Kandi Technologies Group, Inc. Q3 FY2020 Earnings Call

Greetings and welcome to the Kandi Technologies Third Quarter 2020 Financial Results Call. All participants are currently in listen-only mode. A question-and-answer session will follow the presentation. This conference is being recorded. I will now hand the conference over to your host, Kewa Luo, Investor Relations Manager. Please proceed.

Thank you, operator. Hello, everyone. Welcome to Kandi Technologies Group third quarter of 2020 earnings conference call. The company released the results earlier today. The press release is available on the Investor Relations section of Kandi's website at www.kandivehicle.com. With us today are Mr. Hu Xiaoming, Kandi's Founder, Chairman, and Chief Executive Officer; and Mr. Alan 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 discussions 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 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, an 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, Kewa. Hello, everyone. Thank you for joining us on the call today. As you know, the COVID crisis impacted business activities globally, negatively affecting many sectors, including electric vehicles and Kandi's business. However, through significant efforts, we resumed production by leveraging our specialized advantages. We transformed battery swap technology and research and development of powertrain systems into production, secured partnerships, and found opportunities to showcase our expertise and use cases in this field. We identified several opportunities in intelligent expectations, which further confirmed our leadership position in the industry. We will continue to explore opportunities in smart EVs while advancing our main product and increasing market share. I would like to summarize recent developments and major milestones we achieved. In August, we delivered our first fully automated intelligent battery exchange system to a rideshare operator in Haikou, Hainan, China. Meanwhile, Kandi America successfully held a virtual event to launch K23 and K27 EVs into the U.S. market. In September, we established a wholly-owned subsidiary for our battery swap service called China Battery Exchange Technology, which aims to lead the battery exchange sector. In October, we formed a strategic agreement with the State Grid of China to collaborate in our area of expertise, battery exchange for pure electric vehicles. We also launched a government-accredited pure EV rideshare program and began delivering 1,000 EVs to Haikou and 2,500 EVs to Shaoxing. Recently, we announced plans to list Zhejiang Kandi Smart Battery Swap Technology Company on the Shanghai Stock Exchange’s STAR Board. We believe our battery swap business is poised for rapid growth with support from capital in China, which is great news for Kandi shareholders. We remain optimistic about our market opportunities and the potential market share for Kandi. Now, let my CFO Alan answer your questions. To save time, Alan will respond to your questions in English. If there’s something Alan is uncertain about, I will take over.

Thank you. We will now move into the question-and-answer session. Your first question comes from Marla Marin with Zacks. Please go ahead with your question.

Thank you. So can you provide a little bit more color on the North American strategy as it pertains to production capacity closer to the end market and how you feel that will benefit the company? Thank you.

Hi, good morning, Marla. So you’re talking about our strategy to help expand our capacity especially for the electric vehicles, right? Just to clarify, I understand.

Yes.

Okay. So, well, I will start with my answers and we'll have Mr. Hu elaborate for more detail. Basically, we are manufacturing our EVs primarily in our facilities in Hainan to meet the need in our China and U.S. market. Our capacity can currently meet the needs, including our car-hailing platform in China. We are preparing ourselves in the U.S. and for now, I guess our capacity in Hainan can meet the demand. For our thorough strategy for expansion, I will allocate to Mr. Hu to give a third explanation.

So Marla, as Mr. Hu confirmed, we can meet the needs for the foreseeable future. Our facilities in Hainan can support our operations, and we will explore different options as we move forward.

Thank you.

Welcome.

Your next question comes from the line of Arthur Porcari with Corporate Strategies. Please proceed with your question.

Congratulations Mr. Hu on achieving some immense milestones for Kandi during this conference call. Of course, you've covered a few of those, but the two that impressed me especially are the strategic partnership with the State Grid, which is China's massive electric utility, and the involvement of China's largest investment bank CICC to lead an IPO syndicate for Kandi’s battery subsidiary. Can you elaborate on that?

I think you can proceed with the questions.

Thank you. In the press release, Mr. Hu said the two parties will cooperate extensively across the whole supply chain. Can you discuss three key areas you are focusing on in this partnership?

First of all, we have dozens of patents in the field of battery swaps that we will leverage with the State Grid for developing our technologies.

Is there anything unique about the company's battery recycling technology?

Yes, we do have the technology to accept the battery cycling process, including separation and recovery processes for various battery components. Our recycling efficiency is generally 50% to 60%.

Is there a difference between Kandi’s battery recycling technology and others?

