Greetings, and welcome to the Kandi Technologies first quarter 2021 financial results call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kewa Luo Thank you, Kewa . You may begin.
Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the first quarter of the year 2021. We issued a press release covering the results earlier today. That press release is available on the conference website as well as from Newswire Services. On the call with me today are Mr. Hu Xiaoming, Chief Executive Officer and Chairman, and also 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 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 US dollars. With that, let me now turn the call over to our CEO and Chairman, Hu Xiaoming. Go ahead, Mr. Hu. Hello, everyone.
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Hello, everyone, thank you very much for joining us on the call today.
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The total revenue for the first quarter is nearly $16 million, and this has far exceeded the level of the same period last year. Since last year, we have seen a most promising growth opportunity from the short-distance small EVs in China, which are led by a brand called Wuling. Ever since that they have launched the short-distance EV that has taken the trend in this market. Also high-end electric utility terrain vehicles in the U.S., which is really favored by a lot of the young generation. We are now focused on mass markets by developing vehicles for these segments with a cost of CNY 30,000 or less, which is approximately $4,700. For China, we are developing a neighborhood EV.
For the U.S., we are working on fully enclosed, high-end, air-conditioned, pure electric four-wheel drive UTVs. We expect to launch both vehicles this year. Based on the financial statement, you will see a bottom-line loss, which is due to our investment in R&D for the new products. If you're looking at the gross margin, we have achieved over CNY 4 million, which exceeded our expectations.
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In February, we entered into an equity transfer agreement with Geely to sell Kandi's equity interest in Fengsheng. By exiting the Fengsheng partnership, we are no longer constrained by the non-compete restriction. With the freedom to pursue EV opportunities more aggressively, and with additional cash, we can accelerate our growth. In addition to developing new products directly, we can enhance our competitiveness by acquisition. We are actively looking for targets suited to Kandi's development roadmap and have been communicating with potential collaborators.
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In the first quarter, we completed the relocation of facilities. In early April, the old factory site passed the inspection by officials of the Jinhua Development Zone. We expect to soon receive the remaining amount of CNY 160 million or around $25 million. At the same time, we are also moving our U.S. subsidiary's headquarters to a newly purchased building in Dallas.
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Looking ahead, we are going into the rest of 2021 with an incredibly strong balance sheet that can fund all the initiatives we can imagine. Our teams in both China and the U.S. enjoy the productivity of new, efficient, and attractive facilities. We are free of the constraints from the Fengsheng partnership and can fully exercise our creative minds. With our strong advantages, combined with the industry tailwind of support from both the Chinese and U.S. governments for EVs, the future of electric mobility, and for Kandi, is the best we can imagine. We are looking forward to reporting exciting progress in the quarters ahead.
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Let's now start the Q&A session. We will take the English questions and translate for Mr. Hu. Because our CFO, Alan, is really sick today, and he already lost his voice, therefore, I will translate the answer in English on behalf of him. Operator, please go ahead.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions. Thank you. Our first question comes from Arthur Porcari with Corporate Strategies Incorporated. Please proceed with your question.
Congratulations, Mr. Hu. A really nice Q1. Let me first note, had the company not taken that $22 million R&D charge this quarter, or some $0.30 a share, which was 20 times more than you spent last year, it would have been a very profitable quarter. But let me go on to the subject of my questions, but a little background first. My question has to do with Kandi's ridiculously undervalued share price. Despite the massive EV stock correction underway from crazy enthusiasm from any company just touting EV affiliation. At current levels, there's only one public company in the EV sector whose stock is trading below its year-end 2020 book value, which by the way, has gone up. That's Kandi, with around $5.50 a share at year-end. That book value includes over $2 a share of cash and short-term investments and no debt.
The next lowest is still trading over two times book. The average is around seven times book. If you add in Kandi's pro forma profits already assured this year of another $0.65 a share from the profits of the Jinhua and Fengsheng cash I'm getting a strange tone over here, so I don't know whether this is going through or not. Anyway, I wanted to say, the cash sales being booked this and last quarter, Kandi's book value with almost 40% cash should by year-end be up to around six and a quarter a share. In this current environment, I've not heard of any EV company or top management buying shares of their own company. Historically, Mr. Hu just three years ago, bought some 430,000 shares with an open market value of over $2 million, with one block as high as $5.52 a share.
