders we can bring in. But thank you very much.

Speaker 3

Thank you very much.

Operator

Thank you. That was the last question for our question and answer session. I would like turn the conference back over to Kiwa Luo, IR Director, for any closing remarks.

Speaker 1

Thank you again for attending today's conference call. If you have any additional questions, feel free to contact our IR consultant, Blue Shirt, or via email to contact me directly, irkandigroup.com. We look forward to updating you on our next earnings call. This concludes our call for today. Thank you.

Speaker 1

You may now all disconnect.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Kandi Technologies Group Q1 2023
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