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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kiwa Luo.
Thank you, Kiwa. You may begin.
Thank you, operator. Hello, everyone. Thank you all for joining us on today's conference call to discuss Canvys' results for the Q1 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 Lin, Chief Financial Officer. Mr. Hu will deliver prepared remarks in Chinese, which I will then translate.
After that, we will have a Q and 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 and Chairman, Hu Xiaoming. Go ahead, Mr. Hu. Hello, everyone.
And thank you very much for joining us on the call today. The total revenue for the Q1 is nearly $16,000,000 and this has far exceeded the level of the same period last year. And since last year, we have seen a most promising growth opportunity from the short distance small EVs in China, which led by a brand called Wuling. Ever since that they have launched the short distance EV that has take the trend in this market. And also high end electricity utility to rent vehicles in the U.
S, which is really a favorite by a lot of young generations. We are now focused on mass markets by developing vehicles for these settlements with a cost of RMB30,000 or less, which is approximately USD 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 4 wheel drive UTV.
We expect to launch both vehicles this year. And based on the financial statement, you will see a bottom line loss, which is due to our investments in R and D for the new products. But if you're looking at the gross margin, we have achieved over RMB 4,000,000, which is beyond which has exceeded our expectations. 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. In the Q1, we completed the relocation of facilities. In early April, the old factory site passed inspection by officials of the Jinhua development zone. We expect to soon receive the remaining amount of KRW 100 and 60 2,000,000 or around $25,000,000 At the same time, we are also moving our U.
S. Subsidiaries' headquarters to a newly purchased building in Dallas. 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 function partnerships 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. Government for EVs, the future of electric mobility and for Kandi is the best we can imagine.
We were looking forward to reporting exciting progress in the quarters ahead. Let's now start the Q and A session. And I will take the we will take the English questions and translate for Mr. Hu. And 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. Thank you. Our first question comes from Arthur Porcari with Corporate Strategies Incorporated. Please proceed with your question.
Congratulations, Mr. A really nice Q1. Let me first note, had the company not taken that $22,000,000 R and 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 I'm going to go back around first. My question has to do with Kandi's ridiculously undervalued share price.
Despite the massive EV stock correction underway from crazy enthusiasm, 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, and that's Kandi with around $5.50 per share at year end. And that book value includes over $2 a share of cash and short term investments and no debt. The net lowest is still trading over 2x book and the average is around 7x book. And if you add in Kandi's pro form a profits already assured this year of another $0.65 a share from the profit of the Jinhua and Fenshan cash, I'm getting a strange tone over here, so I don't know whether this is true or not. But 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 6.25 a share.
Now 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 3 years ago, bought some 430,000 shares with an open market value of over $2,000,000 with one block as high as $5.52 a share. And less than 2 years ago, Kandi bought about 500,000 shares for its account also at prices above the current. On the other side, Kandi's total shares were at 160,000,000 late last year at around $9 a share.
If Candy 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. So my question is, while sitting on 100 of 1,000,000 of dollars of cash and no debt, we can't hear Mr. Hu consider buying some shares here around or below book value.
Okay. Thank you for your question. 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, and we believe that company's valuation will soon be more rationale and be back to the reasonable level.
And next quarter, the statement will look even more promising, but 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 the rest of the year. Thank you.
Thank you very much.
Thank you. Our next question comes from Michael Fearnow with FocusTech Investments. Please proceed with your question.
Yes, good evening. My question relates to 2 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. Anyway, 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 UFO at that point in the transcript clearly says 460,000 units were sold.
Also, the Seeking Alpha said Kandi was raising the price by 50%, and it seems the CFO said 15%. So 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. And 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. So can Mr. Hu please address that issue?
Thank you.
Thank you for your question. Thanks for your question. We really encourage all the investor 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 misunderstanding. So in order to avoid any misunderstandings, we think it's better not to keep the transcript of the conference call by issuing the official transcript with the SEC.
In addition, from what I have found, most of the listed companies in United States do not provide their official transcript with the SEC. Therefore, our current practice is in line with the norm.
Kara, did Mr. Hu address the question about what was actually said on Hoverboard sales in the conference call? Can he clarify those numbers?
Okay. He confirms that 460,000 is correct and the increase the price increase is by 15%, 15%.
Okay. Thank you. That helps. So my understanding is the company does not plan on reproducing an official transcript of these calls. And then a follow-up question on the hoverboards.
Also in the year end call, they projected a target sales of 3,000,000 hoverboard units for this current fiscal year. Does Mr. Hu still believe that is a reasonable estimate? Thank you.
Based on the orders we have received so far in the second quarter, we think it's the number 3,000,000 motor for the Hoover board is achievable.
Well, thank you and look forward to successful future.
Thank you.
Thank you. Our next question comes from Mike Feffern with Oppenheimer. Please proceed with your question.
Hi, thanks for taking my question.
A footnote appeared in the 2020 10 ks addressing an R and D expenditure initiated in December for some $19,000,000 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 $38,300,000 and an advance payment of $23,000,000 as per the contract, dollars 3,400,000 of the expenses incurred during the year ended December 31, 2020. To my knowledge, there has been no previous information divulged by the company on this matter, unless this is also the mysterious candy sports car mentioned on the last conference call and also in the 10 ks.