Less than two years ago, Kandi bought about a half million shares for its account, also at prices above the current. On the other side, Kandi sold shares worth $160 million late last year at around $9 a share. If Kandi wants to make a statement as to just how ridiculously undervalued this stock is, a share buyback or significant insider buys could catch a lot of attention. My question is, while sitting on hundreds of millions of dollars in cash and no debt, would Kandi or Mr. Hu consider buying some shares here around or below book value?
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Thank you very much for your question and background you have shared. My answer is very simple. We know the company's market value is seriously undervalued. We believe the company's valuation will soon be more rational and be back to the reasonable level. Next quarter, the statement will look even more promising. We don't have any current plan. If we do have any action plan, we will announce to the market.
Okay. Well, thank you very much. That's kind of what I expected, but great that we're going to have a good strong next quarter and rest of the year. Thank you.
Thank you very much.
Thank you. Our next question comes from Michael Fearnow with Focus Tech Investments. Please proceed with your question.
Yes. Good evening. My question relates to two parts. One is clarification on your hoverboard activity, and the other will relate to reproduction by the company of their annual conference call and quarterly conference calls. The first part of my question. There seemed to be some confusion on how many hoverboard powertrain units were sold last year due to some confusion when Seeking Alpha reproduced the 2020 conference call transcript. The transcript said 150,000 hoverboard motor units were sold, but the UTV at that point in the transcript clearly says 460,000 units were sold. The Seeking Alpha said Kandi was raising their price by 50%, and it seems the CFO said 15%. We've got a confusion on the number of hoverboards sold and any price adjustment, which relates back to this lack of official reproduction of the call.
I think this reproduction of the official transcript by the company is important, particularly in view of the increased institutional ownership of the company's common stock. Can Mr. Hu please address that issue? Thank you.
Thank you for your question.
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Thanks for your question. We really encourage all the investors, analysts can participate in our company's live call to discuss and ask questions directly to increase the interaction, not just relying on the transcript released after call to learn what's going on. More importantly, some transcripts may not even be accurate because the live translation can have some misunderstandings. In order to avoid any misunderstanding, we think it's better not to keep the transcript of the conference call by issuing the official transcript with SEC. In addition, from what I have found, most of the listed companies in United States do not provide their official transcripts with SEC. Therefore, our current practice is in line with the norm.
Kewa, did Mr. Hu address the question about what was actually said on hoverboards sales in the conference call? Can he clarify those numbers?
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Okay, he confirms that 460,000 is correct, and the price increase is by 15%, one five, 15%.
Okay, thank you. That helps. My understanding is the company does not plan on reproducing an official transcript of these calls. A follow-up question on the hoverboards. Also in the year-end call, they projected a target sales of 3 million hoverboard units for this current fiscal year. Does Mr. Hu still believe that is a reasonable estimate? Thank you.
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Based on the orders we have received so far in the second quarter, we think the number 3 million motor for the hoverboard is achievable.
Well, thank you, and look forward to successful future.
Thank you.
Thank you. Our next question comes from Michael Pfeffer with Oppenheimer. Please proceed with your question.
Hi. Thanks for taking my question. A footnote appeared in the 2020 10-K addressing an R&D expenditure initiated in December for $19 million for the development of a new Kandi EV. Let me read it. This amount presents the advance payment to a third party for designing a new EV model as well as related research and development and consulting works. The company entered into research and development contract with a third party on December 1, 2020, with a total contract amount of $38.3 million and an advance payment of $23 million as per the contract. $3.4 million of the expenses incurred during the year ended December 31, 2020. To my knowledge, there's been no previous information divulged by the company on this matter, unless this is also the mysterious Kandi sports car mentioned on the last conference call and also in the 10-K.
My first question, is this the previously mentioned sports car mentioned in passing in the year-end 2020 press release or a different EV? In either case, can you give us more details such as size of vehicle, market, U.S., EU, China, speed, range, number of seats, price range, estimate of completion and release for sale dates?
