Greetings. Welcome to Kandi Technologies Second Quarter 2021 Financial Results Call. [Operator Instructions] Please note this conference is being recorded. At this time, I will now turn the conference over to Kewa Luo. You may now begin, Kewa..

Thank you very much. Hello, everyone. Thank you all for joining us on today’s conference call to discuss Kandi’s results for the second quarter of year 2021. We issued a press release covering the results earlier today. 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 such, the company’s actual results maybe 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 the U.S. dollars. With that, let me now turn the call over to our CEO, Hu Xiaoming. Go ahead, Mr. Hu..

Hello, everyone and welcome to our conference call today. We are excited about second quarter results. First and foremost, revenue was strong, driven primarily by growing sales in the intelligent mobility sector. Recall that the last year when COVID-19 broke out, we made a strategic decision to find new markets for our technology.

We identified that intelligent mobility sector as a great opportunity, especially since we believe our technology is better than our peers for this application. Today, you can see the wisdom of this decision in our sales number of the second quarter.

Of equal influence was the completion of the Jinhua Facility relocation, which entitles us to the final payments resulting in a significant increase in net income. This was a substantial inflow of cash, which we will deploy to grow our business.

As a reminder in March 2020, we entered into this repurchase agreement with Zhejiang Jinhua Development Zone. In the second quarter of this year, we vacated our old property and returned to Jinhua Development Zone on schedule. We also completed the move into our new facility, thanks to the efforts of our team members.

This founding will support our R&D and other efforts to capture new growth opportunities. We believe that with a solid strategy and government support our business can stimulate the local economy creating new jobs for the people. We are proud to operate in this socially responsible manner.

Talking about growth opportunities, I mentioned in our first quarter conference call, that we see huge market potential in short-distance electric vehicles in China and UTVs in the U.S. market. We have been investing in R&D to further develop these two product lines and made progress in the second quarter.

In May, we announced our K32 premium fully enclosed electric 4-wheeldrive utility terrain vehicles. Early prototypes were produced at our factory in Hainan, China.

The fully enclosed cockpit creates delightful comfort not typical for a UTV, including a built-in intelligent interactive system, integrated infotainment and refreshingly strong air conditioning. We intend to sell these K32 in the U.S. by the end of this year. We will provide updates later this year.

Last but not least, I would like to update you on acquisitions. As you know, for our last call, we were looking for targets suited to Kandi’s long-term development roadmap and who shares the same vision.

In July, we closed the acquisition of Jiangxi Huiyi headquarters in Jiangxi, even though they are not large they are one of the leading battery cell products in the industry.

Jiangxi Huiyi’s core technology of lithium iron phosphate is among the industry’s most advanced level for acquisitions with Kandi’s vertical integration strategy and is a good channel to expand our battery sales footprint.

We will focus on EV and power battery for now, while keeping our eye on other consumer applications and acquisition targets that align with our strategies and long-term growth. Let’s now start the Q&A session. And the CFO and I will answer your questions. Operator, please go ahead..

Thank you. [Operator Instructions] Thank you. I have our first question coming from the line of Walter Hill with Carty & Company. Please proceed with your question..

In recent announcements, Kandi’s U.S. Kandi America has released both an electric mountain bike, the Trail King and a high-end air conditioned premium K32 UTV.

My question, the electric mountain bikes are very hot items, is the Trail King still being developed or is it available right now? And if so, what is the MSRP? And secondly, the PR stated that the K32 would be on the market later this year and I believe Mr. Hu just referred to that.

The specs reported in the PR such as a weight of over 5,000 pounds 18-feet long, but only a range of 60 miles seem confusing, if not problematic. If it’s over 5,000 pounds, it seemingly would be too heavy to toe. So, the short range would seem problematic to get to the wilderness. And what would the MSRP be for the K32? Thank you..

Okay, thank you. Okay. So first of all, the question about the electronic mountain bike, our U.S. subsidiary, SC has indeed conducted research of the marketing about the mountain bikes and we noticed that this market is really hard indeed. So currently, there are two models one is for the adult market. Another one is for the children’s market.

