Kandi Technologies Group, Inc. Q4 FY2022 Earnings Call

Hello and welcome to Kandi Technologies Full Year 2022 Financial Results Conference Call and Webcast. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Kewa Luo, Manager, Investor Relations. Please go ahead, Kewa.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the full year 2022. Earlier today, we issued a press release covering the results. You can find a press release on the conference website as well as from newswire services. On the call with me today are Mr. Xiao Ming Hu, Chairman of the Board; Dr. Xueqin Dong, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Dr. Dong will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Xueqin Dong. Go ahead, Dr. Dong.

Hello, everyone. I'm Xueqin Dong, CEO of Kandi. Today, our Chairman, Mr. Xiao Ming Hu, CFO, Alan Lim, and I are all here to share Kandi's financial results for 2022 with you. Thank you very much for joining today's conference call. Our total revenue for the full year of 2022 was approximately $118 million. Results were impacted by the strategic adjustments to our product structure over the past two years as well as the pandemic. This drove a loss of approximately $12.9 million in 2022. However, if we exclude the 2021 one-time gain of $66.2 million from the disposal of long-term assets and equity transfer, this is actually a significant improvement. As we enter 2023, our balance sheet is healthy with a cash balance of approximately $232 million. This lays a good foundation for our future development. To cope with the challenges of the pandemic and the oversupply of EVs in China that is causing intense competition, we shifted our focus to off-road vehicles. We have used our unique electric vehicle technology to form a more diversified and flexible business model. This resulted in healthy revenue growth for us while reducing potential losses in the electric vehicle market. Moving forward, we will cater to the evolving needs of our clients. We will collaborate closely with our partners, drive innovation in fully electric off-road vehicles, and deliver exceptional customer service. Our deep knowledge and expertise in full electric technology equips us with a solid foundation to gain a competitive advantage in the market of fully electric off-road vehicles. Over the past two years, our company has undergone a strategic adjustment period and faced the unprecedented challenge of the pandemic, resulting in losses. Nevertheless, as our revised strategy begins to take shape, I am confident that we will soon turn the tide. I am eager to make meaningful contributions to Kandi's success and growth. Now we will move on to the Q&A session. Chairman Hu Xiao Ming and I will answer your questions, and Ms. Kewa and Mr. Alan Lim will provide translation for English questions. Please go ahead and ask your questions.

Our first question is from Mark Canal, a private investor.

Yes. Good morning, everybody, and thanks for the terrific results you presented. I have a question that is out of three questions. As discussed on the last conference call, it appears the long-awaited 300,000 government accredited Uber-like rideshare program has started to wake up. International government has finally approved Kandi built K23 for full highway use now being licensed under the partner with certified China automaker Hengrun. Now my three questions from Mr. Hu's statement on this subject at the last conference call, it appears that Kandi will be paid for providing the parts required for Hengrun to manufacture this EV. When Mr. Hu says parts, how many parts can Kandi be providing? About how much in parts revenue can Kandi receive for each vehicle built? Maybe start with first.

All right. Thank you for your question.

So first of all, thank you for your question. Previously, we were providing the whole set of the vehicle for the assembly parts, from which we will obtain more than 95% of the revenue of each piece of the vehicle.

That sounds like a great number. My next two questions are: it seems Kandi 23 is being constructed at Kandi’s Hainan facility purchased by Hengrun. Is that correct? If so, whose employees are working at that facility? Do you expect any new models to be developed for the rideshare company? If yes, will they be built under the Hengrun licenses Kandi provided for all the parts? Lastly, in the previous conference call, Mr. Hu mentioned that we essentially receive all the income generated from the completed steps of these parts sold to Hengrun. Does this imply that Kandi supplies all the parts or just major components like motors and batteries, battery management systems, and so forth?

Got it. Thank you.

As for the question related to the work process, all the parts and manufacturing for the components are taking place in Hainan of our company, whereas Hengrun is responsible for the final assembly of the vehicle. That's how we work together in the corporation. If a new model is going to be developed, our plan is to cooperate with Hengrun under the current situation. And as for the parts that we are manufacturing, yes, we are actually manufacturing and providing all the parts, including the engines, the motors, the batteries, and other parts. All the parts are done by Kandi.

Great. Thank you for taking my question. And keep on doing good work. I can see the shipment that's coming into the U.S. the UTVs, it looks terrific these days. So, just keep on the good work and talk to you on the next conference call then. Thank you.

