Kandi Technologies Group, Inc. (KNDI) Earnings Call Transcript & Summary

Good morning, and welcome to the Kandi Technologies First Quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Kewa Luo, IR Director. Please go ahead.

Thank you, operator. Hello, everyone. Thank you for joining us on today's conference call to discuss Kandi's results for the first quarter 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. On the call with me today are Mr. Xiaoming Hu, Chairman of the Board; Dr. Xueqin Dong, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Dr. Dong will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&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. 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.S. dollars. With that, let me now turn the call over to our CEO, Xueqin Dong. Go ahead Dr. Dong.

[Foreign Language]

[Interpreted] Hello, everyone. I'm the CEO of Kandi Technologies. My name is Xueqin Dong. Welcome to today's conference call. Our first quarter revenue of $22.9 million was down slightly from 1 year ago, due to the strategic shift in business focus. 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 profit, 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. 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&A session. Xiaoming Hu and I will answer your questions. And Ms. Kewa and Mr. Alan will provide translation for English questions. Please go ahead and ask your questions. If you have any questions in asking questions, feel free to ask the operator.

[Operator Instructions] Our first question is from the line of [ Mark McLaughlin ], private investor.

I'm [ Mark McLaughlin ]. I run a family office in Jacksonville, Florida. A little bit of background. First, thank you, Mr. 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, "So for the fiscal year 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." 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 2022's golf cart sales, which generated revenues of between -- which would generate revenues between $125 million and $150 million. And reviewing Kandi's data on import key 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? I have a few other questions as well. But if you would answer that.

Okay. Thank you. [Foreign Language]

[Foreign Language]

[Interpreted] So thank you for your questions. So our estimated sales for the Q2 roughly around 6,000 pieces of the golf carts. And for the half year 2023, we expect there will be a sales of roughly 10,000 pieces of the golf carts.

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

[Foreign Language]

[Foreign Language]

[Interpreted] So for the first quarter of 2023, roughly around 3,000 pieces of the golf carts were sold.

Another key point that is -- 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. Two 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 seems to be the 2-seat utility golf cart with dumped 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 Lowe's 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?

Thank you for your question. [Foreign Language]

[Foreign Language]

[Interpreted] So as for your concerned questions at present under the brand of Coleman, there's only 1 golf cart available in the market, which is a 4-seat lead-acid battery models. As for the consideration, primarily the price and the gross profit. However, to Lowe's, 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 product for our customer Coleman according to their need. And yes, there is no conflict for us to supply our products to the Lowe's. So in this year, it's likely that you will see more Kandi products at Lowe's market?

To that end, the Kandi America website added a new $13,999 heavy-duty utility vehicle under the EV link called The Cowboy e10K, the husky lithium powered vehicle. It's perfect for the offer -- a perfect offering for the Lowe's demographic, but nothing has 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?

[Foreign Language]

[Foreign Language]

[Interpreted] So Lowe's is well aware of our new product development. So yes, they know about our new model, the Cowboy e10K. And I believe that Lowe's also 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.

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?

[Foreign Language]

[Foreign Language]

[Interpreted] Yes. So based on our development and our operations, we will release the news in a timely manner.

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?

[Foreign Language]

[Foreign Language]

[Interpreted] So well, actually, at the moment, we are in the early stage of the cooperation with Lowe's. It's not like we're not going to disclose the news. However, we would like to consolidate and get our fundamental done and wait until the cooperation becomes a more massive volume, then will disclose accordingly. Our strategy is always get things done first, then we will release the news accordingly, when it's [indiscernible] and becomes more mature.

Yes. 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.

[Foreign Language]

[Foreign Language]

[Interpreted] Thank you for your suggestion.

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. And is that for golf carts alone via Lowe's, I take it, what about all vehicle units from the K32 to golf carts to the Cowboy, what is the total unit projection?

