Kandi Technologies Group, Inc. Q1 FY2020 Earnings Call

Greetings. Welcome to the Kandi Technologies First Quarter 2020 Financial Results Call. At this time, all participant lines will be in listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. At this time, I will turn the conference over to Kewa Luo. Kewa, you may now begin.

Thank you, operator. Hi, everyone. Welcome to Kandi Technologies Group first quarter 2020 earnings conference call. The company released the results earlier today and the press release is available on Kandi’s website at www.kandivehicle.com. With us today are Mr. Hu Xiaoming, Kandi’s Founder, Chairman, and Chief Executive Officer, and Mr. Ming Lim, Chief Financial Officer. Mr. Hu will deliver prepared remarks, followed by a question-and-answer session. Before we get started, please note that today’s discussion will often 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 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. As a reminder, this conference call is being recorded. In addition, our audio webcasting of this conference will be available on Kandi’s Investor Relations website. I will now turn the call over to Kandi’s Founder, Chairman, and CEO, Mr. Hu Xiaoming.

Thank you for your understanding. I will now hand the call over to Kandi’s Founder, Chairman, and CEO, Mr. Hu Xiaoming.

Thank you, Kewa, and hello, everyone. Welcome. Thank you for joining us on the call today. As you all know, the COVID crisis impacted business in China and around the world in the first quarter. You should not be surprised that our revenue was down as country-wide shutdown reduced our production as well as consumer demand. Conditions seem to be improving right now. Demand is slowly recovering, and we are back to work and gradually ramping production.

Thank you, Kewa, and hello, everyone. Welcome. Thank you for joining us on the call today. As you all know, the COVID crisis impacted business in China and around the world in the first quarter. You should not be surprised that our revenue was down as country-wide shutdown reduced our production as well as consumer demand. Conditions seem to be improving right now. Demand is slowly recovering, and we are back to work and gradually ramping production.

Even with this setback in the first half of this year, we are optimistic about the prospect of Kandi in our industry. Let me briefly tell you why.

Our revenue was down due to country-wide shutdowns that affected both our production and consumer demand. Conditions are improving now, as demand is slowly recovering, and we are back to work, gradually ramping up production. Despite the challenges we faced in the first half of this year, we remain optimistic about Kandi's prospects in our industry. Let me briefly explain why.

First of all, there are better government support policies. I am, as the inventor of the vehicle/battery separation battery swapping model for pure electric vehicles, extremely gratified at our industry’s regulators shifting from rejecting battery swapping to fully embracing it. Recently, several important national ministries just published a joint paper about battery swapping. The paper discusses how the government will promote this technology with many supporting policies. We have been a pioneer in battery swap and our Jinhua Ankao subsidiary produces one of the best intelligent automated swap systems in our industry. Other support is coming at the local level. Our factory in Hainan is poised to benefit from the government there building a free trade port. Just this week, the government published a detailed plan outlining 60 supporting policies.

The paper discusses how the government will promote battery swapping technology with various supporting policies. We have been a pioneer in this field, and our Jinhua Ankao subsidiary produces one of the leading intelligent automated swap systems in the industry. Additionally, support is emerging at the local level. Our factory in Hainan is set to benefit from the government building a free trade port there. Just this week, the government released a detailed plan featuring 60 supporting policies.

The second reason for optimism is new market opportunities. As COVID broke out, we worked hard to find new opportunities that leverage our technology expertise. We have conducted market research, and one that stands out is powertrain for electric scooters and self-balancing hoverboards. This is a market perfect for our electric motors and battery packs, and it is quite large, 10 million units a year and growing. We have modified our products for this market and reached an agreement to cooperate with one of the leaders in this market, Hangzhou Chic. Depending on how things develop, we may merge our motor and battery subsidiaries, Yongkang Scrou and Jinhua Ankao, into one single specialized powertrain technology company and evaluate the possibilities of raising growth capital in China.

We see a significant opportunity in a market that is ideal for our electric motors and battery packs, with a size of 10 million units per year and increasing. We have adapted our products for this sector and have formed a partnership with Hangzhou Chic, a key player in the market. As the situation evolves, we may consider merging our motor and battery subsidiaries, Yongkang Scrou and Jinhua Ankao, into a single specialized powertrain technology company and explore options for raising growth capital in China.

The final reason for optimism is the positive long-term outlook for electric vehicles. Electric vehicles are here to stay. Countries around the world are embracing EVs for their positive environmental impact. By operating in this market for many years, we are very well positioned to benefit. Our affiliate company, Fengsheng, is ramping its new Maple model. We are developing our junior platform for third and fourth city rideshare programs, which will drive huge volumes of vehicles over time. And we are entering the U.S. market with consumer-friendly EVs at a very reasonable price.

Electric vehicles are here to stay. Countries around the world are embracing EVs for their positive environmental impact. By operating in this market for many years, we are very well positioned to benefit. Our affiliate company, Fengsheng, is ramping its new Maple model. We are developing our junior platform for third and fourth city rideshare programs, which will drive huge volumes of vehicles over time. And we are entering the U.S. market with consumer-friendly EVs at a very reasonable price.