Both models have already been developed and would be available through in the market. As for the first model for the adult market, the production is done and expected to be launched in the U.S. market in September this year. As a matter of fact, it’s available for customers to order at the moment already.

So, as for the adult model, the MSRP will be $3,599, as for the junior version means for the children’s model, the MSRP will be $2,099. Okay. So as for our model K32 that you mentioned, they are not finalized. As a matter of fact, we are still currently optimizing the K32 UTV, our U.S.

subsidiary has been working on the market research and collecting the feedback from the market that – so that we can have certain parameters and the functions to be adjusted. But then we thought that usually, from our point of view, UTV the range should be fine for around 100 kilometers, which is roughly over 60 miles.

So, we believe that should be enough, although we are still trying to collect enough data so we can finalize all the parameters and the functions. So after all the parameters and the functions to be finalized based on the market research then we will come up with the final MSRP based on the adjustments.

So, that should be it for your last two questions. Thank you..

Thank you..

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

Hi, thanks for taking my call.

A few questions regarding full-speed passenger EVs in both China and the U.S., there have been several articles recently out in China that report a renewed interest by smaller EV companies to step into the ride-hailing business since DD’s proprietary rider app has been at least temporarily restricted and likely going to have to be significantly modified.

While Kandi has nothing to do with the rideshare app for the 300,000 government-accredited EV-only ride-hailing program, its partner Ruibo might be involved. Is what happened to DD going to be a plus, a minus or a nonevent for the program that Kandi will provide cars? And then I have a few other questions. Thanks..

Okay. So, let me repeat your questions to Mr. Hu. Okay. So for Mr. Hu, that is definitely a positive to us. Our car-hailing platform company, [indiscernible] is involved in the whole market.

And because BB used to occupy over 80% or 90% of the whole market, which is rather a monopoly in the China PLC market, but now it’s more open to different other platforms to involve in this business. So definitely is a positive to us..

Okay. Thank you. And then where does the overall program stand? And then I have a second question, please. Thank you..

Okay. So our accredited car-hailing platform program is progressing in an orderly manner. And later this year, we plan to have a launch event about this program. So, please stay tuned..

Okay. And then the kandiamerica.com website seems to now have under vehicles both the K23 and K27, NEV Plus, the K23 and K27 full road speed passenger car available for deposit. Is this a sign that Kandi is close to releasing the new 2022 model passenger EVs for U.S.

sales? And is this the reason there has not been an official grand opening for the new 60,000 square foot Dallas showroom bought by Kandi?.

Okay. As for our new venue in Dallas, it’s already in use. And due to the pandemic, we did not hold an official grand opening ceremony, but then it’s not correlated to any launch event of our upcoming models, it’s definitely the pandemic that’s why we didn’t have the ceremony earlier of this year..

Okay. Thank you. And then one last question, what is the status of the Kandi design new sports car costing Kandi close to $40 million in R&D this year? Thanks..

So as to your last question, the $40 million R&D expense as we spend this year is not solely about the sports car model. Indeed, apart from the sports car, we also invest our R&D amount into different other models such as UTV such as the compact the EV models.

So we expect, for example, the upgraded version of the K23 should be available by end of the year. So basically, our R&D for different models is progressing in an artery manner. Thank you for your question..

Thanks..

Next question is from the line of [indiscernible] with Region Consulting. Please proceed with your question..

Yes. Good morning or good evening everybody. Regarding the hoverboard parts business, when Kandi first got into the sector late 2019, it was manufacturing the complete hoverboard for U.S. exports for Walmart and others. As of last year, it appears Kandi saw its subsidiary was making parts and became a supplier to an assembler a few questions.

Is Kandi still just making parts or is it still in the complete assembly business, be referring to the parts are they just the battery, just the motor or both? And does Kandi be still on track for 3 million units to be delivered this year, any idea or projection for next year already?.

Okay. Thank you for your question. Okay. So regarding our company’s hoverboard pod business, we are still primarily making the parts instead of the complete assembly business. As for the part, they are both the battery and the motors. So finally, about our sales target. As you may know, last year, our company has sold over 500,000 pieces of the motors.

