Kandi Technologies Group, Inc. Q4 FY2021 Earnings Call

Greetings. Welcome to Kandi Technologies Full Year 2021 Financial Results Call. Please note, this conference is being recorded. I will now turn the conference over to Kewa Luo, Investor Relations Manager. Kewa, you may now begin.

Thank you. Good day, ladies and gentlemen. Thank you for standing by and welcome to Kandi Technologies Full Year 2021 Earnings Conference Call. As a reminder, we are recording today; if you have objections, you may disconnect at this time. Hello, everyone. Thank you all for joining us today to discuss financial results for the full year of 2021. Earlier today, we issued a press release covering the results; you can find the press release on the company’s website as well as on the newswire services. On the call with me today are Mr. Hu Xiaoming, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Mr. Hu 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 that 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 obligations to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO and Chairman, Hu Xiaoming.

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 obligations to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO and Chairman, Hu Xiaoming.

Thank you, Kewa. Hello, everyone, and welcome to our conference call today. I’m happy to share our business and financial results for the full year 2021. Kandi was able to get back on track with meaningful sales growth in 2021. This turnaround was the result of strategic actions we took to respond to a changing market landscape after the pandemic broke out in 2020. Also important highlights of 2021 was a remarkable growth of revenue in the electric scooter, electric self-balancing scooter and associated parts sales business. This segment accounted for nearly 33% of total annual sales, growing approximately 120% versus last year. Originally, our primary business operations were composed of designing, developing, manufacturing and commercializing EV products and EV parts. However, in recent years, as the market got more crowded, some Chinese EV companies decided to chase market share with aggressive pricing, running huge losses. While China’s EV market took off early compared to other major economies, we believe that its EV market has not reached a healthy and orderly stage of development. Therefore, considering our financial conditions and the interest of shareholders and other stakeholders, we think it’s unwise for us to participate in this lost competition or risk to the bottom. Hence, we decided to take the initiative and optimize the supply chain to find more viable business opportunities by leveraging our unique technological and operational strength in specific areas. We firmly believe the battery swap is a prerequisite to universal adoption of EVs by leveraging our advanced EV intelligent battery swap equipment, manufacturing capacity of EVs with intelligent battery swap mode and dozens of patented technologies in battery swap, we will continue to build our position in the field of online car-hailing with battery swap mode and will make full efforts when China’s EV market enters a more healthy development stage. Looking at the off-road vehicle business, the industry is gradually shifting its focus to electrification. In 2022, we will apply EV technology to off-road vehicle products and launch a variety of pure electric utility terrain vehicles, neighborhood EVs, golf carts and off-road crossover vehicles. Our plan is to fully utilize our expertise and know-how in making electric vehicles by expanding to off-road vehicles. We will strive to become the market leader in this field in China within 3 years. To sum up, we ended 2021 with initial success in business transformation with sufficient capital from the government payment related to our facility relocation and with more business flexibility after exiting the joint venture. Looking forward, we are making full effort to develop products to enter the market for pure electric off-road vehicles, incorporating our EV technology. We expect more opportunities ahead in the EV market in China once it enters a more stable growth mode. We believe there are plenty of opportunities to benefit from the industry’s development of EVs and electric off-road vehicles in the future.

We are focused on developing products to enter the market for pure electric off-road vehicles, integrating our EV technology. We anticipate more opportunities in the EV market in China as it stabilizes. We believe there are numerous prospects to capitalize on the industry's growth of EVs and electric off-road vehicles in the future.

Now let’s start the Q&A session. Kewa will take any English questions and translate for me. Operator, please go ahead.

Our first question is from Frank Laderman, a private investor.

Mr. Hu, I have 2 questions prepared for today’s conference call. One involving the status of the Hunan Hengrun battery swap and the other involving the status of the K23 and K27 in the United States. In light of your statement in today’s PR, I am assuming that these are dead in the water at this time. Is that correct?

Hello, Frank.

Yes. Can you hear me?

Yes, I can hear you. Your last part is whether, what get in the water?

The status of the K23 and K27. Also the status of the Hunan Hengrun battery swap. It looks as though we’re no longer going to be in that line of business at the present time and I’m looking for clarification is that is my understanding that it’s correct. And then I have 1 other short question.

Can you provide an update on the K23 and K27, as well as the Hunan Hengrun battery swap? It seems like we are stepping away from that business line at this time, and I want to confirm if my understanding is accurate. I have one more brief question as well.