Let’s now turn to questions. Operator, please proceed.

Thank you. Our first question comes from the line of Harold Garberry, a Private Investor.

Okay. My question.

Hello.

Yes, okay. There is a lot of negative publicity about U.S. listings of Chinese companies that are not in compliance with the Public Company Accounting Oversight Board, PCAOB. While the U.S. has been threatening to delist these companies for over 10 years, in the past nothing has happened, but not so this time. Can Mr. Hu take some time to explain why Kandi shareholders do not have to be concerned about delisting due to both its structure and now PCAOB registered? Thanks to Kandi’s recent auditor change.

And thank you for your questions.

Can Mr. Hu take some time to explain why Kandi shareholders do not have to be concerned about delisting due to both its structure and now PCAOB registered, thanks to Kandi’s recent auditor change?

Our shareholders should be less concerned about the issues for very simple reasons. First of all, Kandi is a U.S. company. Second, we changed our new auditor, Marcum B&P, last year around the third quarter. And Marcum B&P is subject to inspections by PCAOB, including its working papers.

Thank you.

Thank you.

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

Good morning, Mr. Hu and Kewa. Mr. Hu, hopefully your health has been good and family as well. My comments for background in questions are primarily about the little-known and understood former Geely-Kandi joint venture now called Fengsheng, which you only just barely mentioned. Since you didn’t cover it that extensively, I am going to feel like I have to ask a few more questions, because this is a subject that’s been receiving rave reviews all over the Chinese media, including Kandi by name over just the past few weeks. So I am going to have to be a little more expansive than I originally expected to be. Can you tell that to Mr. Hu and then I’ll go on.

Sure. Please continue.

Okay. For those not aware, a short Fengsheng background first. It’s 22% owned by Kandi, controlled and managed by Geely Holdings, Daimler’s largest shareholder, and the world’s largest privately held automaker. In just the auto segment alone, Geely Holding owns 8 global labels, including Volvo, Lotus, Proton, and four others, all of this wholly owned exclusively by China’s sixth wealthiest man, Li Shufu. As mentioned recently, Kandi, through Fengsheng, has received a lot of very positive press in China as it has now begun selling its first EV under the Fengsheng Maple brand, a compact SUV named the Maple 30X. The second EV, a 7 passenger model, the Maple 60V was approved just last week by the government. It’s expected to go on sale in Q3 of this year. You want to pass that on to him?

Sure. Please continue.

The media reports that both are EV clones of two of Geely Auto’s top-selling gas cars, the Vision X3 and the Jiaji. While the 60V, which is the larger car, goes on sale in Q3, has not been priced yet, the 30X that went on sale in May can be purchased for an amazing $9,000 to $10,000, depending on the model version, with incredible features usually only seen on mid to high-end EVs, as the media has reported. Could you pass that on to him?

Please proceed. The media indicates that both are electric vehicle clones of Geely Auto’s popular gasoline models, the Vision X3 and the Jiaji. Although the 60V, the larger vehicle, is set to launch in the third quarter and its price has yet to be announced, the 30X, which became available in May, is priced attractively between $9,000 and $10,000, depending on the specific version, and includes impressive features typically found in mid to high-end electric vehicles, according to media reports. Could you relay that information to him?

Also reported by Fengsheng in the media of their schedule are 12 additional EVs, including a sports car and truck, between now and 2024. This seems to be a hidden asset that U.S. investors are not paying attention to regarding Kandi. First, can Mr. Hu give us his take on this recent reporting? And what potential he sees for Kandi with this Fengsheng investment? Then I have a few shorter questions.

Can Mr. Hu provide his insights on this recent reporting? What potential does he see for Kandi with the Fengsheng investment? I also have a few brief questions afterwards.

Arthur Porcari, Corporate Strategies Analyst, also reported by Fengsheng in the media of their schedule are 12 additional EVs, including a sports car and truck, between now and 2024. This seems to be a hidden asset that U.S. investors are not paying attention to regarding Kandi. First, can Mr. Hu give us his take on this recent reporting? And what potential he sees for Kandi with this Fengsheng investment? Then I have a few shorter questions. Kewa Luo, Operator.

As you know, ever since the joint venture ended, after the assets transfer, it’s going to be over-controlled and managed by Geely mostly. And Geely has a very extensive business plan for growing Fengsheng to dominate the EV market share. For their first EV model, the 30X, their goal is to take market share; that’s why the price is very affordable. The second car, the 60V, is based on their gasoline-powered 7-seater model. However, once it’s modified to be the EV, it’s going to be turned into a 5-seater. Therefore, the car inside is really comfortable, and this is going to mainly target the ridesharing market. We believe that going forward, in the next few years, Fengsheng is going to release many very nice, high-performance, high-standard EVs. But by then, I’m sure the company will keep the market updated as the information is available.