[Foreign Language]

[Foreign Language]

[Interpreted] So yes, first of all, for your questions, the estimate of sales 20,000 to 25,000 pieces of the sales only indicate for the model the golf carts. It doesn't include any other UTVs such as the K32 or the e10K. In the meantime, we try to spend our sale channels to consolidate our resources hopefully, we can have a better sales up this year.

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?

[Foreign Language]

[Foreign Language]

[Interpreted] So actually, we have taken all the approvals necessary for the sales of the launch of K32 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. market.

That's very good news. I have to commend financially commend you -- your management skills, looking at a huge jump in gross margins from 19.8% in 2021 to -- on $30 million in sales to $22.6 million in 2022, on $71 million 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, at 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?

[Foreign Language]

[Foreign Language]

[Interpreted] So due to our gradual advancement of our strategic adjustments, right, we believe that the revenue of this year definitely increased significantly. And then the gross margin were roughly around the same level of the Q1 of this year.

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

[Foreign Language]

Our next question is from the line of [ Kahnau ], private investor. As there is no response from the participant's line, may I request the management that we move to the next question?

Sure.

Our next question is from the line of Mike Pfeffer from Oppenheimer.

Thanks for taking my question, which has to do with Kandi's new emerging lithium battery business. From the 10-K, it seems that this is another hot sector for Kandi. The company reported battery sales in 2021 of only $4.5 million with a 10.8% margin. This impressively jumped fivefold to $24 million in '22. However, the gross margin went down to 4.6% from what I can get out of the 10-K, it appears that almost all of last year's battery sales were sold to third parties, which in the current competitive environment in 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?

[Foreign Language]

Am I correct in my assumption that last year's battery sales went to third parties?

[Foreign Language]

[Foreign Language]

[Interpreted] So for past year 2022, it's true that primarily of lithium-ion cells was sold to the third-party customers. We kind of triggered our strategy for this year. We're going to have more demand from our own in the company's sales. So of course, in this case, it will not be reflected on the consolidated sales on the financial statements. So you will show a less or decrease of their sales in the lithium-ion cells sector, because there's more demand from our own in the company transaction.

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?

[Foreign Language]

[Foreign Language]

[Interpreted] Yes. So basically, we're going to develop a direction of adopting lithium-ion cells.

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

[Foreign Language]

[Foreign Language]

[Interpreted] During the past year due to the surge of the raw material price of those iron and then other cells materials in our China market, it caused all the uncertainty in the market, of course, it hurts the demand and then ourselves. From the fourth quarter of last year until April of this year, our battery sector was in the state of net loss. At present, the domestic market, the China 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.

Our next question is from the line of Walter Hill from Carty & Co.

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." I have questions in 2 related topics. First, while there was no company PR, as previously mentioned on the new [ hefty ] off-road vehicle to Kandi Cowboy e10 selling for $13,900, which have 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?

Okay. [Foreign Language]

[Foreign Language]

[Interpreted] So our new model, the e10K UTV is the pure electric model that developed to tackle a 500cc field UTV market. We have started to have mass production of this model, since April this year, then it will be sold to the retail store of the Lowe's and other dealer channels. So whether there will be a major surprise like what we have for the [indiscernible] it depends on the market direction. We still believe that this model will be a very competitive model to the market.

My second topic is regarding to the Haikou Hainan 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 our 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? C, does Kandi also make its chassis and body parts in this facility or is it just a vehicle assembly? And D, do you attribute this facility's close proximity to only a mile or 2 from the export shipping port of Haikou 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?