Can you hear me? Yes, I can hear you. Your last part is about what is happening in the water. The status of the K23 and K27. Also the status of the Hunan Hengrun battery swap. It seems that we are no longer pursuing that line of business at this time, and I would like to confirm if that understanding is correct. I have one other brief question.

Hello, Frank. We have two questions to address. First, regarding our collaboration with Hunan Hengrun, which is an R&D company licensed to manufacture electric vehicles in China. We are currently working with them at a production factory in Hunan to complete the necessary filings. We expect to finalize this with the government around the second quarter of this year, enabling us to begin taking orders and selling our K23 electric vehicles, which feature battery swapping. As for our K23 and K27 sales channels in the U.S., we face challenges due to Department of Transportation safety requirements regarding airbags. Initially, we needed EPA approval for highway use in the U.S., but we've discovered the safety requirements involve a self-filing process. The airbag standards differ between the U.S. and China, as well as between China and European countries. Specifically, the U.S. requires airbags to accommodate varying driver sizes, which differs from Chinese standards, and this has necessitated significant time and investment to comply with DOT safety requirements. We are diligently working on this, but the timeline for completion remains uncertain. To move forward with production, we are adopting a parallel approach: refining our airbag requirements while simultaneously selling the K23 and K27 NEV versions in the U.S. We have already entered the market and started delivering our products to customers.

And I have 1 further question, which you may have already answered. Is the company going to pursue an electric vehicle manufacturing license in China or by affiliation or preferably on its own in the future?

Are you asking whether we’re going to apply our own production license...

Well, the answer I just received apparently addressed the first part. We’re going to operate using the license of Hunan Hengrun now. In the future, are we going to pursue a stand-alone license or is that undecided at this time?

Are we going to pursue an electric vehicle manufacturing license in China on our own in the future? The answer I just received indicates that we will operate using the license of Hunan Hengrun for now. In the future, are we going to seek a stand-alone license or is that still undecided?

Are you asking whether we’re going to apply for our own production license? The answer I just received apparently clarified the first part. We’re going to operate utilizing the license of Hunan Hengrun for now. In the future, are we going to pursue a stand-alone license or is that undecided at this time?

As for your questions, as you may know, a few years ago, the license of manufacturing EV was highly sought and was difficult to apply. When the market started to develop, many smaller companies got phased out in the market. Currently, it’s easier to acquire those licenses through the acquisition of companies. From our approach, we plan to, at the right moment in the future, acquire those companies with the license alone to consolidate them into our listing structures instead of applying for the license from the local government because application may be more difficult to go through. So our approach is to look for the suitable targets and complete our acquisitions in the future for those companies holding the license of manufacturing EV.

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

I'm having difficulty connecting to the operator for the call. Also, Kewa, when you began, I found it hard to understand you, but it cleared up later. It's been a fairly good year, especially compared to others in the industry in China. The stock price is surprising, closing at $2.52 yesterday with a market cap of just $194 million. This values the company, which is nearly debt-free, at a significant discount to its total cash of about $223 million—or just under $3 a share. This includes all cash categories, such as restricted cash and CDs. I don't understand why the $59 million in CDs wasn't included in your press release. At this price, the stock trades at nearly a 60% discount to its book value, with total assets of $520 million against just $77 million in liabilities, yielding a positive ratio of 7:1. From a valuation perspective, current assets are $343 million versus current liabilities of only $64 million, resulting in a current ratio of 6:1 and positive working capital of $274 million, or $3.70 per share. The stock is currently at $2.5. Notably, three months ago, on December 6, the stock was at $3.86, over $1 higher, when the company announced a $20 million share buyback. Yet, today, the stock is still down over 30% since that announcement. Finally, the insider buy-to-sell ratio has been very bullish over the past 14 years. I've been in the market for more than 48 years, since the dollar was trading at $5.86 in 1974. Throughout that time, until Kandi, I've never observed such a widespread disconnect between individual equity and the market, particularly in the NASDAQ global market for a relatively high industry like EVs. With that said, I have a couple of questions.

Okay. Let me transfer first so far. Go ahead, Art.

Okay. Going back to a couple of conference calls ago, the Q2 ‘21 conference call. With the stock traded almost double the current price, in response to a similar undervaluation question. The CFO also felt the stock was quite undervalued at that time and told shareholders he would personally take responsibility to work in improving Kandi’s perception in the stock market. Can you give us an update how that’s coming along?

Going back to a couple of conference calls ago, during the Q2 ‘21 conference call, the stock was traded at nearly double the current price in response to a similar question about undervaluation. The CFO believed the stock was quite undervalued at that time and stated that he would personally take responsibility for enhancing Kandi’s perception in the stock market. Can you provide an update on how that effort is progressing?