Thank you.
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Thanks for your question. The sports car project is still underway, because of the requirements for the sports car are relatively high, especially for the airbag, it's going to take a lot longer time to be ready for the market launch. At the present, what we have been working on is the short distance small electric vehicle and the high-end electric utility terrain vehicles. Like I mentioned earlier on the call, due to Wuling launched the short distance EVs in China, the market has been really hot. We are right now focusing on developing these two vehicles, short distance small EV and the high-end electric UTV for the China and U.S. market. We are trying to working on the R&D of these cars with a total cost of less than RMB 30,000. The plan is out, we are working on them to launch both vehicles in the market by the end of this year. Hello, you still there?
Hi, sorry, yes, I was on mute. Sorry about that. Who is the third party, and are they only involved in the design R&D? With Kandi building the final release vehicles, and if so, what facility?
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The third party is a domestic automotive R&D technology company in China. They are mainly responsible for designing and research development, as well as providing a complete set of molds, fixtures, and inspection tools. The production of vehicle will be independently built by Kandi.
Okay, the last question, thank you. In China, historically, of the 90,000 or so EVs Kandi have made and sold over the past 10 years, both in and out of the JV, the vast majority have been sold into commercial service, ZZY, leasing, etc. very few to consumers direct. How into what market will Kandi be selling this new EV?
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The short distance small EVs are targeting the office workers and rural consumers in China, domestic China market. The fully enclosed high-end air-conditioned electric four-wheel-drive UTVs are aimed to the U.S. market.
Okay, thank you. Just one clarification. Can Mr. Hu tell us what facility that you'll be building the final production of these vehicles? I don't think he clarified that.
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Okay, both will be.
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Okay, both will be produced in Hainan, and in the future, all the electric vehicles will all be produced at Hainan factory.
Great. Thank you so much for your time and best of luck.
Thank you.
Thank you. Our next question comes from Karl Scherer with Rang Ring Consulting . Please proceed with your question.
Good day. Congratulations for your quarter. It appears that I'm impressed with the improvement in gross margin from just about 18 to 27. That's a 50% improvement. That's major. Here's my question. It seemed on the last conference call that the wrong impression was left that Kandi was projecting for a total of only 3,000 EVs from all sources for this year. I based this assumption as being wrong on the CFO stating on the conference call that he assumed that for our EVs in China so far, we have at least 3,000 orders of EVs that are featuring the smart battery swap, so the impressive word is being at least. This number was based only on the initial orders from the first two cities for the Kandi-initiated five-year 300,000 EV government-accredited EV ride-hailing program. While 3,000 EVs might seem a small number, it does appear to me that it's just a start from this one program alone.
However, for this program to work, there's not just EVs, but there are key collateral products required and all being provided by Kandi-owned subsidiaries. You have the whole value chain, including building the battery exchange units and additional batteries required for the exchange rack. In my computing, the total revenue from just the first 3,000 EVs alone would come in around $70 million, almost matching all of Kandi's 2020 revenues, all from one new revenue source that didn't exist even a year ago. The question comes in four parts. A would be of the three program partners, Kandi, Jinpeng, and Ruibo, which is responsible for soliciting new cities and local operators?
Approximately how many cities in China meet the specific programs targeted demographic of third and fourth tier cities?
Hi, Can I just translate?
Yes, please do.
That's the first question, yeah. Thank you.
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This project actually is being operated by the operator. The name for the company is Zhejiang Ruiheng Technology, and there are approximately 2,000 third tier and fourth tier cities in China that are meeting the requirements of this program.
Amazing. How many cities are in active discussions to add this program in their city?
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So far, Ruiheng Technology has been negotiating with more than a dozen third-tier cities about their intention to cooperate to launch the online ride-sharing EV featuring the battery swap mode. It is expected to start launching in these cities within the year.
Okay. How does that interface with Kandi's recently signed strategic cooperation agreement with China National Electric Utility State Grid, which is basically a monopoly all over China, so serving every city. Is that a separate approach or is this interfacing?