And this year, our 3 million units motor target, we are underway to achieve and we are trying very hard to do so. Considering there are some constraints about the global shipping issues that maybe slowed down our sales a little bit. However, we are our trying our very best to meet the 3 million unit motor sales target.

And based on this fundamental, we expect the sales will be more for next year. And thank you for your question..

Thank you.

Could I add another question to that, please?.

Sure, please..

So for the third quarter, do you have any projections of how many units you will deliver for those hoverboards?.

So for this current order the third quarter, we estimate the sales for the unit of the parts may probably as much as 1 million unit of….

It’s impressive. Thank you. That’s impressive. And touching on what Mike from Oppenheimer already asked about DD it since DD it seems to be having obstacles in its continuing growth.

Do you think this would help Kandi to roll out their QBX quick battery exchange model in any better speed than so far?.

Okay. You mean our models but not the house.

You mean the battery swap system, right?.

Yes, the QBX for the electric vehicles for the ride-hailing business..

So as for your question, that will help. Again, because of the constraint from the DD, it opens the market opportunity for different other car hurdling platforms. Like us, we are primarily focused in the exchange battery car platform. So that will help us, although it will take a while and take some time for such progress. But definitely, it will help..

Thank you so much..

Thank you..

Next question is from the line of Mark Kahnau with Swift Liquid Future. Please proceed with your question..

Good morning and good evening everybody. My question has to do with Kandi’s grossly undervalued share price. Despite the massive EV sector correction underway from early irrational enthusiasm for any company, toting EV affiliation at current price level.

There is only one company in the EV sector that stock is trading below quarter one, 2021 book value. Kandi, with $5.33 per share and that book value includes around $2.42 a share of cash and short-term investments. Visionary Kandi has no debt.

The next closest is still trading over 2x book value with an average of 3x to 6x book, likely the reason why in this current market environment, we have not heard of any EV company or they are top management buying back their shares.

In Kandi’s case, a couple of years ago when it had negative working capital and a $3.50 a share book value, both the company and Mr. Hu individually, bought open market shares at a high as mid-$5. Here is my question to Mr. Hu. Is Mr. Hu think Kandi stock is a good buy at $5? And if so, will either Mr.

Hu or cash-rich, Kandi itself buy stocks at least below book value levels? Is buying under book value is not a good deal for a company, why would any shareholder want to buy the stock here right higher?.

Thank you for your question. So as per your question, Mr. Hu thinks that definitely, the Kandi stock is a good buy at $5. And depending on the upcoming market condition and situation, the company will definitely consider the issues related to the stock buyback at the appropriate timing.

So basically, our whole consideration was based on upcoming condition and we will definitely consider in the appropriate time. And thank you for your question. And thank you for your question..

Thank you..

The next question is from the line of Frank Blatterman, Private Investor. Please proceed with your question..

Yes, good evening gentlemen. As I understand it, the Jinhua factory is being used to manufacture all probe vehicles, battery and motor assemblies for hoverboards as well as doing battery assembly for the electric vehicles.

Is this correct and automotive and controllers for electric vehicles being made at the Yongkang facility? Also are any automobiles presently being manufactured at the [indiscernible] facility and if so, how many per month? And then I’ll have a second question when this is answered..

Hello..

Hello..

My question to confirm your our understanding is that you’re asking about the products being made at our Hainan, Yongkang and Jinhua facilities. And if that’s the case, what is about the monthly output and export plan from our Hainan facilities.

Is that your question?.

Yes. That’s basically it. What….

Okay. And then we can answer your next question after the first input from Mr. Hu..

Okay, go ahead..

So, as for your questions, our Hainan facility, first of all, mainly manufactured the whole vehicles, such as the electric vehicles, like K23, K27 and our UTVs, the utility terrain vehicles. And as for Yongkang facilities, it mostly manufactures the motor parts and the products.

And as for Jinhua facilities, it mainly manufactured the battery packs, the ATVs and the equipment for the smart battery swap systems and some other old products that we have in the past..