[Foreign Language]

[Foreign Language]

[Interpreted] As for your first question. So basically, the company's electric vehicles, including the electric vehicle components and then the off-highway vehicles like low-speed vehicle, the pure electric utility vehicles, those top carts, the ADB, UTVs as well as the component of our electric vehicle K23 are all produced and manufactured in our Hainan facilities. [Interpreted] So as for the second question, during the 2022, our Hainan plant mainly produced the golf carts with more than 10,000 of pieces. So more over certain parts of the K23 electric vehicle package and then the K32 product has also been manufacturing during last year. This year, we expect that the production for the golf cart product will be roughly 20,000 to 25,000 pieces, and then there will be also 200 pieces for the K32 UTVs. As for the K23 EV package, we expect there will be a small amount to be manufactured as well. [Interpreted] So our Hainan plant, the facility, actually is a comprehensive production site that includes all 4 major processes of the car manufacturing including the understanding, the welding, the painting and then the final assembly of the EV vehicle's components. [Interpreted] Yes. And as for your last question that export shipping cost in Haikou is close to our facilities. That's not the major reason that we are able to have a great year during 2022. Indeed, the capacity of the exports in Haikou is relatively small. It doesn't meet our full needs. During the past year, 2022, roughly 50% of our products were shipped from the Shenzhen port. So hopefully, that can address your question.

Our next question is from the line of Arthur Porcari with Corporate Strategies.

Sorry, I've got a sore throat over here, so I'll 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. I know it sounds like a broken record, but I was just repeating again, not because of that business failure, quite contrary at the uncontested NASDAQ EV first mover a dozen years ago in the global EV sector, Kandi survived against all odds, where there's a 90% likelihood any undercapitalized first mover will fail or be bought out. However, Kandi not only survived these 14 years, but find 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, a 45% discount to the $5.25 book value. And all of this at a time when Kandi is now rapidly growing with its e-golf cart business at Lowe's and others as well. While 90% is tech stops, particularly in the EV sector are seeing a significant business in [indiscernible] Clearly, this has to change. I pass that part on to Mr. Hu, please, or whoever.

[Foreign Language].

Okay. Well, as we know, Kandi has never had used an actual full-service, sell-side brokerage or investment banking firm to raise any money. But in turn, that just means Kandi has no accredited analysts to applying to give comfort to funds. So they avoid the stocks, what is the company going to do, if anything, to try to track Wall Street Analysts not putting out press releases is not the solution. That's question one.

[Foreign Language] What's your question?

That was the question. What is the company -- what is the company doing if anything to attract Wall Street Analysts?

Okay. [Foreign Language]

[Foreign Language]

[Interpreted] First of all, thank you very much for your concern and support for our company. First of all, we appreciate your suggestions. In recent years, due to the orderly competition in our Chinese -- the China's electric vehicle market, right, we have been forced to make some very difficult strategic adjustment in order to survive. Well, in the end, I think the capital market, we need the data to support, right? We always adopt the model of the field work [indiscernible]. So our goal is always to enhance our fundamental enhance ourselves. So you can tell that from this quarter finally we can turn our net deficit the net income to net -- from net loss to net income in this current quarter. So hopefully, with our stronger fundamentals, better performance in terms of the managed shares and then our revenue this kind of data can be recognized by the market and also by the analysts. So then they will come back to us and our company. So yes, basically, our goal is to [indiscernible] momentum stronger and better.

Okay. Lack of breaking news types of press releases. As we've only had 2 in the past 12 months. Kandi used 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, Kandi's added 3 new $10,000 to $15,000 vehicles, 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 ask Hu, why none of these U.S.-based vehicles are being press released. Her response was along the lines of the responsibility to announce these products go through Kandi America, not Kandi the parent company. It has its own -- Kandi American referred to as 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.S. should even further increase product sales. Think of where Tesla stock would be if they ignored sharing new product and updates through news releases with its shareholders. They wouldn't exist. They don't advertised. They don't have dealerships. Anyway, pass that on, please.

[Foreign Language]

[Foreign Language]

[Interpreted] Thanks, again, for your concern and advise. Again, usually, we take the strategy and the motto of fewer words and many deeds in terms of our operations and that's our promotion. But then we definitely, we will take your advice and consideration in our upcoming IO plan, and yes, we try to fine-tune by [indiscernible].

