Kandi Technologies Group Inc
NASDAQ:KNDI
Kandi Technologies Group Inc
NASDAQ:KNDI
Price:
2.45 USD
0.41%
Market Closed
Updated:
May 8, 2024
Section:
Earnings Call Analysis
Summary
Q3-2023
Q3-2023
Kandi's Strategic Moves Lead to Profitable Q3
Kandi Technologies has successfully sustained its profitability, signifying a positive outcome from its product transformation initiative. The third quarter saw the company generate a net income of USD 6.3 million, with an EPS of $0.08, a turnaround from a net loss of USD 2.4 million or an EPS loss of $0.03 in the previous year. The acquisition of the Northern Group by subsidiary SC Autosports has bolstered sales and distribution, exemplified by a new partnership with Rural King. Additionally, Kandi showcased new electric off-road vehicles at a key trade show and purchased a Texas shipping center to enhance marketing capacity. Looking ahead to 2024, the company is poised for significant growth in North America and global expansion.
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Greetings, and welcome to the Kandi Technologies Third Quarter 2023 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Kewa Luo. Kewa, you may begin.
Thank you. Hello, everyone. Thank you all for joining us on today's conference call to discuss Kandi's results for the third quarter 2023. Earlier today, we issued a press release covering the results. 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. Xiaoming 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 statement 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, Dr. Xueqin Dong. Go ahead, Dr. Dong.
[Foreign Language]
[Interpreted] Hello, everyone. Welcome to our conference call today. I will begin to discussing some of the highlights in the third quarter in the wake of our successful transformation from a loss to a profit in the first half of 2023. Our continued profitability this quarter underscores the positive outcomes we have gained from our product transformation initiative. These profitable operations serve as a testament to the strategic adjustments we have made in recent years, which have paved the way for our success in the fully electric off-road vehicle market.Through the collective efforts of all employees, our company achieved a cumulative net income of approximately USD 6.3 million during the first 3 quarters, with diluted earnings per share of $0.08. This marks a significant improvement compared to the net loss of approximately USD 2.4 million or diluted loss per share of $0.03 for the same period in 2022.
[Foreign Language]
[Interpreted] Our subsidiary, SC Autosports, finished the acquisition of the Northern Group. This further enhanced our sales pipeline by leveraging their extensive sales expertise and distribution channel. This strategic move enabled us to further solidify our position in the market as demonstrated by our recently announced partnership with Rural King, a giant in the American farming and home retail industry. They are helping us expand by working with more stores, delivering our products to a broader customer base.
[Foreign Language]
[Interpreted] In addition, we recently displayed our new fully electric off-road vehicles at the Mid-States Rendezvous, a trade show that facilitates vendors' access to a large and influential network of independent farm ranch and home retailers. We received positive feedback and further enhanced our presence across various distribution channels.Moreover, to foster SC Autosports marketing capabilities, in the third quarter we purchased a 75,000 square foot shipping center in Texas, which is now operating. This move will significantly boost our marketing capabilities in the United States.
[Foreign Language]
[Interpreted] As we look forward to 2024, our primary focus remains to expand our presence in the North American market. With Kandi's commitment to innovation and quality, we are positioned to meet the increasing demand for fully electric off-road vehicles, unlocking substantial growth potential and capitalizing on opportunities. Additionally, we are committed to entering global markets and are confident that our production and sales in 2024 will experience substantial growth compared to the current year.
[Foreign Language]
[Interpreted] Now we move on to the Q&A session. Chairman Hu Xiaoming and I will answer your questions, and Ms. Kewa and Mr. Alan Lim will provide translations for English questions. Please go ahead and ask your questions.Operator, please go ahead.
[Operator Instructions] Our first question comes from Michael Pfeffer from Oppenheimer & Company.
A lot of Wall Street pundits have been warning U.S. investors away from China stocks as well as electric automakers, likely the cause of Kandi's poor stock action these last few months in spite of consecutive impressive jumps in quarterly performance. In reality, from a purely operational cash management view, management looks brilliant in both selling its legacy Jinhua facility for $60 million cash profit, plus a government subsidy to build a new replacing facility, and selling its China-based EV auto JV, Fengsheng, interest to former partner Geely for an additional $40-plus million profit, both just as the COVID epidemic began slowing China's economy. The JV sale to Geely looks particularly smart since Fengsheng has not shown up in the China media for years and seems to now have been terminated. Maybe you just translate that, and I'll skip to my questions.
Go ahead.
Okay. My question to management is to confirm or reject a theory that should clearly set Kandi apart from both the EV and China investor concerns mentioned before. The theory is Kandi with its new direction away from EV autos back to its decades ago export legacy off-road business is in the best of both worlds, particularly since it no longer does have to rely on the internal sales in China.Kandi is a conglomerate, manufacturing in-house 90% of all parts for its electric fleet, including chassis, body parts, motors, lithium batteries and BMS. In China, where the economy and employment has slowed along with multi-year lows on commodities like copper, on rare earth minerals, then ships the vehicles on containers, also at multi-year low prices, to the U.S. where the economy is much better and there is a significant demand for low-cost electric transportation. It is no wonder Kandi's CEO has predicted gross margins in the 38% area. If you could just translate that. Then two small more things.
Okay.
Does management agree with the stated observation? Is Kandi aggressively attempting to expand its global exposure? And if so, which markets do you expect to add over the next 12 months?
Is that all your question?
I have one more after that, but I'd like to hear his answer to that.
Okay.
[Foreign Language]
[Interpreted] First of all, there are distributors in certain countries that are now test selling our products. The company estimates that within the next 12 months, there will be more supermarkets that are going to be selling our products in the United States, and we expect there will also be certain new sales in Europe and other regions.