My first question, is this the previously mentioned sports car mentioned in passing of the year end 2020 press release or 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. Thanks for your question. The sports car project is still underway. And because of the requirements for the sports car are relatively high, especially for the airbag, So it's going to take rather a longer time to be ready for the market launch. But 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 Huulin Company launched the short distance EVs in China, the market has been really hot And we are right now focusing on developing these 2 vehicles, short distance small EV and the high end electric UTV for the China and U. S. Market. And we are trying to working on the R and D of these cars with a total cost of less than RMB30,000. The plan is that we are working on them to launch both vehicles in the market by the end of this year.
Hello? Are you still there?
Hi, sorry. Yes, I was
on mute. Sorry about that. That was who is the 3rd party and are they only involved in the design R and D and with Kandi building the final release vehicles and if so, what facility?
The 3rd party is a domestic automotive R and 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, but the production of vehicle will be independently built by Kandi.
Okay. And 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 and to what market will Kandi be selling this new EV?
Okay. So the short distance small EVs are targeting the office workers and rural consumers in China, domestic China market. And the fully enclosed high end air conditioned electric 4 wheel drive UTVs are aimed to the U. S. Market.
Okay. Thank you. And 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.
Okay. Both will be produced in Hainan. And in the future, all the electric vehicles will all be produced at Hainan's factory.
Great. Thank you so much
for your time and best of
luck. Thank
you. Thank you. Our next question comes from Carl Shearer with Rangrige Consulting. Please proceed with your question.
Good day and congratulations for your quarter. It appears that I'm impressed with the improvement in gross margin from just about 2018 into 27, that's a 50% improvement that's major. And so here's my question. It seemed on the last conference call that the wrong impression was left. He 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 So this number was based only on the initial orders from the first two cities for the Kandi initiated 5 years 300,000 EV government accredited EV ride hailing program. So while 3,000 EVs might seem a small number, it does appear to me that it's just the 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. So you have the whole value chain, including building the battery exchange units and additional batteries required for the exchange rate.
So in my computing, the total revenue from just the first 3,000 EVs alone would come in around $70,000,000 almost matching all of Kandi's 2020 revenues or from one new revenue source that didn't exist even a year ago. So the question comes in 4 parts: a) would be of the 3 program partners, Kandi, JinPing and Ruiibo, which is responsible for resolving resolocating new cities and local operators? Also approximately how many cities in China meet the specific programs targeted demographic of 3rd and 4th tier cities?
Hi. Can I just translate to the first question, yes? Thank you. So this project actually is being operated by the operator. The name for the company is Zhejiang Ruihan Technology.
And they are approximately 2,000 3rd and 4th tier cities in China that meeting the requirement of this program.
Amazing. So how many cities are in active discussions to add this program in the city.
So far, Wiihan Technology has been negotiating with more than a dozen 3rd year studies about their intention to cooperate to launch the online ride sharing EVs featuring the battery swap mode. It is expected to start launching in these cities within the year.
Okay. And 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?
Conflict.
I see. So 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 8,000 or 10,000 or more EVs?
The number of vehicles we plan to be launched for the online car share market is 3,000 because you have to understand, even though we signed 2 contracts with 2 cities, 2,500 and 1,000, but these vehicles will be delivered on a rolling basis. It's going to take time. As a number of vehicles that will be directly selling to the consumers, it's going to be depending on the market situation. So it's hard to determine an exact number. I would give a sales number of 3,000 for this year as of now.
Okay. So 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 Blatterman with who is a private investor. Please proceed with your question.
Yes. Good morning, Ms. Lu and good evening, Mr. Hu. The Economic Development Zone of Jinhua has reported that Gandy'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 service is only a small fraction of this number. Do you expect to actually need all this capacity? And if so, by when might this capacity be fully utilized?
Thank you for your question. This vehicle battery separation swapping for electric vehicles have been affirmed and supported by the government and relevant state departments since last year. So this definitely just the beginning of the battery swapping operation, but it's going to take time for the market penetration. And the market demand in the future, I think will definitely be tremendous. So 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?
Starting the second half of this year, we should seeing the peak in the production. But however, reaching 5,000 sets of production annually is going to take years.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Yasser Yap, a Private Investor. Please proceed with your question.
Hi, thank you. So do you have any updates regarding the listing for the battery powertrain subsidiary, whether it's in U. S. Or in China? Can you give us some ideas, some color, time line?
Thank you.
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 pro and cons.
But 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 were headquartered in China. But however, we are still evaluating all the plans.
Okay. Thank you. My second question is having to do with operator similar to Zhejiang Ruihang. So we know that we have a lot of our tier 4 tier 5 cities in China that you can go through. Question is, since we rely on one entity, just from Riheng for now, does it mean it has a significant risk?
Do you have any plan or is Gandhi currently pursuing another entity with similar capacity as a Zhongruihan to help to sell Changdi card and system in the future?
Thank you. I want to clarify that it's not Reihan itself operating in all the cities. Reihan is the leading partner in this project, and he will negotiate with each local city and to find partners in the local city to perform actual project. So it's not really having the risk with just one operator.
Okay, understand. And just having a similar company similar capacity as a Zhang Ruihang will help? That's my question. Instead of only relying on Ruihang to find the operators in local cities.
Since right now, it's just the beginning of this initiative and we have just signed 3,000, so maybe in the future, they will be engaging with more operators. But as of now, they are we just have a reason, one operator to work on this. But maybe in the future, we will consider having more company like Reihan 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.
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 supported policies from the government and sufficient cash and 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.