Okay, that’s a good answer. Actually, that covered a little bit of my next question. On the last conference call, Mr. Hu told us that Kandi would likely not try to compete for parts business on the first low-price EVs, the 30X, which would also not be used for the QBX due to its short wheelbase disqualifying it from ride hailing. Does he expect the new larger 60V, which, as he has now said, is being prepared for the ride-hailing program to use Kandi’s QBX or possibly also to use Kandi batteries parts as well? And does he have any idea what price range the new Maple 60V EV will be in?

In the last conference call, Mr. Hu mentioned that Kandi would likely not pursue parts business for the first low-price EVs, the 30X, which cannot be used for the QBX due to its short wheelbase making it unsuitable for ride-hailing. Does he anticipate that the new larger 60V, which he has stated is being developed for the ride-hailing program, will utilize Kandi’s QBX or possibly Kandi battery parts as well? Additionally, does he have any insights on the expected price range for the new Maple 60V EV?

Kandi will likely not compete for parts business with the low-priced 30X EVs, which are also unsuitable for ride-hailing due to their short wheelbase. Does he anticipate that the new larger 60V, which he mentioned is being prepared for the ride-hailing program, will utilize Kandi’s QBX or potentially incorporate Kandi battery parts as well? Does he have any insight into the expected price range for the new Maple 60V EV?

We are still in the process of evaluating the quick battery swap system for the 60V. The price for the vehicle is still confidential at present.

Okay. That’s fair. So it looks like we’re competing for the QBX, is what you’re saying, for the 60V.

We are still in the process of evaluating the quick battery swap system for the 60V. The price for the vehicle is still confidential at present.

We are still in the process of evaluating the quick battery swap system for the 60V. The price for the vehicle is still confidential at present.

The battery swapping is actually—right now, we are in discussions with them trying to evaluate this about the model and the method of the battery swapping. As you know, for new battery swapping, the battery exchange is done underneath the car, while for Kandi’s model, it’s exchanged from the side to replace the new vehicle with the old one. But I believe our car is the most advanced and very user-friendly in China, even in the world. The government also acknowledges this. So we are confident that this is going to have a very good future.

I understand. So because that’s a remodel of an existing gas-powered car, it would take—they’re debating whether they can do the modifications to use the side slide pan that Kandi has a patent on. So I see what’s going on there. Okay, last question. Twice in the past 4 months, it was reported that Fengsheng expected to sell some 30,000 units this year. Considering Geely Auto sold over 140,000 units of the gas-powered sister car of the 30X, the Vision X3 last year, does Mr. Hu think Fengsheng can still reach its 30,000 goal in spite of the COVID-19 slowdown? And with the 60V, which is much larger coming next quarter, could that be the EV Kandi reported last year that the JV would deliver 20,000 EVs to Cao Cao Geely’s white-glove ride-hailing company?

Alright. I am sorry, can you repeat those questions a second time? Yes.

Okay. I will repeat it again. Twice in the last 4 months, it was reported that Fengsheng expected to sell some 30,000 units this year. Considering that Geely Auto sold over 140,000 units of the 30X’s gas-powered sister car, the Vision X3 last year, does Mr. Hu think Fengsheng can still reach its 30,000 goal in spite of the COVID-19 slowdown? Ask him that part first then I will ask the second part.

Okay.

So expect to sell 30,000 units this year. Considering that Geely Auto sold over 140,000 units of the 30X’s gas-powered sister car, the Vision X3 last year, does Mr. Hu think Fengsheng can still reach its 30,000 goal in spite of the COVID-19 slowdown? And with the 60V, which is much larger coming next quarter, could that be the EV that Kandi reported last year that the JV would deliver 20,000 EVs to Cao Cao Geely’s white-glove ride-hailing company?

Okay. Arthur Porcari, Corporate Strategies Analyst, asked if Mr. Hu believes that Fengsheng can still achieve its goal of selling 30,000 units this year despite the COVID-19 slowdown, given that Geely Auto sold over 140,000 units of the Vision X3 last year. He also inquired whether the upcoming larger 60V could be the electric vehicle that Kandi mentioned would deliver 20,000 units to Cao Cao Geely’s ride-hailing service.

Expect to sell 30,000 units this year. Considering that Geely Auto sold over 140,000 units of the 30X’s gas-powered sister car, the Vision X3 last year, does Mr. Hu think Fengsheng can still reach its 30,000 goal in spite of the COVID-19 slowdown? And with the 60V, which is much larger coming next quarter, could that be the EV that Kandi reported last year that the JV would deliver 20,000 EVs to Cao Cao Geely’s white-glove ride-hailing company?

I want to say that I have seen their sales team working hard to achieve this target. However, I do believe that the pandemic is still not fully contained, so there is still a certain impact on the market. So I would say they are still trying to achieve that goal.