Kewa Luo|Investor Relations Manager|

Sure. And I can answer the question more directly. So we and our team and also the IR firm has been reaching out to the analysts and different investors on a routine basis to let them understand the plan and then operation status of the company in order to improve our company’s perception in the stock market. We believe that if they understand better, it can help them to have more confidence in investing in our stock.

Why do you think you’re able to attract their attention? It seems you've caught Invesco’s interest, as they've been increasing their investments recently, moving to number two on their list for their special fund. We've risen to number two from number eight in the consumer discretionary sector just a month ago. Clearly, they appreciate what we’re doing. However, it seems undeniable that our stock is undervalued; we’re trading at less than half our book value and even at a significant discount to our net cash on hand. So, can you provide an update on how many shares the company has repurchased to date through the stock buyback program?

Ink is now ranked #2 on their list in the EV, which is their special fund. We’ve moved up to #2 from #8 just a month ago in the consumer discretionary sector, so at least they have a favorable view of us. It seems like an obvious opportunity with the stock trading at less than half of its book value and a significant discount to the net cash in the bank. Anyway, could you share how many shares the company has repurchased through this stock buyback program so far?

We’re currently ranked #2 in the consumer discretionary category, up from #8 just a month ago, which indicates a positive reception. The stock seems like an obvious choice, trading at less than half its book value and with a significant discount to the net cash held in the bank. Moving on, could you provide an update on how many shares the company has repurchased to date through the stock buyback program?

So we are sticking with our plan for the share buyback at the moment. And as a matter of fact, the company has bought back the shares back in the end of last year, and beginning of this year with over USD 4 million to acquire and buy back more than 1.1 million of shares, and we will stick to the plan and proceed with our share buyback transactions in the future at the right timing.

1.1 million shares have been traded, and for the last three months, the trading has been at close to cash value. A couple of years ago, the company repurchased a similar number of shares for up to $5.50 each. It’s frustrating to see $139 million in cash, especially when considering the $59 million in CDs, which are not even counted. Why not use one-third of the cash for a Dutch tender offer at around $4 a share? This could allow for the buyback of about 18 million shares, similar to the amount sold 1.5 years ago, raising $160 million at an average price of $8.80. If action isn’t taken soon, the company risks being left among the few certified Chinese companies that are safe from delisting, and a savvy private equity investor might act first.

You have a substantial amount in CDs that isn't even being counted. Why not use a third of that cash for a Dutch tender offer, perhaps at $4 a share? I could potentially offer even less. This could lead to a buyback of around 18 million shares, similar to the 1.5 years ago when you raised $160 million at an average price of $8.80. If action isn't taken soon, with the looming certification of remaining PCA companies that are secure from delisting, it's possible that a savvy private equity firm could take the initiative first.

Take one-third of the cash and consider a Dutch tender offer, possibly at $4 per share. I might even manage to do it at a lower price. This would involve buying back approximately 18 million shares, which is similar to the amount sold 1.5 years ago when we raised $160 million at an average price of $8.80. If immediate action isn’t taken, we may soon be one of the few certified Chinese companies that are safe from delisting, and we could risk a private equity firm moving ahead of us.

Thank you for your advice and suggestions, Art. And we’ll stick with our own share buyback plan, and we’ll definitely buy additional portion of the shares in the future at the right timing. So right now, we are still considering all the conditions and we will proceed with further buyback in the future.

At the rate you’re buying back shares right now, you’ve allocated $20 million through the end of this year. To my understanding, the current rates you’re buying back at mean you need to accelerate your plan if you hope to reach that $20 million, otherwise you might disappoint the shareholders. I don't think you want to do that. It seems like you need to pick up the pace. Why wouldn’t you want to do it with the cash you have on hand? It just doesn’t make sense to me. That said, I’ve been here for 14 years and expect to be around for a couple more. Anyway, you’ve performed well this past year, especially considering the challenges everyone else has faced. Your analysts believed you would report a GAAP loss of $0.19 per share, but you ended up making $0.30. I guess that’s one reason why they’re likely not with us anymore.

It’s just insane to me. But either way, I’ve been here 14 years, and I guess I’ll be here another couple of years. You did a great job this past year considering what everyone else has had to face. Even your analysts expected you to lose $0.19 a share for the year from a GAAP loss of $0.19, and then you ended up making $0.30. I guess that’s why she’s probably not around anymore. But anyway ...

