Earnings Call Transcript - KNDI Q3 2021

Operator, Operator

Good morning and welcome to the Kandi Technologies Third Quarter 2021 Financial Results call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Kewa Luo, please go ahead.

Kewa Luo, Interpreter

Thank you, Operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the Third Quarter of 2021. Earlier today, we issued a press release covering the results, and you can find the press release on the company's website, as well as from newswire services. On the call with me today are Mr. 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. 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, Hu Xiaoming. Go ahead, Mr. Hu.

Xiaoming Hu, CEO

I'm sorry, but the provided earnings call remark does not contain any discernible content to rewrite.

Kewa Luo, Interpreter

Thank you, Kewa. Hello, everyone, and welcome to our conference call today. I'm happy to share our business and financial results for the third quarter. The most important highlights of the quarter was the impressive growth of revenue in the electric scooter, electric self-balancing scooter, and associated segments of business. This segment accounted for nearly 40% of total quarterly sales, growing approximately 600% over the same period last year. These strong results reflect the strategic initiative we undertook a year ago when COVID was depressing the EV markets. We looked for opportunities with these addressable markets in which we could leverage our core capabilities. The scooter business was a great fit, and we directed substantial resources to quickly pursue it. Our results today testify to the wisdom of this approach.

Xiaoming Hu, CEO

The segment accounted for nearly 40% of total quarterly sales, growing approximately 600% over the same period last year. These strong results reflect the strategic initiative we undertook a year ago when COVID was depressing the EV markets. We looked for opportunities with these addressable markets in which we could leverage our core capabilities. The scooter business was a great fit, and we directed substantial resources to quickly pursue it. Our results today testify to the wisdom of this approach.

Kewa Luo, Interpreter

Leading consultants McKenzie and Company estimate that by 2030, the micro-mobility market, including e-scooters and electric self-balancing scooters, will reach annual sales of $200 to $300 billion in the U.S. alone. Ensuring this segment was always in our strategic plan, where the COVID crisis accelerated both our entries and the growth of the industry because they reduce contact points and encouraged social distancing. Micro-mobility vehicles such as e-scooters and electric self-balancing scooters are a natural and less risky alternative to public transportation, such as local buses and subways. Amid public transportation shutdown during COVID, demand became urgent for micro-mobility vehicles and associated products.

George Kyriakos, Private Investor

Moreover, the flexibility and simplicity of micro-mobility vehicles means that this mode of transportation is advancing faster than others. In our third quarter when the Delta variant of the original outbreak was occurring around the world, we saw the strategic advantage of pursuing this opportunity in e-scooters and electric self-balancing scooters.

Xiaoming Hu, CEO

The flexibility and simplicity of micro-mobility vehicles is allowing this mode of transportation to advance more quickly than others. In the third quarter, during the global spread of the Delta variant, we recognized the strategic advantage of focusing on e-scooters and electric self-balancing scooters.

Kewa Luo, Interpreter

Looking at other lines of business, we found that tax sales decreased, which impacted overall sales of electric vehicle parts. We were constrained by supply chain challenges affecting the whole industry and by the restructuring of our pure EV business. Also, vehicle sales declined versus last year but were up 25% sequentially, accounting for more than 40% of total revenue. Consumer demand for off-road vehicles including ATV, UTV, and other models is increasing. We mentioned last quarter that our analysis of market interest in high-performance larger UTVs led us to discontinue the K32 model. The K32 is an intelligent, fully enclosed, all-electric, four-wheel-drive multi-purpose UTV. Prototypes of the K32 were delivered to the U.S. for display last month and initial feedback from dealers was positive. We plan to formally launch the K32 soon.

Xiaoming Hu, CEO

Consumer demand for off-road vehicles including ATV, UTV, and other models is increasing. We mentioned last quarter that our analysis of market interest in high-performance larger UTVs led us to discontinue the K32 model. The K32 is an intelligent, fully enclosed, all-electric, four-wheel-drive multi-purpose UTV. Prototypes of the K32 were delivered to the U.S. for display last month and initial feedback from dealers was positive. We plan to formally launch the K32 soon.