Okay. And the second part of my question was—has to do with the 60V, which is much larger. It’s coming next quarter. Could that be the EV that Kandi reported last year that the JV would deliver 20,000 EVs to Cao Cao, Geely’s white-glove ride-hailing company? Remember, last year, we announced that Geely was going to take 20,000 of the cars from the JV. This is before it became Fengsheng. And is this going to be because they’re going to start moving over?

Okay. And the second part of my question was regarding the 60V, which is much larger and is expected next quarter. Could that be the electric vehicle that Kandi reported last year, which the joint venture planned to deliver 20,000 electric vehicles to Cao Cao, Geely’s premium ride-hailing service? Last year, we announced that Geely would be taking 20,000 of these vehicles from the joint venture before it was renamed Fengsheng. Is this change happening because they are beginning the transition?

Kewa Luo|Operator|

My question concerns the 60V, which is significantly larger and is expected to arrive next quarter. Is this the electric vehicle that Kandi reported last year, indicating that the joint venture would provide 20,000 electric vehicles to Cao Cao, Geely's premium ride-hailing service? Last year, it was announced that Geely would purchase 20,000 of these vehicles from the joint venture before it was renamed Fengsheng. Will this be because they are starting the transition?

It’s coming next quarter. Could that be the electric vehicle that Kandi reported last year the joint venture would deliver 20,000 electric vehicles to Cao Cao, Geely’s premium ride-hailing service? Remember, last year we announced Geely’s plan to take 20,000 cars from the joint venture before it became Fengsheng. Is this going to be because they’re going to start moving over?

Actually, when we released the news last year about the cooperation with Cao Cao Zhuan Che, there was a different car that we were going to be using. However, the 60V has a better performance. I expect that this is going to be deployed in their Cao Cao Zhuan Che program.

Okay, well, I said that was the last question. Just one little side question, I am curious why last week the company announced they received $34 million as a down payment on the $76 million payment for Jinhua. I’m curious why that wasn’t even brought up as one of the features, even though it’s a subsequent event, because it didn’t show up in this quarter’s numbers. But why we didn’t put that in the press release or even in Mr. Hu’s opening statement? Just a point of clarification.

I am curious why last week the company announced they received $34 million as a down payment on the $76 million payment for Jinhua. I'm wondering why that wasn't mentioned as one of the features, even though it's a subsequent event, since it didn't appear in this quarter's numbers. Why wasn't it included in the press release or in Mr. Hu's opening statement? This is just a point of clarification.

I have a follow-up question regarding the announcement last week about the $34 million down payment on the $76 million payment for Jinhua. I'm wondering why this wasn't mentioned as one of the highlights, even though it is a subsequent event and didn't appear in this quarter’s numbers. Could you clarify why this wasn’t included in the press release or in Mr. Hu’s opening statement?

I am curious why last week the company announced they received $34 million as a down payment on the $76 million payment for Jinhua. I'm wondering why that wasn't mentioned as a feature, even though it's a subsequent event and didn't appear in this quarter's numbers. Why wasn't it included in the press release or mentioned in Mr. Hu's opening statement? Just a point of clarification.

Last week the company announced they received $34 million as a down payment on the $76 million payment for Jinhua. I'm curious why that wasn’t mentioned as one of the highlights, even though it's a subsequent event, since it didn't appear in this quarter’s figures. Why didn’t we include that in the press release or in Mr. Hu’s opening statement? I just want to clarify that point.

The 10-Q is not released yet, but we do have that mentioned in the 10-Q filing. And—but in news, we didn’t mention it because Ms. Zhu is saying that it was already released in last week’s press release. Therefore, we did not include that just in the recent development in the 10-Q.

One last question, when does he think it will close, officially close?

Officially close of the land purchase.

The sale of the JV. Close – we report it as being closed on our books.

Wait, Arthur, the question before, did you ask if it was the money that was received from the Jinhua land, right?

We got the first payment – we got a payment for $34 million, but that wasn’t reported yet.

No, no, sorry, sorry.

At some quarter, we are going to report the numbers for our books. When do you expect that to happen?

Okay.

Sure, Arthur, the previous question was about the payment received from the Jinhua land, correct? We received a payment of $34 million, but that has not been reported yet. No, I'm sorry. At some point, we will report the figures for our records. When do you anticipate that will take place?

Mr. Hu is saying that the first payment will be reflected in this quarter’s – the quarter that we just released. It’s going to be reflected in our book.

Mr. Hu is indicating that the first payment will be included in this quarter's report, which we have just released. It will appear in our financial statements.

Emily just emphasized that since we received the money in May, it’s not going to be reflected in the book, but however, we did mention that in the 10-Q.

I realize that’s in the second quarter. Alright, that’s enough. Thank you very much, Mr. Hu. Stay healthy.

Thank you.

Thank you. Bye-bye.

Next question is from the line of Michael Fearnow with Focus Tech. Please proceed with your question.

Yes, thank you. My question relates to a little more detail regarding your Jinhua Ankao battery quick battery exchange. Will it be completed totally in-house with all Kandi parts and technology, or will they have to source part of the assembly from outside suppliers?