But either way, I’ve been here for 14 years and I expect to be here for a few more. Regardless, you have done a great job this past year considering the challenges everyone else has faced. Even your analysts predicted a GAAP loss of $0.19 per share for the year, and you ended up making $0.30. That’s likely the reason she’s probably not here anymore. But anyway...

Thanks again for your support and consideration. Of course, we would like to have the better use of our cash on hand. In order to improve our fundamental R&D expenditure is key to us. So I guess, at the moment, we try to plan ahead and have the better use of these proceeds in order to spend on our new products because we believe that with new products on the market it can improve our financial position and hence, improve our company’s stock value in the market. It definitely gets undervalued at the moment, but then we believe that the market is somehow irrational at the moment. And hopefully, you will see back to normal trends in the future.

The irrational market, you should be taking advantage of. But thank you. That’s it for my questions.

Our next question comes from the line of Walter Hill with Carty & Company.

Recently, there has been renewed concern regarding U.S. companies trading Chinese stocks being forced to delist due to the refusal of either the companies or the Chinese government to allow audits by the PCAOB. Companies like Didi, NIO, Alibaba, JD, Nedis, and many others are facing significant pressure and are already making plans for listings in China or Hong Kong. This was evident last Friday when the average share price of Chinese stocks dropped by 10% to 40% or more, with continued declines observed yesterday and again this morning in premarket trading. Shareholders of Kandi have been informally assured during conference calls that the company does not face the same risks; Kandi is categorized as a CCAR rather than an ADR and has been PCAOB certified, fully compliant with U.S. SEC and stock exchange audit requirements since 2019. Despite this, Kandi's stock has been severely impacted, experiencing an 11% decline to the mid-2s. I urge Mr. Hu and the CFO to clearly outline for the record the measures Kandi's management has taken since 2019 to prevent Kandi shareholders from facing similar forced delisting concerns that many U.S.-traded Chinese stocks, which comprise about 90%, are currently facing. Additionally, a press release should be issued stating that Kandi is a CCAR, not an ADR, and is PCAOB certified and fully compliant with all SEC and stock exchange regulations. The average investor does not read a 10-Q and primarily relies on press releases for information. Many potential investors may not be aware of this information regarding Kandi, so it is crucial to communicate it effectively.

Thank you for your question.

The average investor is not familiar with the details of a 10-Q and usually relies on press releases for their information. Many people interested in Kandi are unaware of this. It’s important for you to take action and communicate this information effectively so that the average investor is informed. Let's make this happen. Thank you for your question.

Thank you for considering this topic and for your advice. As you may know, noncompliant companies among Chinese-based stocks will face delisting from the stock exchange due to the Holding Foreign Companies Accountable Act. A key issue is that auditors who cannot be inspected by the PCAOB pose a risk. To address this, our company has hired an auditor based in the U.S. since 2019 who can be inspected by the PCAOB through routine inspections. This steps reduce our risk and we are confident that we do not face the same risks of being delisted. This information is included in our upcoming 10-K under the risk factor disclosure. Additionally, we will evaluate the best ways to comply with disclosure requirements and communicate this information to investors beyond our 10-K. Thank you.

Well, all I can say is that needs to be done, and it needs to be done now. Don’t give me all this garbage that we’re going to do this or that. You guys do not ever follow through on anything and people are getting sick and tired of having their stock go down. And if you don’t think now is the time to buy the stock, then you all need to be fired. We need to get rid of you all and get somebody else in there in your place.

All I can say is that it needs to be done, and it needs to be done now. Don’t give me all this talk about what you’re going to do. You never follow through on anything, and people are getting frustrated with their stock declining. If you don’t think now is the right time to buy the stock, then you all need to be replaced.

Well, all I can say is that needs to be done, and it needs to be done now. Don’t give me all this talk about what you're going to do. You do not follow through on anything, and people are getting frustrated with their stock declining. If you don’t believe now is the time to buy the stock, then you all need to be replaced. We need to get new leadership in there.

We understand your concern and frustration, and we definitely will try to do that.

Our next question is from the line of Harold Gabry, a private investor.

My question is, what is the status of Kandi’s special products like manufacturing of third-party parts such as for the hoverboard or other third-party EV parts and product sales like EV motors, batteries? Because it’s clear in past filings that Kandi is making third-party sales of parts and products, but other than the hoverboard motors and batteries, we never hear about the other parts and products. Can Mr. Hu tell us what is going on in this segment, both future and present?