Thank you.

Thank you.

Our next question is coming from Mike Pfeffer from Oppenheimer. Michael, I cannot hear you. Are you on mute?

Thank you for taking my question. On the last conference call, Mr. Hu said, so regarding the production conditions for the K32 off-road trucks, we have been refining the whole production workflow in the past few months. And right now, we are capable of full and mass productions. While investors are getting a lot of feedback on golf carts, we've heard very little on this really good-looking truck. Though this truck is fully equipped as a plug-in electric, sales in the low $30,000 level, somewhat similarly equipped Ford F-150 would sell at more than twice that price, around $75,000. While we know the top speed is around 65 miles per hour and up to a 130-mile range, would think though not yet approved for general highway use, this would be a real big seller under farm truck license exemptions, which are variable in most agricultural states. And maybe just pass that on to Mr. Hu. I have two quick questions after that.

Okay. Thank you. Go ahead with your question.

What specifically did Mr. Hu mean by quote I mentioned above? And by referring to Kandi being now capable of full mass production, if this is true, is he referring to the truck being produced as an LSEV? Or is he inferring that he soon expects it to be cleared for full NHTSA registration?

As to your question, our current model, the K32, is developed according to the standards for farm vehicles under the U.S. Transportation Department, which belongs to the category of low-speed electric vehicles or you can say the LSEV that cannot be utilized on highways. So yes, we categorized our K32 as LSEV.

Okay. And just last question. As an alternate course, what would be Mr. Hu's thoughts regarding my comment about the farm truck sales market?

Yes, currently, actually, the K32 is in the phase of test marketing in the U.S. market. Your comments are highly consistent with our thoughts. We believe that once the customers can understand and try our cost, they will know the performance and the user experience that can lead to a larger market in the U.S. side.

Our next question today is coming from Arthur Porcari from Corporate Strategy.

Good morning, everyone. I'm going to adjust my approach a bit. I'm surprised we haven't received the announcement for the 10-K yet. So, I'll start with a few questions about basic products, and then I'll ask more about the recent results. Let's revisit the product situation, particularly regarding the golf cart. As noted in Kandi's Q1 '22 10-Q released on May 22, we observed the following: On February 22, 2022, Seattle Sports and Coleman Powersports entered into a Memorandum of Understanding regarding the sale of 5,000 Kandi golf carts, valued at $29 million. Additionally, a few days later, on March 3, another MOU was signed with over 20 dealers, valued at around $39 million for another 5,000 units. While these details were included in the 10-K, press release, and SEC filing, the information was not publicly highlighted until May. Consequently, several months passed without a dedicated press release for either of these deals, which could potentially represent Kandi's largest EV contracts so far. Furthermore, Kandi has not publicly acknowledged that the Coleman carts are primarily intended for Lowe's Corp., one of the largest big-box retailers in the country that prominently displays Kandi carts with the Coleman branding at their store entrances. I actually see seven of these carts right now at my local Lowe's. They initially began with two and have been selling them quite well, especially considering the southern location. Given there are 2,400 Lowe's stores, the opportunity appears significant. I'll pass this on to another comment I want to make in my questions.

Go ahead with your questions.

Okay. So, nine months after that original last statement back on November 29, the company made its first freestanding press release on golf carts when it already surpassed the 10,000 contracted level, an amount call for these first two accounts alone. A few weeks after that, shareholders saw a second PR with Coleman not only extending its contract for an additional 4,800 with a value of $28 million, which is about equal to the full order for 2022, however, all to be delivered in just Q1 '23 and ensuring the best Q1 ever likely to be reported in May. With this said, I then have a few questions.

Go ahead, Arthur.

Okay. Anyway, as was mentioned in the last conference call, I'm sure you all are aware that there is a logistical service called import key that any shareholder or any analysts, anybody would like to subscribe to, which gives a tremendous amount of detail on container shipping as it's coming out of China into the United States. Anyway, with that available to us, and we talked again in the last conference call about it, it appears here that the question at the time was when you announced the 10,000 golf carts being surpassed in the company's press release. At that time, the import key had only shown that 7,500 carts were imported to the United States. So, a logical inference could be that Kandi is now selling these golf carts in China or other countries. Can management confirm or at least explain the difference?