Kewa Luo, Interpreter

Looking at our financial position, in the third quarter, we received the final payment for the sale of our 22% position in the Jiangxi Huiyi joint venture. At the end of the quarter, we had a working capital of about $289 million, the best in our history. This level of liquidated capital opens many new opportunities for us. So we boosted our R&D spending in the third quarter, restructuring and recovery of operations will take time. But we believe that as we finish the reset of these businesses, our electric vehicle and EV-associated product line will again achieve solid growth. A recovery in EV, combined with the strong growth of e-scooters and huge potential for off-road vehicles, makes us excited and confident about our future.

Xiaoming Hu, CEO

This level of liquidated capital opens many new opportunities for us. So we boosted our R&D spending in the third quarter, restructuring and recovery of operations will take time. But we believe that as we finish the reset of these businesses, our electric vehicle and EV-associated product line will again achieve solid growth. A recovery in EV, combined with the strong growth of e-scooters and huge potential for off-road vehicles, makes us excited and confident about our future.

Kewa Luo, Interpreter

Let's now move into the Q&A session. Kewa will take any questions and translate for me. And our CFO Alan will answer in English. Operator, please go ahead.

Operator, Operator

We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question today comes from Frank Blatterman, who's a private investor. Please go ahead.

Frank Blatterman, Private Investor

Good evening, Mr. Hu. My two questions involve the EV part of Kandi's business. First, is the factory on Hainan Island presently active and making cars? And if so, how many employees are actually making cars there? Second, the K23 and K27 were originally introduced to the U.S. over a year ago, but presently can only be sold as neighborhood electric vehicles with a reduced maximum speed. Have they been upgraded and approved for highway travel in the U.S. at this time or are they presently in production? When do you expect them to be shipped? Will it be before the end of the year?

Xiaoming Hu, CEO

Is the factory on Hainan Island currently operational and producing cars? If so, how many employees are involved in production there? Additionally, the K23 and K27 were initially launched in the U.S. over a year ago, but can currently only be sold as neighborhood electric vehicles with a restricted maximum speed. Have these models been upgraded and authorized for highway use in the U.S. yet, or are they still in production? When do you anticipate they will be shipped? Will it happen before the year's end?

Kewa Luo, Interpreter

Can you confirm if you are currently active and manufacturing cars? If so, how many employees are involved in the car production? Additionally, the K23 and K27 were introduced in the U.S. over a year ago but can currently only function as neighborhood electric vehicles with a lower maximum speed. Have there been upgrades to allow them to be approved for highway driving in the U.S.? Are they currently in production? When do you anticipate they will be shipped, and will that be before the end of the year?

Xiaoming Hu, CEO

Alan Lim, CFO

Thank you so much for your questions. As for the first question, the production of the EV product is still being adjusted in the factory. In the past few years, the electric vehicles for this by Kandi have used Geely's production qualifications. Since this year, we have completely withdrawn from the cooperation with Geely and are looking for other partnerships for our production. Currently, we are filing the product announcement to the state government for those EV products, and we can only commence mass production after development and further announcements and qualifications are in place. Regarding the second question about the K23 and K27, the regular models have not yet met the DOT requirements for safety standards. We are still working on the improvements. Currently, we cannot provide a very accurate estimate of when the requirements will be met. As you may know, such requirements for safety standards in the U.S. are much higher than those in China and European countries. Currently, no Chinese company has an EV meeting such safety standards in the U.S. We are working very hard to achieve this goal. Thank you.

Operator, Operator

Our next question comes from Rotten Bozrah. Please go ahead.

Rotten Bozrah, Private Investor

Good day, Mr. Hu, and everybody on the call. I was wondering, since it has been brought up before, are you still contemplating a share buyback? And since I understand there was a board resolution to authorize this, what share price would be inducing such a buyback?

Kewa Luo, Interpreter

Thank you for your question.

Xiaoming Hu, CEO

Thank you for your question.

Kewa Luo, Interpreter