My question is about the status of Kandi's special products, including the manufacturing of third-party parts for items like hoverboards and other electric vehicle parts, as well as product sales such as electric vehicle motors and batteries. Past filings indicate that Kandi has been involved in third-party sales of these parts and products, but aside from hoverboard motors and batteries, we don't receive updates on the other items. Can Mr. Hu provide insight into this segment, including both current activities and future plans?

Can Mr. Hu provide an update on Kandi's special products, including the manufacturing of third-party parts like hoverboard components and other EV parts, as well as product sales such as EV motors and batteries? It's evident from previous filings that Kandi is engaged in third-party sales, but aside from hoverboard motors and batteries, we rarely receive updates on other parts and products. Could he elaborate on the current status and future prospects of this segment?

So thank you for your concern. So as a matter of fact, we are aware of the market that, as you may know, in the Chinese market, the EV companies, they’re trying to chase the market share, the occupancy with very aggressive pricing and even running huge losses with the aggressive approach. While in the China’s EV market pulled off early compared to other major economies like the U.S. or European countries, we believe that the EV market has not reached a very healthy and orderly stage of the development. Therefore, considering our financial conditions and the interest of shareholders, we think that it’s unwise for us to participate in this loss competition at the moment. We firmly believe that the battery swap is definitely a prerequisite to universal adoption of EVs in the future. So by leveraging our advanced EV intelligent battery swap equipment technology and then the manufacturing capacities of the EVs that enable the battery swap features as long as our dozens of patent technologies in such category of the battery swap. We believe that we’ll continue to build our positions and enhance our fundamental in the field of the online car-hailing industries in the market with our battery swap modes. And we definitely make a full effort when the EV market in China enters a more healthy development stage. Apart from that, we are aware that in the whole major markets like the U.S., European countries, those off-road vehicles, ATVs, UTVs, they tend to become more electric than the gas running in the past. So our plan is based on our technology, in 2022, we will launch a few more UTVs, off-road vehicles, and golf carts with pure electric models. With our technology acumen in the past, we definitely believe that we can be in a leading position in 3 years in both China and in the world. That’s our plan and our goal.

One other question Hello? Hello?

Yes.

One other question. Are we supplying other companies with EV products or batteries or are we involved with other companies for our sales?

I’m sorry, say 1 more time. Are we selling the EV parts for other companies? Is that what you asked?

Yes. Do we supply products and parts to other companies that either competition or in the same line that we are in, in the EV, for example?

Are we supplying products and parts to other companies that are either competitors or in the same line of business in the EV sector?

I'm sorry, could you please repeat that? Are you asking if we sell EV parts to other companies?

Yes. Addressing your question, we do with our more advanced technology and experience in manufacturing different parts and battery. We do and have edge to provide such electric vehicle parts and the batteries to other manufacturers. And that’s part of our business.

Our next question is from the line of Paul King with PK Capital Partners.

Our research shows that NIO is leading in battery swap technology stations across China and is expanding globally, with plans to install these stations in Scandinavian countries. This indicates that their technology is gaining recognition. Additionally, we have learned that NIO is collaborating closely with the Chinese government in Beijing, aiming to become the sole provider of battery swap stations in China. What is Kandi's view on this, and how do they plan to catch up to NIO in terms of swap technology?

NIO is expanding its operations internationally and will be setting up battery swap stations in Scandinavian countries, indicating that their technology is gaining recognition. Additionally, NIO is collaborating closely with the Chinese government in Beijing to potentially become the exclusive provider of battery swap stations in China. What is Kandi's viewpoint on this situation, and how do they intend to enhance their own battery swap technology to compete with NIO?

Kandi is aware of NIO's collaboration with the Chinese government in Beijing, aiming to become the exclusive battery swap station in China. What is Kandi's viewpoint on this? Additionally, how does Kandi's battery swap technology intend to compete with or catch up to NIO?

Regarding the China EV market, it is still in an early and unstructured phase. Concerning NIO, their battery swap features are exclusive to their brand. Our aim is that once the necessary investments are made and battery swapping is broadly accepted across various brands, this will elevate the visibility and usage of battery swap technology among everyday users. We don't believe that moment has arrived yet. Our technology, however, allows for its deployment by other brands with some minor customizations. Unlike NIO, we strive to provide our battery swap services to a variety of brands. We will wait for the opportune moment to increase our market presence.

Okay. So you mentioned earlier that producing EV cars in China is not profitable at the moment. So can you talk about the profitability of producing EVs for the car-hailing industry that you mentioned?

You mentioned earlier that producing EV cars in China is not currently profitable. Can you discuss the profitability of manufacturing EVs for the car-hailing industry that you referred to?