Hello? Can you say one more time? You’re a little bit skipping in the beginning. Hello?

Hello?

Yes, I am sorry. Can you repeat one more time?

My question relates to your Jinhua Ankao quick battery exchange technology. Will your battery packs be completed totally by Kandi or its subsidiaries? Or will they need to source from outside suppliers for a portion of the battery packs?

Okay.

Can you repeat that one more time?

It is manufactured within our Jinhua facility.

Okay. And it seems like you’re taking advantage of significant business opportunity in these scooters and battery packs. Can Mr. Hu give some more guidance on further consolidations that are talked about in the press release as to when they might actually be completed?

I’m sorry, can you repeat one more time?

In today’s press release, we talk about the opportunities for the battery packs and consolidation with the other Kandi subsidiary into a single subsidiary and the further consolidation was announced for supply distribution. Can Mr. Hu give us some guidance on when these consolidations might be completed?

Okay.

Can Mr. Hu provide us with an update on when the consolidations mentioned in today's press release, including those for the battery packs and supply distribution, are expected to be completed?

The reason I like to have these two subsidiaries merge into one specialized powertrain technology company is that one is specializing in the battery pack, and the other one specializes in the powertrain. I think it’s a great combination to put two together. But we already started work this year. However, depending on how this progresses, we still need to evaluate the possibility of whether we can raise money in China. So, it’s still very early to estimate when.

Just one final question: In the electric scooters, there’s been some discussion about Walmart as a distributor in the U.S. Can Mr. Hu give any color or guidance on that opportunity?

I think it’s a great combination to put two together. We already started work this year. However, depending on how this progresses, we still need to evaluate the possibility of whether we can raise money in China. So, it’s still very early to estimate when. Just one final question: In the electric scooters, there’s been some discussion about Walmart as a distributor in the U.S. Can Mr. Hu provide any insights or guidance on that opportunity?

We have begun efforts this year, but depending on the progression, we need to assess the potential for raising funds in China. It's still too early to determine a timeline. Michael Fearnow, a Focus Tech Analyst, asked if Mr. Hu could provide any insights or guidance on the opportunity with Walmart as a distributor for electric scooters in the U.S.

We already started work this year. However, depending on how this progresses, we still need to evaluate the possibility of whether we can raise money in China. So, it’s still very early to estimate when. Just one final question: In the electric scooters, there’s been some discussion about Walmart as a distributor in the U.S. Can Mr. Hu give any color or guidance on that opportunity?

This year. However, depending on how this progresses, we still need to evaluate the possibility of whether we can raise money in China. So, it’s still very early to estimate when. Michael Fearnow, Focus Tech Analyst, just one final question: In the electric scooters, there’s been some discussion about Walmart as a distributor in the U.S. Can Mr. Hu give any color or guidance on that opportunity? Kewa Luo, Operator. Xiaoming Hu, CEO. Kewa Luo, Operator.

Well, last year, we signed this contract with DGL to provide the production of the powertrain for the scooters, self-balancing scooters. We see a lot of potential in this market because we utilize the battery for the EV, which has a very high quality. But because of the pandemic, this contract has been delayed. If the pandemic is contained, we think the contract will continue and will be completed this year. Also, I’d like to point out that we realize that the hoverboard, which is a balancing scooter, has a lot of potentials. Every year, there are tens of millions in sales, and the number is still growing. This industry is heavily protected by patents, and that’s how we started to discuss with Hangzhou Chic—we would like to utilize our expertise from two subsidiaries, Ankao and Yongkang Scrou, and combine their resources and expertise together to become the supplier in this industry. One thing is that the market is very large. Second is the patent. To emphasize that Chic—the Hangzhou Chic company that we are currently working with on collaboration, they have about 598 patents in this sector. So, we think that this market is huge for us to enter.

Thank you.

Thank you.

The next question comes from the line of Mark Miller, a Private Investor. Please proceed with your questions.

Hi, thanks. I think you covered it. I was going to ask what the previous question was, but did I hear that you said the $77 million contract that was announced last year—or $71 million is going to be completed this year?

Yes, Mr. Hu is saying it has been delayed because of the pandemic, but if the pandemic is contained, we think that this can be completed this year.

Hi, thanks. I think you covered it. I was going to ask what the previous question was, but did I hear you say that the $77 million contract announced last year, or $71 million, is going to be completed this year? Yes, Mr. Hu is saying it has been delayed because of the pandemic, but if the pandemic is contained, we think that this can be completed this year.

Yes, yes, he confirms that if the pandemic is controlled, the rest of the $71 million contract will be completed, hopefully.

Okay, good. Just one more here, again, I guess following up. Does Kandi make the motors and the battery packs for these units?

For the hoverboard?

Yes.

Yes, he confirms that if the pandemic is controlled, the rest of the $71 million contract will be completed, hopefully.

Yes, he confirms that if the pandemic is controlled, the rest of the $71 million contract will be completed, hopefully.

Yes.

Are those patented?

Yes.