Okay, thank you. And my second question, Google Earth is showing a major highway under construction from the industrial park in which the Kandi factory is located to the seaport at [indiscernible] about 15 kilometers away. Do you have plans to ship from that port to other Southeast Asian countries or only to China and the U.S.

at this time?.

Noted. So we definitely have a plan to have our sales expanded to the Southeastern Asian market in the future. Currently, we are working on some market research, because of the demand and the regulation is different from the China and U.S. market. So, it will take us some time to finalize our research at those regions.

And although our sales or the export will not have entirely in relationship with the water port, the deepwater port from the [indiscernible], but that will be handy for us to do so. But it’s not really – there is a definite correlation between the export and then the port at [indiscernible]. And hopefully, that address your questions..

Yes.

How many vehicles to be manufactured right now motor vehicles at the Hainan facility, that’s a per month?.

Per month, okay. Although our production capacity is quite large as our Hainan facilities, however, the different models, is being on the production initiation process. So at the moment, our production is not in line with the capacity yet. So, the figure is uncertain at the moment.

So for our upcoming sales, you may refer to our financial statements to be released in the future timing. Thank you..

Thank you..

Thank you..

Our next question is from the line of [indiscernible] with Private Investor. Please proceed with your question. The next question is from Arthur Porcari with Corporate Strategies. Please proceed with your question sir. Please standby while we get Mr. Porcari’s line back. Hi, Mr. Porcari your line is open..

Hello, Mr. Hu and all members of the company, they are a pleasant surprise on the numbers today, though maybe not so surprising if people who have just been following what you have been saying the rest of the year. Okay. My question is somewhat brief here because you have already kind of covered part of it in your opening.

About three weeks ago, the company announced the acquisition of Jiangxi Huiyi, a young lithium battery producer, which according to their own website. And by the way, they have a very nice website. I wish you would have put a link to it.

Already has over 300 employees to improve 40-plus researchers and some 50 battery-related patents producing, as you did say in your press release, I think, 90 million batteries a year.

Most important though, correct me if I am wrong, but this brings the coveted China battery manufacturers license along with it, which I don’t believe that Kandi had up to this point. Plus the company’s website is loaded with awards in just a few years since it started in 2016.

What’s amazing is how Kandi was able to acquire this gem so cheap for a price of only $7.7 million in cash.

And what appears to be by contract that you have on your SEC side, a strict 3-year earn-out, which they could get up to 2.5 billion Kandi shares, but would require a minimum annual net profit contribution of $2.3 million each year, including this year or else each year they miss, they lose a third of the $2.5 million.

With that said, a couple of questions.

Will Jiangxi be joined in the recently formed battery subsidiary, along with Jinhua Ankao and Yongkang Scrou, which is the sub you intend to spin off as a separate trading entity as previously announced? And I will ask two parts – four questions here, but I will put the second one, too, about how much revenues is Jiangxi expected to generate this year for the balance of this year? The first part of my questions..

So as for your question, the newly acquired company, Jiangxi Huiyi will not be joined into the recent reformed company, which is the Zhejiang Smart Battery Swap Technology Company Limited, which include our time office subsidiary and school.

And of course, the Zhejiang Smart Battery Swap Technology Limited, we plan to list on the China import market ongoing. And as for the Jiangxi, it would not be part of this plan. However, we have a strong belief in the upcoming future of Jiangxi Huiyi.

In about 3 years to 4 years, based on the expansion of the production capacities, we believe that it will managed to be listed in the main board market in China individually in the future and as for the revenue expected to be generated in this year, we expect that the total revenue for this year is roughly around RMB250 million..

Okay.

Which is, let’s see, if we do a quick calculation about $40 million?.

Yes, more or less $40 million..

Which is more than the total revenues that Kandi itself has, so from this quarter on, we are going to finally see some serious revenues coming into Kandi and the company you just were able to acquire for $7.7 million in cash and promising profitability even so far as to have their own CEO, put a quote in the press release, which, by the way, the press release on their website is even more bullish about the acquisition.

But let me move on. Okay. How soon before Jiangxi Huiyi will be expanding its current battery line for the announced current 18,650 lithium ion rechargeable cells to actual road certified EV batteries. And the second part of that, you kind of somewhat answered this already.