Okay. Let me just kind of you get wrap it up here with a few questions and 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 chatboards subscribe to it, and they're pretty good about carrying all the shipments back and forth, what's going through internationally through containers. According to their software that tracks the global movements and international tanker shipping sector, Kandi exported 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.

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

6,600 vehicles were showing up as being golf carts. Now maybe that's mislabeled, when we put them in containers, but I think you have to be pretty honest about that. And some 700 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 have more to add.

[Foreign Language] Keep going.

Okay. And -- let's see here. It would seem that the revenues would be higher in that we only reported $22 million this quarter in total revenues, but we've seem to have done about the same according import fee about the same number of vehicles, 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 number should increasing overall for total revenues. When even now Kandi batteries appeared in the U.S. 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 time frame between shipments to the U.S. and anticipated sales to retailers? Want me to do that again?

Alan, did you get the part?

Yes, that would be great if you can come again to the question, so to clarify. [indiscernible].

It apparently -- 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 2 quarters, I'm sure -- sorry, I think, 14,000 to 15,000 in just the last quarter of last year and the first quarter 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 [indiscernible] 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?

Okay. [Foreign Language]

[Foreign Language]

[Interpreted] So well, when you talk about our competitive 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 recognition methodologies for the U.S. GAAP. And of course, there will be some kind of a timing difference between the sales and then the import -- I mean, the export to the U.S. market.

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

[Foreign Language]

[Foreign Language]

[Interpreted] So as for your question, it really depends on the actual sales. There's no really standard timeframe. 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. So that's the timing of how like 30 days or 60 days patient export and the sales [indiscernible]. So again, we recognize all the sales based on the U.S. GAAP requirement. 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% of the gross margins for each pieces of the golf carts.

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 and if you can somehow get $5,000 per cart, that's $125 million with a 30% margin. Anyway, the last question have to deal with could you address the drop in lithium battery sales and expectations for this division in the balance of the year's?

[Foreign Language]

[Foreign Language]

[Interpreted] So as a question we -- there's a similar answers to our former question from another investor. So basically, there are 2 reasons contribute to the decrease of the sales of lithium-ion sales. 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 further demand and other sales in the domestic market of China. Second of all, we have started to absorb more and more of our lithium-ion sales to our own products such as the golf carts and other products because that's considered as an intercompany sales, we have not recognized that to have our consolidated financials, because they will be eliminated. So basically, we recognize those sales as per our U.S. GAAP. And so certain sales with the intercompany transactions will not be presented separately.

Okay. Well, 1 -- actually, I said that was the last question. I just -- 1 other comment over here. If you -- is it unreasonable to expect the $150 million to $200 million in revenues this year? I mean just based on just the golf carts alone, not just based on 1 but overall?

Are you asking, are we expecting $150 million to $200 million revenue forecasting for this whole year?

Right.

Including everything, right? [Foreign Language]

[Foreign Language]

[Interpreted] So for our forecast, we believe that the amount will be roughly $150 million, even more the top-line with the $200 million of the USD sales for this year. I think we can achieve that goal.

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

[Foreign Language]

[Foreign Language]

[Interpreted] So our plan is once the transition succeed, with our order fundamental become stronger, then we will come to the U.S. market to meet up with all the investors.

Sounds like you're already -- almost there. If you can do $150 million to $200 million this year. It should will be a record all time for the company and with a great margins.

Yes, we'll do our best...

Anyway, just an observation. And hey, we did a great job on getting this new product line in. Please, some press releases, let the public know, it will help your dealers, it will help everybody. They'll sell more vehicles. Shareholders want to go buy 1 maybe, the more shareholders we can bring in.

[Foreign Language]

[Foreign Language]

[Interpreted] Thank you very much.

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

Thank you again for attending today's conference call. If you have any additional questions, feel free to contact our IR consultant Blueshirt or via e-mail to contact me directly, [email protected]. We look forward to updating you on our next earnings call. This concludes our call for today. Thank you. You may now all disconnect.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]