If the pandemic is managed, we anticipate completing the remainder of the $71 million contract. Mark Miller, a private investor, asked if Kandi manufactures the motors and battery packs for the hoverboards. Kewa Luo, the operator, confirmed this. Mark then inquired if those components are patented.

Mr. Hu is saying that the battery is certified but does not have patents. The powertrain systems don’t have patents either. However, the hoverboard and the balancing scooter do have patents.

Okay, thanks for taking my questions and stay well, and keep up the good work.

Thank you very much.

The next question is from the line of Michael Pfeffer with Oppenheimer. Please proceed with your questions.

Hi, thanks for taking my questions. Regarding SC Autosports and EV sales in the U.S., is it safe to assume the 25% tariff is making it very hard to compete with the likes of the new EV Mini, a popular global brand, which has been priced at the same MSRP of $29,500 as the unknown Kandi K23? And if so, what does Kandi have planned to address this?

Thank you for your question.

Thank you for your question.

I do think we have a lot of potential advantages because, first of all, all our cars are qualified for a full $7,500 federal tax credit, which you can, of course, look up on the website. Second of all, our EV got approved for importation registration in the USA by NHTSA. We may think about assembling the EVs in the U.S. to reduce some costs, but we’re still exploring some ideas. We will keep the market informed.

Just another question or two. How are off-road vehicle sales holding up in the second quarter, and what are the expectations?

Our cars qualify for a full $7,500 federal tax credit, which can be verified on our website. Additionally, our electric vehicle received approval for importation registration in the U.S. by NHTSA. We're considering the possibility of assembling the EVs in the U.S. to cut some costs, but we're still exploring various ideas and will keep the market updated.

The federal tax credit is available, and you can find more details on the website. Additionally, our electric vehicle has received approval for importation registration in the U.S. by NHTSA. We are considering the possibility of assembling the electric vehicles in the U.S. to cut costs and are still exploring various ideas. We will ensure that the market is kept updated. Michael Pfeffer from Oppenheimer asked about how off-road vehicle sales are performing in the second quarter and what the expectations are.

It’s really surprising, but in a very good way that this year, the off-road vehicle sales are extremely good. So, we expect them to double last year’s sales.

Great. And then what type of arrangement do we have with Jinpeng in also selling their K27 or other products in the U.S.? And lastly, any new updates on the Jinpeng relationship, which might include using their massive international dealer network to export Kandi EVs? Thanks.

It’s really surprising, but in a very good way that this year, the off-road vehicle sales are extremely good. So, we expect them to double last year’s sales. Great. And then what type of arrangement do we have with Jinpeng in also selling their K27 or other products in the U.S.? And lastly, any new updates on the Jinpeng relationship, which might include using their massive international dealer network to export Kandi EVs? Thanks.

This year, the off-road vehicle sales have been unexpectedly strong, and we anticipate them to double last year’s sales. Michael Pfeffer from Oppenheimer asked about our arrangement with Jinpeng regarding the sale of their K27 and other products in the U.S., as well as any updates on our partnership with Jinpeng, particularly about leveraging their extensive international dealer network to export Kandi EVs. Thanks.

You asked two questions. First, our cooperation with Jinpeng is mainly in two aspects: The first is joining production of model K27, and the second is cooperation together in the domestic ride-sharing market. I do believe that both things are progressing well, even though it is impacted by the pandemic, but I think it’s still on the right track. And for K27, I estimate probably by the end of this month, if everything goes smoothly, we will start shipping the cars to the U.S.

Thanks a lot.

Thank you.

Your next question is from the line of Mark Kahnau with Swiss Liquid Future. Please proceed with your question.

Yes, good evening Mr. Hu. Good morning, Kewa. I have a few questions here. Just an intro for these questions, from a recent press release, it appears in the 300,000 government-accredited third and fourth tier city, ride-hailing using Kandi EVs, like the K23 and quick battery exchange, had begun a trial mode before the virus hit late last year in Yongkang. This was a partnership with Jinpeng and Ruibo. In a recent published interview, Mr. Hu gave a very clear explanation of the partners’ backgrounds, the partnership in general and its unique business model along with the responsibilities of each partner as well as how each will get paid. For the sake of many shareholders who are on this call or will read the transcript who have not seen that interview, can Mr. Hu share with us what he said in the interview? And when he finished, I have a few more questions.

Thanks for the question.

Thanks for the question.

Can Mr. Hu share with us what he said in the interview? And when he finished, I have a few more questions.

Can Mr. Hu share with us what he said in the interview? After he finishes, I have a few more questions.