Speaking of the battery spin-off, what’s the latest intentions for bringing public the actual subsidiary, the first subsidiary. Now it looks like you may be doing two subsidiaries, which is great. It’s been in them off, but this is first one. I need to repeat that if I got confused on it, too.

The main question is, again, how soon before Jiangxi Huiyi will be expanding its battery line from the 18,650 small chargers to actually road certified EV batteries for railcars? And speaking of the battery spin-off, what’s the latest intention of such as timing for the public battery subsidiary spin-off?.

Got it. As for your – the first question in the pie section, it would take roughly half a year to expand the battery line from the current 18,650 lithium ion rechargeable cells to the actual road certified EV batteries, so roughly half a year.

As for the second question, the purpose and intention to bring our battery subsidiary go public, of course, it will expedite and promote our company’s development and operation in the future..

Okay. I just – these were – just a couple of follow-ups on stuff. I even have already been said or appeared in the numbers that came out today. I can easily see why this is the first time you guys asked this question a lot about the company buying back shares or he himself.

A few times in the past, he has given a similar type of announcement he actually has bought stock either for himself and/or the company. So – but I could see why earlier one of the questioners made the comment about how undervalued we were, and talked about having about $2.45 a share in cash in the company.

According to the numbers you just put out today, it jumped to $3.90 per share of cash and the book value jumped to $5.76 per share. Now that’s pretty impressive numbers considering we are grossly trading under book value considerably.

And then to tie all of that in, you got an analyst out there that estimated that we are going to do about $20 million in revenues this year, which was easily beat by over 50%, but was estimating for this quarter to lose $0.18 a share. I think that’s because the company doesn’t give guidance.

And it’s hard to get analysts to come on board a stock until the company is willing to at least commit to some type of a number, so they don’t create an embarrassment, like this analyst probably has just been hit with. I mean even without the extraordinary, we blew away our numbers easily. So, any comment on that.

And he was the Chief Financial Officer as well..

So as for a question, well, our company’s model is always trying to do our best in our own operations or probably we have not paid too much attention or exposure to different market analysts, even though we are working with some. However, probably the communication may not suffice in the past.

So, we will try to do better communication with different parties in the market ongoing. That will be our plan..

Okay. Just really just short one here, you mentioned the K23 later this year in a subsequent question, not in the question that kind of alluded to releasing it into the U.S. market just for clarification purposes to those that don’t understand, the K23 is the U.S. car. And I believe it’s for U.S.

and China, but are you talking about the K23 release this year for China or are you talking about the K23 later this year for the U.S.

market or both?.

So part for the clinical area, we actually meant the K32 may be confusing. But K32, that’s the UTV we have finished on developing, and we plan to promote the sales and launch the K32 model in the U.S. market. So, this UTV basically is for the U.S. market, and we plan to launch by the end of the year..

Okay. Just one last comment, earlier on this quality of this conference call has been very poor. At least it has been for me. A lot of times I can’t even hear either side of it, as just going blank.

If that’s the way it is across the board, apparently, you all can hear it then I think you should go back to doing your own transcripts again because I can’t even imagine what this transcript is going to look like, if Seeking Alpha is left alone to just be the only provider of this.

So, for the few extra minutes involved and taking the automated transcript, I think you really should go back to the company version of the transcript as well. And with that, I will just say it was a great quarter and it looks like the rest of the year is going to look pretty strong as well.

Hopefully, the analysts will realize it and give the major upgrade it deserves and great job. Thank you..

Thank you. Mr. Hu like to thank you again for your comment and questions. As for the transcript, we will consider that ongoing and how to adjust to a better version to be circulated online. And thanks again for your question and comment and your support..

Thank you. We have reached end of our question-and-answer session, and I will hand the floor back to management for closing remarks..

[Foreign Language].

Thank you again for attending today’s conference call. We are confident that we are going closer to the multiple targets spreading over EV product battery swap business and the market expansion. I look forward to sharing with you more positive news in our next call. This concludes our call today. Thank you very much..

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