That's a fair comment question. During November 2022, the company announced that our Hainan base has produced more than an aggregate of 10,000 pieces of crossover golf carts. At that time, 7,000 of the golf carts already arrived in the United States, whereas the remaining 3,000 were in transit to the space. During 2022, our golf carts were primarily sold to the United States with a small portion of mount sales in China. And that can explain the variance that you mentioned.

From the last conference call, there was a question about AGM batteries that we currently use in our golf carts. I was asked whether Kandi was not manufacturing the AGM batteries but would soon switch to lithium. At that time, Kandi would be supplying the batteries. Can you provide some details on the timing? Also, since Kandi has its own high-end battery subsidiary, what components of the golf cart does Kandi manufacture?

In 2023, we will mainly be manufacturing the electric golf carts and other off-highway electric vehicles using the lithium batteries produced by ourselves. Besides, the major components of our golf carts are basically produced by ourselves as well.

That's great news. We already have a strong battery division, and I'm eager to see the 10-K to understand its ongoing improvements. I also want to discuss golf carts before we revisit the numbers. For 2023, it looks like we have a six-passenger golf cart, and even more intriguing is a two-passenger golf cart equipped with a nice lift bed in the back, featuring a hydraulic lift and a 3,500-pound winch in the front. These models seem to be new for the year, and it appears they are already being advertised in the U.S. by a company called Safer Wholesale, selling for just under $10,000. At Lowe's, the price seems to be around $10,999, but slightly below that. I'm not sure if I posed a question there.

I'm sorry, what's your question? Can you finish your question?

I apologize for the confusion. My question was largely addressed earlier. There was a prior question that prompted my response. So, let's shift focus. In your earlier press release, you mentioned that approximately 7,000 units were sold in the United States by the end of November. Can you share how many golf carts we delivered in total for 2022? I assume that information will appear soon, but for everyone's benefit, could you clarify the total number of golf carts we actually sold that were booked in 2022?

So, your question is, since 2022 November, how many golf carts have we sold until today or for 2022? In 2022?

So, there we have two parts of the sales. One is the sales between our Hainan and our U.S. subsidiary, SC. For that part, we sold roughly 10,000 pieces of the golf carts from our China and then U.S. subsidiaries. And for the U.S. sales under the SC companies, we have sold roughly 7,000 during 2022.

So, you're saying you've done 17,000 units in 2022?

7,000 pieces.

I will say 10,000 plus 7,000.

So, the 10,000, as I mentioned, we have two parts, right? One is the sales amount from China to SC. Of course, that will be eliminated in our consolidated financials, but we want to show that how our internal operations stand for, right? So, 10,000 is from our Hainan facilities to SC and then 7,000 is really sold to the external customers. We have on the book.

At that time also, actually, even prior to that, November, you already got the new contract from Coleman for another 4,800 units, but this time instead for the whole year was only for the one quarter. Is that correct?

I'm sorry, say one more time?

What I was mentioning is that the company announced an additional contract for 4,800 units for Coleman, but those units are scheduled for delivery in the first quarter. My two-part question is whether all 4,800 will be delivered in the first quarter. If they are, what would the total sales through the first quarter amount to? I know the first quarter is not finished yet, but do you expect to sell at least another 5,000 units in this quarter? If so, what would the additional amount be?

So, we expect that the sales of the golf cart vehicles to our end customers of roughly 3,000 pieces of the golf carts during the first quarter.

So that would bring the total up to 10,000 then?

Yes, more or less, there will be an aggregate of 10,000 pieces of golf carts sold by the end of yes, so more or less, yes, you're correct.

Okay. So is that the number that will be transferred to SC, or do you expect that is the number that will actually be sold to the end user?

Yes, so you're correct. By the end of the Q1 of this year, roughly an aggregate of 10,000 pieces of golf carts will be delivered to our external customers.

What about for the full year? Could you share your current target goal based on your outlook?

For the fiscal year 2023, we expect the sales during this year to be roughly 20,000 to 25,000 pieces of the golf carts to be sold in the U.S. market because we have more in-depth discussion and cooperation with Lowe's directly, so that can facilitate the sales to jump up this year. So, to answer your question, there will be 20,000 to 25,000 pieces of the golf carts to be sold in this year.