We are different from NIO because we focus on providing our battery swap services to other brands. We will wait for the right time to increase our market share. As for the profitability of producing EV cars in China, it is currently not profitable, and we can discuss further about producing EVs for the car-hailing industry that was mentioned.

As for your question, that exactly our thought because in the current market in China EV field is, first saturated. However, it’s not becoming healthy and orderly developed. So it’s not very profitable or even having a huge loss to enter this market. So we try to scale down our EV market share at the moment. And in the meantime, we try to enhance our own battery swap equipment and technology until the moment is right, then we can go into the market. At the moment, we try to focus on the more profitable products such as the electric off-road vehicles, the UTVs and ATVs, golf carts, those products. That’s our focus for this coming year.

I’m sorry, my question with regards to car-hailing. If it’s not profitable to produce cars for the EV market, how is it profitable to produce EVs for the car-hailing business that you’re focusing on?

We are currently concentrating on more profitable products like electric off-road vehicles, UTVs, ATVs, and golf carts as we prepare to enter the market with our equipment and technology at the right moment. That's our focus for the upcoming year.

We are focusing on more profitable products such as electric off-road vehicles, UTVs, ATVs, and golf carts for this coming year.

And as to your question, as a matter of fact, it’s not profitable neither for the car-hailing products because they have similar situations and conditions as other regular EV markets. That’s why we mentioned that we have scaled down our production volume in the car-hailing vehicles and focus on the more profitable sector such as off-road vehicles and UTVs, et cetera. However, we try to keep our share in the market and keep our name in it, but we try to not spend too much to have the larger market share. We did try to have our position in the market and let people be aware of our systems, and that’s our major goal for now.

The next question comes from the line of Michael Pfeffer with Oppenheimer.

I’m going to make like 1 or 2 comments, and it leads up to my questions, if that’s okay. About 6 months ago, the company announced an acquisition in China’s very hot lithium battery manufacturing sector of China-based Jiangxi Huiyi, a 7-year-old award-winning lithium battery producer with over 300 employees to include 40-plus researchers and holding some 50 related patents, already producing some 90 million batteries per year. This seemed a perfect fit for Kandi’s already noteworthy battery division and that it brings Kandi a coveted full China battery manufacturers licensed to allow its passenger EV sales in China. Maybe you can translate that, and I’ll go to the next part, please.

This seemed a perfect fit for Kandi’s already noteworthy battery division and that it brings Kandi a coveted full China battery manufacturers licensed to allow its passenger EV sales in China. Maybe you can translate that, and I’ll go to the next part, please.

Okay. And then 1 more part. The deal called for Kandi to make an initial cash acquisition, which also called for a 3-year share earn-out for up to 2.5 million Kandi shares. To earn shares requires Huiyi to have a minimum annual net profit of $2.3 million each year, including this year or lose 1/3 of the 2.5 million shares each year misses. Maybe you can translate that, and then I’ll get to the question, please.

Go ahead.

Okay. On the call right after the purchase, when asked if that $2.3 million profit that should be reached this year, Mr. Hu projected yes. And also shareholders were told Huiyi should also begin producing batteries for EVs by the end of ‘21. So a few questions. Did Huiyi reach its expected $2.3 million profits to earn its first tranche of stock last year?

On the call right after the purchase, when asked if the $2.3 million profit was expected for this year, Mr. Hu confirmed this. Shareholders were also informed that Huiyi was anticipated to start producing batteries for electric vehicles by the end of 2021. I have a few questions. Did Huiyi achieve its expected $2.3 million profits to qualify for its first tranche of stock last year?

Go ahead. Okay. On the call right after the purchase, when asked if that $2.3 million profit that should be reached this year, Mr. Hu projected yes. And also shareholders were told Huiyi should also begin producing batteries for EVs by the end of ‘21. So a few questions. Did Huiyi reach its expected $2.3 million profits to earn its first tranche of stock last year?

We will assess the net income and margin for each of the next three years. The initial evaluation period is from July 1, 2021, to June 30, 2022. Currently, this first period has not yet concluded, which is why the company has not determined if it can earn the first tranche of stock. We will provide updates in future filings.

Okay. Just a few more quick questions. In December, Kandi put out a PR about Huiyi’s new revolutionary lithium iron phosphate battery IFR-18650-2200MaH. The release called this one of the most advanced on the global market, now entering mass production. Is this battery the new battery for EVs?