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State Grid Zhejiang Electric Vehicle Service Co, Ltd, they are also a partner of this project. They are also involving in the ridesharing program. There won't be any conflict.
I see. Given that the initial order should be around 3,000 EVs, what do you expect for all EV sales for this year, 2021, from all sources? Would that be more in the vicinity of eight or 10,000 or more EVs?
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The number of vehicles we plan to launch for the online car share market is 3,000. You have to understand, even though we signed two contract with two cities, 2,500 and 1,000, but these vehicles will be delivered on a rolling basis. It's going to take time. The number of vehicles that will be directly selling to the consumers is going to be depending on the market situation. It's hard to determine an exact number. I would give a sales number of 3,000 for this year as of now.
Okay, that's a conservative count. Thank you and best of luck for the remainder of the year. Thank you.
Thank you very much.
Thank you. Our next question comes from Frank Laderman, who is a private investor. Please proceed with your question.
Yes, good morning, Ms. Luo, and good evening, Mr. Hu. The economic development zone of Jinhua has reported that Kandi's factory is one of its key development projects, and has been designed for and is being equipped for an annual output of 5,000 sets of battery replacement equipment along with other products. My question is, why have such a large manufacturing capacity for quick battery exchange stations, since the prior reported number of stations and services only a small fraction of this number? Do you expect to actually need all this capacity? If so, by when might this capacity be fully utilized?
Thank you for your question.
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These vehicle battery swap for electric vehicles have been affirmed and supported by the government and relevant state departments since last year. This definitely just the beginning of the battery swap operation. It's going to take time for the market penetration and the market demand in the future I think will definitely be tremendous. The 5,000 sets of production capacity will be fully utilized by then.
Can Mr. Hu give some sort of a time frame as to when a significant portion of that might be in use?
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Starting the second half of this year, we should see the peak in the production. However, reaching 5000 sets of production annually is going to take years.
Okay, thank you.
Thank you.
Thank you. Our next question comes from Yasa Yak, private investor. Please proceed with your question.
Hi, thank you. Do you have any updates regarding the listing for the battery power train subsidiary, whether it's in U.S. or in China? Can you give us some ideas, some colors, timeline? Thank you.
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The management team is evaluating the possibilities of taking the company to be listed in China and in the U.S. I understand that some investors suggest to do the rights offering in the U.S., and we are still evaluating the pros and cons. As per the current situation, I think Zhejiang Smart Battery Swap Technology has a better prospect for listing in China. I believe that Kandi should have a listed company in domestic China since we are headquartered in China. However, we are still evaluating all the plans.
Okay, thank you. My second question is I think to do with operator similar to Zhejiang Ruiheng. We know that we have a lot of tier four, tier five city in China that you can go to. Question is, since we rely on one entity Zhejiang Ruiheng for now, does it mean it has a significant risk? Do you have any plan or is Kandi currently pursuing another entity with similar capacity as Zhejiang Ruiheng to help to sell Kandi car and system in the future?
Thank you.
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I want to clarify that it's not [Non-English content] itself operating in all the cities. [Non-English content] is the leading partner in this project, and he will negotiate with each local city and to find the partners in the local city to perform actual project. It's not really having a risk with just one operator.
Okay, understand. Just having a similar companies capacity as [Non-English content] will help? That's my question. Instead of only relying on [Non-English content] to find the operators in local cities.
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Right now it's just the beginning of this initiative, and we have just signed 3,000. Maybe in the future, they will be engaging with more operators. As of now, we just have [Non-English content] one operator to work on this. Maybe in the future, we will consider having more company like [Non-English content] to engage in this project.
Okay, thank you very much.
Thank you.
Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.
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Thank you again for attending today's call. On behalf of the board of directors and the management team at Kandi Technologies Group, I would like to reaffirm our commitment. We will continue to work hard to pursue the EV market more aggressively in China, as well as expediting applications of our expertise in battery swap systems to maximize shareholders value. With supportive policies from the government and sufficient cash in working capital, we believe the years ahead hold a multitude of opportunities that can deliver strong operating and financial results in the coming quarters. This concludes our call today. Thanks again for attending. You may now all disconnect.