That's fantastic. That's an amazing figure. This could place you as either the second or third largest seller of golf carts in the United States in your second year. That's encouraging news for us. At one point, the actual sales recorded on our books reflect deliveries made to SC; if it hasn't been forwarded to the end user, it doesn’t count as booked. So, in this quarter, while 10,000 were effectively completed and shipped by the end of last year, only 7,000 were booked. At what point does that booking actually occur?

Yes. Our sales are recorded on the consolidated financial statements based on the sales from SC that we made to the external customers. The revenue is recognized when our performance obligation is completed. So primarily, the deliverables are complete based on the shipping terms.

Okay. So, what I'm asking is whether the end user is billed immediately when dealing with some of these major Lowe's projects, or is there a delay?

I don't get your question.

Alan probably does. As far as us getting paid, the sales occur when our performance obligation is completed.

So, how many days do we actually get paid, right?

Right, right.

For our current cooperation with Coleman, we actually have the advance payment from them for ourselves. But as for the cooperation with Lowe's, the credit terms will be roughly 60 days primarily.

Six days, that's excellent. Let me wrap this up over here then. Obviously, the loss in the quarter was a bit surprising. But again, I'm sure it will be clarified in the 10-K because Mr. Hu has made it very clear why you didn't want to compete in the overall business of EVs that compete and something you lose money at. So, I would have to believe that the strong addition of this new product line in the fourth quarter, there must have been something else that was written off or such?

What's your question?

You do not hear me? Just a bit, somebody was trying to call me so the line. Okay. Let me try saying it again. Mr. Hu has made it very clear that he does not want to engage in a business that loses money, which is why he was the first major player in the industry. He has chosen to seek other sources for now. The substantial loss we incurred in the fourth quarter suggests that there may have been a special write-down or something similar that caused it. However, we haven't yet seen the 10-K, as it is typically released before the call starts, so I would like to ask why we experienced such a significant loss in the fourth quarter related to this new product line.

If you look at our financial statements for the last three quarters, we have roughly a $3 million net loss. So, the net loss for the whole year is roughly $12.8 million. So that's the trend for the previous whole year. Even though our sales of the golf carts are doing pretty well, we have some adjustments like, for example, some impairments and some other items that we incurred for this year. Plus, we no longer have the gain from the self-equity fixed assets from this year. That's why we have such a net loss incurred for the whole year. And of course, you can refer to... Plus, you may consider the shutdown in China, especially in November and December, during the high peak of the COVID infection in the China market. That's why that had some impact on our operations as well. But I believe that's over, so it will be better upcoming.

That's right. Okay. Well, anyway, it's great to hear about the 22,000 to 25,000 units expected for this year. I'd say that's quite a number in this industry. And a good job by all that managed to get that done. So next year, we have the same annual meeting, I think it will be a lot different picture for everyone. Thank you very much. Appreciate your hard work, and I'll pass them here.

Thank you. Yes, we have time for one more question.

Our next question is coming from Francis Forte, a private investor. Your line is now live.

Kandi announced two important agreements in October of 2020. And I would like to know the current status of each of them. The first one is the strategic agreement with State Grid EV Services company to cooperate on Cubex on battery exchange. And the second one is the agreement with CITIC Securities to initiate the process of doing an IPO on the Kandi Smart Battery Swap company subsidiary company on the tech exchange, the Star exchange. What is the status now of both of those agreements, please?

For the current market for the EV market in China, certain electric vehicle companies have faced market shares at huge loss expense. So, our company thinks that as long as the market has not reached a healthy state and development is not too wise to participate in this kind of competition with our own financial cost. That's why we try to just wait and see until the economic conditions for the EV market become more healthy. That's why we try to hold up for our cooperation with the State Grid company.

Okay. So, the State Grid agreement is on hold?

Let's put it this way. It's not really on hold per se, but it's progressing slowly. And now we are primarily just focused on the market of Hainan. In this coming year, we plan to have one or two more locations to be added in our Battery Swap process, but the amount may not be material.

Okay. And is CITIC investments still committed?

The agreement with CITIC is still effective at the moment. So yes, it is still on.

Very good. Thank you, and congratulations on the great year.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Kewa at this time.

Thank you, operator. Thank you again for attending today's conference call. If you have any more questions, please feel free to contact us directly via the email ir@kandigroup.com. We look forward to updating you on our next conference call. This concludes our call for today. Thank you. You may now all disconnect.

Thank you. That does conclude today's teleconference and webcast. You may now disconnect your lines and have a wonderful day. We thank you for your participation today.