The company has not yet determined if they can earn the first tranche of the stock, but they will provide updates in future filings. Additionally, in December, Kandi announced the launch of Huiyi’s new lithium iron phosphate battery IFR-18650-2200MaH, which is described as one of the most advanced on the global market and is now entering mass production. Is this battery intended for use in electric vehicles?

Kandi recently announced a new lithium iron phosphate battery, which they claim is one of the most advanced in the world and is now entering mass production. Is this battery intended for electric vehicles?

Actually, it’s not solely for EVs yet; however, it’s rather more universally adaptable like EVs, different other electric like hoverboards, scooters, they can utilize the same battery as well. It’s just the battery with higher power capacity.

So could Mr. Hu explain why this new battery is so much different or better than its competitors? Is it related to this high capacity you’re talking about?

Actually, it’s not solely for electric vehicles yet; however, it’s more universally adaptable like electric hoverboards and scooters, which can also use the same battery. It’s just the battery has a higher power capacity.

Actually, it’s not solely for electric vehicles yet; however, it’s rather more universally adaptable like electric vehicles, as well as different other electric devices like hoverboards and scooters, which can utilize the same battery. It’s just the battery with a higher power capacity.

The key point is our power capacity, which allows us to compete effectively against others in the market. Energy density serves as one of the crucial metrics for evaluating the performance of lithium-ion battery products. This metric showcases our research and development capabilities and the technical expertise of our company. We launched our lithium-ion phosphate battery in the Chinese domestic market back in 2019, which had a capacity 11% higher than the market average at that time. Following continuous improvements, we released a new battery in November 2021 that successfully entered mass production. This new product offers an additional 10% increase in capacity compared to our 2019 models, along with a higher energy density. The introduction of these new products has positioned us as leaders in China's domestic market and among the most advanced manufacturers globally.

Okay. And the last question is, how does this tie into Kandi’s existing multiyear operating battery division?

The new product is enhanced by an additional 10% capacity with a higher energy density level compared to other products we launched in 2019. With these new products, we are positioned as a leader in the domestic market in China and among the most advanced manufacturers globally.

The products we launched back in 2019 have been enhanced by an additional 10% capacity with a higher energy density level. With these new products, we are positioned as a leader in the domestic market in China and among the most advanced manufacturers globally.

As you may know, we used to purchase the origin and then the role of the batteries from other manufacturers in the market. With the acquisitions of Huiyi, we can now consolidate its battery production features and apply that in our different divisions in our EV manufacturing, which will enhance our whole production chain and allow different divisions to develop altogether. So basically, there’s a good synergy between Huiyi and our original EV production line.

Our final question comes from the line of Ray Palmer with Raging Capital.

Having followed the company for a decade or more, is initially because of your battery exchange program. I’m surprised to hear that you have decided strategically to scale down your EV production. At the same time, you have this partnership announced with Hengrun, which is a company that has a very wide array of vehicles they’re producing. So are they producing EVs for which you supply the battery exchange technology? And furthermore, are you producing battery swap units for other companies at all? Are there any operation or what is the plan on it? And then I have a second question.

I’m surprised to hear that you have decided strategically to scale down your EV production. At the same time, you have this partnership announced with Hengrun, which is a company that has a very wide array of vehicles they’re producing. Are they producing EVs for which you supply the battery exchange technology? Furthermore, are you producing battery swap units for other companies at all? What is the plan on that? And then I have a second question.

Could you clarify if your partnership with Hengrun involves them producing electric vehicles that utilize your battery exchange technology? Additionally, are you currently manufacturing battery swap units for any other companies, and what is your plan regarding this? I also have a second question.

There are two aspects to your question. First, we are collaborating with Hengrun to get our filing approved by the local government, which we expect to happen in the second quarter of this year. Once approved, we will be able to manufacture and sell EVs in the domestic market. However, we plan to limit our production volume significantly due to the current disorder in the market. Recently, some EV manufacturers have been trying to increase their market share by selling products at a loss, which is not a strategy we intend to pursue as we want to conserve our financial resources. We prefer to wait until the market becomes more stable and healthy before increasing our production efforts. For now, our goal is simply to establish our presence in the market while limiting production to protect the financial interests of our shareholders and the company. As for your second question...

Yes, you mentioned that already 3 times throughout the conference call. My question was, if you’re not producing EVs yourself, are you producing quick battery exchange units for the use of other companies like Hengrun, or whichever way you pronounce it?

We are a player in this market and are focused on maintaining our financial position for the benefit of shareholders and the company. Regarding your question about production, are you producing quick battery exchange units for companies like Hengrun?