The ride-sharing vehicle alliance is actually a triparty alliance. Ruibo is currently the largest battery swap ride-sharing company in China with a state-approved online ride-sharing platform license. Jinpeng has more than 2,000 dealer resources in Tier 3 and Tier 4 cities nationwide. Therefore, Kandi will use its experience and influence in this field to promote the formation of the compliant ride-sharing alliance. Jinhua will utilize its dealer resources to support the growth of the alliance, and Ruibo will be responsible for operations of the ride-sharing project. The compliant ride-sharing alliance is composed of pure electric vehicle manufacturers, ride-sharing operators and operating platform, energy suppliers, which is the battery swap and swapping, and drivers. The profit will come from all parties of the industry trend. This is to say, pure electric vehicle manufacturers generate profits from car sales. Ride-sharing operators and operating platforms generate profits from rent and platform usage fees, energy suppliers generate profit from battery swapping, and the drivers generate income from their daily operations. That’s pretty much what I said in the interview.

Okay, very good. And now here are a few more questions. How is the Yongkang City trial going on, and when does he expect new cities to be added?

The Yongkang City trial is progressing well, and we anticipate adding new cities in the near future.

How is the Yongkang City trial going, and when does he expect new cities to be added?

You actually need a license in order to do the trial operation. All the licenses required for the trial have been approved for Yongkang. So operations have not truly started again due to the pandemic. There are many dealers in Tier 3 and Tier 4 cities wanting to join the alliance. After Yongkang starts operations, and once the pandemic is well controlled, we are going to hold offline meetings with dealers from Tier 3 and Tier 4 cities to sort out the new cities to be added. By then, I will keep everyone informed on how many new cities will be added.

Okay, very good. In addition to the K23, which is still primarily for ride-hailing, does Kandi have a second priority EV expected for release this year? If so, even if nothing specific for now, can you at least give us some idea of the size and the sale price?

We are planning to hold offline meetings with dealers in Tier 3 and Tier 4 cities to identify new cities for expansion, and I will keep everyone updated on the number of new cities that will be added. Additionally, regarding the K23, which is mainly for ride-hailing, is Kandi expecting to release a second priority EV this year? If that’s the case, even without specific details at the moment, could you provide some indication of its size and sale price?

In addition to the K23, which is still primarily for ride-hailing, does Kandi have a second priority EV expected for release this year? If so, even if nothing specific for now, can you at least give us some idea of the size and the sale price?

We are going to upgrade the original K23 model this year, but now there’s no new model to be launched.

Okay. On the last CC, Mr. Hu said that due to the COVID-19 virus, the government was temporarily discouraging the release of ride-hailing. Assuming this temporary block has been lifted, have we added new cities? If so, how many and when do you expect the first sale?

We are going to upgrade the original K23 model this year, but now there’s no new model to be launched. Okay. On the last earnings call, Mr. Hu mentioned that due to the COVID-19 virus, the government was temporarily discouraging the release of ride-hailing. Assuming this temporary block has been lifted, have we added new cities? If so, how many and when do you expect the first sale?

We are planning to upgrade the original K23 model this year, but currently, there is no new model set for launch.

Most of these questions I will be answering in the question A, but like I said, actually, right now, the pandemic is still not fully contained. We still need to have temperature checks whenever we’re going into and leaving public places, and we still have to practice social distancing. Large conventions and group meetings are still not encouraged. Therefore, what we can do right now is to do all the preparation work. Hopefully, once the pandemic is fully contained, we are going to move forward quickly. By then, I will certainly report on the progress we have made, including how many cities and the plans we are going to have to move forward.

Okay. And then I have a last question. Will we be selling the K23 or other EVs to consumers in China? If so, what sales network will you be using?

Given the current circumstances, we are focusing on preparation work for when the pandemic is fully contained. At that point, I will update on our progress, including the number of cities and our plans for the future. Mark Kahnau, Swiss Liquid Future Analyst, asked if we will be selling the K23 or other EVs to consumers in China, and what sales network will be utilized for this.

What we can do right now is focus on all the preparation work. Once the pandemic is fully under control, we aim to proceed rapidly. By that time, I will provide an update on our progress, including the number of cities involved and our plans going forward. Mark Kahnau, Swiss Liquid Future Analyst, asked if we will be selling the K23 or other electric vehicles to consumers in China, and what sales network we will use. Kewa Luo, Operator.

The K23 model is only going to be used for the ride-sharing program in China as of now. This car will also be sold in America. Therefore, we are not using any third-party or any sales channel to sell the K23, just our internal sales team. Once this is deployed, I expect the sales volume for K23 to be huge. In America, we will conduct sales through SC dealers' sales channel.

Okay, very good. Thank you for taking my questions and look forward to the rest of the year.

Thank you very much.

Thank you. The next question is from the line of Terry McLemore with SCF Securities. Please proceed with your questions.

Thank you for taking my call. I have a couple of questions about—continuing on Art’s question about the Jinhua facility. Where are we right now in our current facility? Like how close are we to exiting it and turning it over and being fully paid? And then the second part of that would be, what’s the new facility like? How big will it be? How much will it cost? And what will we produce there?

Thank you for taking my call. I have a couple of questions about the Jinhua facility. Where are we right now in our current facility? How close are we to exiting it, turning it over, and being fully paid? The second part of that is, what’s the new facility like? How big will it be, how much will it cost, and what will we produce there?