Yes, the efficiency of Jinhua An Kao’s technology is significantly higher than the industry standard, achieving over 50% recycling efficiency.

Is the 'flexible control of power load exchange' similar to the B2G technology?

Yes, the technologies we're developing are similar, and designed to maximize efficiency.

Why has State Grid found Kandi's technology attractive for partnering again?

Kandi has a strong track record in battery swap technology and automation, which makes our partnership attractive to State Grid.

What is the capacity of your facility in Hainan?

Our Hainan facility can produce up to 100,000 cars a year.

Looks like a great quarter coming up. Thank you.

Thank you.

Your next question comes from the line of Joel Cramer, private investor. Please proceed with your question.

Yes, it seems that Kandi, both in China and the U.S. is starting to pick up real positive momentum. Can you update us on your joint venture with Geely Holdings?

The joint venture has been involved in market competition, but the development of Fengsheng is lower than expected, and we are working with Geely to refine our plan.

Thank you.

Thank you.

Your next question comes from the line of Walter Hill with Carty & Company. Please proceed with your question.

Can you clarify some points from your recent press release concerning the Zhejiang Ruiheng Technology?

Sure, I will address your questions point by point. First, the accredited program is a legal online car-hailing platform that has government approval.

What is the responsibility of the partners involved?

Kandi sells EVs and swap equipment, while Jinpeng promotes the program through their distribution network, and Ruibo manages the platform operations.

Will all 3,500 vehicles be delivered by the year's end?

We are working on delivery but cannot confirm specific numbers until the project's progress is established.

Can we assume Kandi will provide all 300,000 vehicles for the program?

The 300,000 EVs mentioned are part of a long-term goal, but actual numbers will depend on demand and development.

Thank you.

Thank you.

Your next question is from the line of Michael Fearnow with Focus Tech Investments. Please proceed with your question.

Can you update us on the joint venture with Geely Holdings?

At present, we are negotiating with Geely Technology about the exercise of options and have no concrete conclusions yet.

Is it correct that Kandi can purchase equity back from the joint venture?

Yes, we are exploring that option but have not reached a conclusion yet.

Thank you for your answers.

Thank you.

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

Is the mobile battery exchange unit feature available for all Kandi EVs?

Yes, it works with our K23 and is adjustable for other electric vehicles.

Where does Kandi stand compared to competitors?

We are one of the pioneers in the market with a 90-second automatic swap system, which makes us competitive against others.

Thank you for your response.

Thank you.

Your next question comes from the line of Richard Goldstein with National Securities. Please proceed with your question.

I have questions about the spinoff and IPO of Kandi's battery-swap subsidiary. Can you tell us what attracted CICC to lead the IPO?

Our technology and experience in the battery swap market are key factors that attracted CICC to lead the project.

What is the expected size of the IPO?

We are still working on the specifics, but we are optimistic about the project's success.

Will U.S. investors be able to participate in the IPO or buy shares on the STAR exchange?

U.S. investors can participate through standard channels and buy shares through the Shanghai-Hong Kong Stock Connect.

Is there a timeframe for this battery exchange listing?

We are still exploring timing and want to ensure the best outcome for our investors.

Thank you very much.

Thank you.

Your next question comes from the line of Mike Pfeffer with Oppenheimer. Please proceed with your question.

Can you comment on the recent analyst valuation and revenue estimates?

We respect the estimates and will let our upcoming financial statements speak for themselves.

Will there be updates from the analyst soon?

Yes, we will disclose updates in our financial statements.

Expect more positive coverage?

Please stay tuned for any upcoming research reports.

Thank you for your time.

Your next question comes from the line of Frank Blatterman with Private Investor. Please proceed with your question.

What is the current assembly line output and the model vehicles being made at Hainan?

Currently, our Hainan facility has about 300 employees working on the K23 model for the rideshare market.

Is the battery-swap station in operation? If so, how many swaps are made daily?

The station in Haikou is in trial operation, with about 20 to 30 swaps performed daily.

Thank you for the information.

Thank you, Frank.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to management for closing remarks.

Thank you, ladies and gentlemen for attending today’s call. On behalf of the Board of Directors and management team at Kandi Technologies Group, I reaffirm our commitment to maximizing shareholder value by growing our main EV business and expanding our battery swap system expertise. We look forward to delivering our operating and financial results in the upcoming quarters. Thank you for your support. We look forward to talking with you in the next call. If you have any additional questions, please do not hesitate to contact our Investor Relations department. Goodbye.

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