Our goal is to limit production so we can strengthen our financial position for the benefit of our shareholders and the company. As for your second question, which you've asked a few times during this conference call, if we are not manufacturing electric vehicles ourselves, are we producing quick battery exchange units for use by other companies like Hengrun?

The battery swap technology is still developing in the market, so it isn't very widespread. Each brand and company is working on its own standards. As a result, we do not sell battery swap equipment to other companies because it is designed for our own use, and other companies are also creating their own modules. Therefore, there are no sales plans to sell our EV battery swap equipment to other companies at this time.

I see. So since other companies are making headways in the installing battery exchange units widely, how do you want to protect your technological advances that you obviously do have in the field?

We are not selling our battery swap equipment to other companies because it is designed for our own use, and other companies are also developing their own systems. Therefore, there are no current plans to sell our EV battery swap equipment to anyone else.

There’s no plan to sell our EV battery swap equipment to other companies at the moment.

Currently, there are significant competitors aggressively investing, despite incurring substantial losses, to capture market share. I have previously noted that the market is still developing; even though battery swap stations are being built, their utilization remains low and isn't well-known among typical end users. While we recognize that advancements in technology will improve our operations, we are cautious about entering this aggressive market because it essentially equates to wasting money. Our current cash reserves will not allow us to participate in this market sustainably over the long term. Therefore, we prefer to wait until the market stabilizes and becomes more cost-effective and profitable for us before considering entry, but that is not an immediate plan.

That’s helpful. Can I add another question, please?

Sure.

Yes, please.

So from your explanation, it appears you are bound on reserving cash and you’re sitting on a very ample supply of cash, that’s probably above $3 per share, since markets are widely manipulated and markets are also depending on psychological aspects with the company that is sitting on hundreds of millions in cash and is undervalued with a 50% discount to book value. It does not appear that the owners of the company and the majority owners like Mr. Hu believes there is value in the company to spend for buying back their own shares. So that’s a large concern for shareholders. Why do you believe it’s not valuable to buy your company at a price where actually you’re not only having a discount to book value, but the cash per share? How could you spend your money better if you believe in the company?

The company is currently undervalued, trading at a 50% discount to its book value. A significant concern for shareholders is that the company's owners, including Mr. Hu, do not seem to recognize the company's value, as they are not investing in buying back shares. This raises questions about why they do not see the value in purchasing the company at a price that reflects not only the discount to book value but also the cash per share. If they believe in the company, how would they allocate their funds more effectively?

It does not appear that the owners of the company and the majority owner, Mr. Hu, believe there is value in the company to justify buying back their own shares. This raises significant concerns for shareholders. Why do you think it's not worth buying your company at a price that reflects not only a discount to book value but also the cash per share? How could you allocate your funds more effectively if you have confidence in the company?

Actually, we have already answered such a similar question in the past. So we’re not trying to elaborate too much, but we’ll stick with our share buyback plan and enter the market at the right moment.

If our employees and C-level executives then also foregoing getting cash or share compensation as incentives while they’re not buying back their own shares and waiting for the markets to change.

We have already addressed a similar question in the past. We are not looking to elaborate too much, but we will continue with our share buyback plan and enter the market at the appropriate time.

We have already addressed a similar question before. We’re not looking to provide too much detail, but we will continue with our share buyback plan and act in the market at the appropriate time.

We will continue to follow our plan for share buybacks. As you may know, we have already invested approximately $4 million in shares over the last few months, at the end of last year and in January this year. Although we are confident in the shares, it's important to note that if the company spends more money to buy shares, it doesn't necessarily mean the share price will increase. Therefore, we will take into account the overall market conditions when moving forward with our share buyback strategy.

So you’re basically saying you don’t think the company is at $2.50 a valuable buy for yourself, but you are preserving the cash you have for compensation for employees and for incentive and bonus shares for the company as a compensation plan. Is that correct?

You are saying that you don’t see the company as a worthwhile buy at $2.50, but you prefer to keep your cash for employee compensation and incentive bonus shares as part of a compensation plan. Is that correct?

So you’re basically saying you don’t think the company is at $2.50 a valuable buy for yourself, but you are preserving the cash you have for compensation for employees and for incentive and bonus shares for the company as a compensation plan. Is that correct?

Then again for your consideration, we will definitely take your advising consideration and proceed in the future.

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

We will definitely take your input into account and move forward accordingly.

Thank you again for attending today’s conference call. Look forward to our next call. This concludes our call today. Thank you.

You may disconnect your lines at this time. Thank you for your participation.