Thank you for taking my call. I have a couple of questions about continuing on Art’s question about the Jinhua facility. Where are we right now in our current facility? How close are we to exiting it and turning it over and being fully paid? The second part of that would be, what's the new facility like? How big will it be? How much will it cost? And what will we produce there?

The new land plot right now is being leveled by the government. We expect this to be delivered to us for full construction in July 2020. The new land plot will occupy approximately 100 acres, but the construction area will be equivalent to the old factory, about 100,000 square meters, because the old factory buildings were all single-storey buildings, while the new factory buildings will be 4-storey buildings. The construction period is planned to be about 6 to 8 months. We will move in immediately after the factory buildings are completed, and it will produce existing products and probably some intelligent mobility release products as well. Also, I’d like to mention that it’s still going to be our home base headquarters for Kandi.

The new headquarters for Kandi? Okay.

Yes, yes.

Okay. One other question, kind of on a different subject regarding Geely and the equity transfer agreement, where Geely may still owe Kandi some $30 million; the balance has been paid off. How much is outstanding? When do you expect Kandi to be paid in full? Does Kandi still hold debt to it by the JV or prior EV part sales? If so, how much, and when do you expect Kandi to receive it?

Thank you.

Thank you.

The equity transfer to Geely should generate RMB516 million. As of right now, we have received RMB330 million, and the remaining balance is RMB186 million. As of the first quarter this year, the receivables from the joint venture total RMB128 million. I have to say again, because of the pandemic, everything has been delayed. We have been keeping discussions with Geely. Hopefully, the remaining balance will be paid. Another thing is that we have heard from some government news that they will start paying. So once they start paying, I think the receivable will also be paid quickly after that. But if you want to ask an exact time, it’s really hard to predict.

I totally understand. Thank you very much for taking my questions.

Thank you.

The next question is from the line of John Cronin with a Private Investor. Please proceed with your questions.

Yes, good morning, Xiaoming. Hope all is well. I have several questions. The first one is, what is a conservative estimate of the number of EV cars that Kandi will actually sell in 2020 in China? The next question, why is it we seem to be in the correct price segment, and with the impact of COVID and now presumably have access to Geely distribution and marketing, why does Kandi consistently sell fewer cars than most of the competitors? Is it because of design problems, the margin? What is holding up sales? Can we expect things to change as of May 2020? Will the rest of the year see accelerating sales, such as NIO, Geely, BYD, and Tesla?

Can you provide details on the number of cars Kandi is expected to sell in China in 2020? Additionally, despite being in the right price segment and having access to Geely's distribution and marketing due to COVID, why does Kandi continue to sell fewer vehicles than its competitors? Is it due to design issues or profit margins? What factors are limiting sales? Can we anticipate any changes starting in May 2020, and will sales see a boost for the remainder of the year similar to companies like NIO, Geely, BYD, and Tesla?

Why does Kandi consistently sell fewer cars than most competitors despite being in the correct price segment and having access to Geely's distribution and marketing? Are there design issues or margins affecting sales? Can we expect a change starting in May 2020, and will the rest of the year see an acceleration in sales similar to NIO, Geely, BYD, and Tesla?

Yes, the joint venture—we used to have a joint venture for selling cars, but I have to say our EVs compared to most of those EVs in the market are not as competitive as other EV offerings. However, once the joint venture is managed by Geely, they have completely changed their product portfolios. Right now, they have a very high standard, nice design, and great performance EVs, and I believe that it’s going to change everything—the EV sales are going to ramp up going forward.

Okay. Do you have an exact number of the EVs, a conservative guess on how many you’re going to be selling in 2020?

Are you asking for Fengsheng, our joint—our affiliate company EV sales target this year?

Yes, just Kandi EV sales.

Right now, they have a very high standard, nice design, and great performance electric vehicles, and I believe that it’s going to change everything—the electric vehicle sales are going to increase going forward. Do you have an exact number of the electric vehicles, a conservative estimate on how many you’re going to be selling in 2020? Are you asking for Fengsheng, our affiliate company’s electric vehicle sales target this year? Yes, just Kandi electric vehicle sales.

I'm sorry, I cannot assist with that request.

I would estimate Kandi will have about 2,000 EV sales for this year, only K23; this doesn’t include K27.

Okay, thank you very much, and stay well.

Thank you.

Thank you. At this time, we’ve reached the end of our question-and-answer session. Now I’ll hand the floor back to management for closing remarks.

I would estimate Kandi will have about 2,000 EV sales for this year, only K23; this doesn’t include K27.

Thank you, ladies and gentlemen, for attending today’s call. On behalf of the Board of Directors and management team of Kandi Technologies Group, I would like to reaffirm our commitment. We will continue to work diligently to maximize shareholder value by focusing on growing our EV business and delivering strong operational results. Thank you very much for your support. We look forward to talking with you in the next call. If you have any additional questions you haven’t had a chance to ask, please don’t hesitate to contact our Investor Relations department. Thank you. Goodbye.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.