And out of existing facilities, what would be the capacity for the bigger ticket items like golf carts, UTV, ATV, et cetera, using multiple shifts? Any big surprises over...
[Foreign Language]
[Interpreted] So regarding our production capacity, as long as there's market demand, our production capacity can meet the needs. And then the company estimates there will be certainly some surprises in the coming months. So please pay attention to the information we're going to release.
Our next question comes from [ Joe Kramer ], who is a private investor.I apologize. The next question is from Mark Kahnau.
While the last Kandi conference call alluded to global expansion, we have seen no press release or 8-K confirming a rollout has begun. Case in point, for the peers it has. Over the past months, a deep dive in the internet came up with some interesting findings. First, a discovery of a major United Kingdom dealer, EV Shire UTV, began selling the Kandi E10 Boy under their brand name Shire Max E-UTV 4 Wheel Drive. However, Shire is selling their models for twice as much as in the U.S. for $28,303, including VAT.Then soon followed by distributor Fairway EV Limited that states they are U.K.'s leading importer of high-quality electric vehicles serving the whole of the U.K. Republic and Ireland and Portugal. They also offer the Kandi brand Side-by-Side Cowboy E10. And shortly thereafter, another discovery of a distributor in Austria, WAT Handels GmbH, that claims as of the 20th of October, '23, has a large stock available of Kandi Cowboy E10 at EUR 19,900. That's about USD 21,300 plus VAT.Kewa, if you can first translate this, and then I come to my questions.
Please go ahead with your question.
Here are my questions. First, in the U.S., it appears that feature-packed Kandi Cowboy Side-by-Side is being retailed at $13,999 and incredibly cheap compared with the Polaris Kinetic Premium at $29,900. So only a 10% larger lithium battery with a higher speed but less range. Most editions specs about the same.Is Kandi using the Cowboy at this very low price as a door opener to dealers for subsequent Kandi off-road product? As in the case of the European dealers, they must have added a huge margin built in their final price.And second, is the company planning on ever announcing the opening of a new international location in the future to shareholders, which Kandi's website will carry in this global location?And third question is, how is Kandi handling the international expansion? And does it have growth projections in possible countries for this sector over the next year. And fourth and last question. Lastly, since you're selling the Cowboy so...
I'm sorry.
Yes. Okay. Then go ahead with the first...
I'm sorry, sir. Yes, I'm sorry. Can you slow down? Can you just start with your first question? Let's do one by one.
Okay. We go one by one then.
Yes, please, just first question first.
Yes. In the U.S., it appears the future packed Kandi Cowboy Side-by-Side is being retailed at $13,999, an incredible cheap price compared to the Polaris Kinetic Premium at $29,900. So only 10% larger lithium battery with a higher speed but less range. Most editions specs about the same. Is Kandi using the Cowboy at a very low price as a door opener to dealers for subsequent Kandi off-road products? As it's in the case of the European dealers, they must have added a huge margin built in their financial price.
[Foreign Language]
[Interpreted] So as for your question, first of all, the models we're selling in U.S. and the models we're selling in Europe, they are the same. Then the reason why the price in U.S. is rather lower because right now U.S. market is our main focus. We try to tackle the market occupancy. That's why we try to lower the price. Plus, we are selling through our U.S. subsidiary, SC Autosports, that have less layers of the channel distributors. And of course, the price will be considerably less. In Europe, because there are certain market by our distributors in Europe, that's why the price is higher. Hope that can resolve your question.
Yes. And then the second question. Is the company planning on ever announcing the opening of new international locations in the future to shareholders? Because right of now, we only know these kind of things happening because we search the internet. And that's not so shareholder friendly. But which -- and if they do, which Kandi website will carry these global locations then?
[Foreign Language]
[Interpreted] Currently, we are trying to promote our pure electric off-road vehicles around the world, but it's still in a rather early stage at the moment. Those dealers you mentioned above have only purchased certain of our vehicle prototypes and they're in the test selling stage. So please stay tuned, we'll definitely keep the market and the shareholders post with further update.
Okay. And then my last question is, since you are selling the Cowboy so cheap and it appears to be perfect for independent dealers, is Kandi going to hold back the Cowboy from Lowe's, Walmart and Amazon and use as a bait to expand its independent dealers network?
[Foreign Language]
[Interpreted] So in the U.S. market, we are selling our products through the different type of distributors on different channels and, of course, through the supermarket Lowe's. We are discussing with certain other new supermarkets at the moment. But then the price will be consistent all over different channels and in a considerable and appropriate, reasonable level.
Our next question comes from [ Joe Kramer ], a private investor.
It seems to me that the most bullish press release hinting to a bright Kandi future is the recent announcement of the purchase of a new 75,000 square foot distribution facility in Dallas suburb Garland, adding to its 2021 purchase of its first 50,000 square foot facility just a few miles away in Dallas.If correct, the initial facility, though, having 50,000 square feet, is also being used as its headquarters, sales marketing, support, and showroom. I would assume that would only have left maybe 30,000 square feet for assembly and distribution. Yet this year, we should see some 20,000 or more units assembled and distributed from the original 30,000 square feet. Should I continue, Kewa?
Let me translate first.
Okay.
Please go ahead.
The additional 75,000 square feet for pure distribution and assembly could theoretically increase capacity by 150% or to some 50,000 units. And in the same press release, the CEO of Kandi North America also said, we now intend to drive growth through geographic penetration across the U.S. Additional distribution centers will be key for fulfilling demand in a timely and [ cost ] effective manner. So my questions are, one, am I interpreting the content of that recent press release along the line of management's thoughts? And if so, is it safe to assume if this capacity is reached over the next 2 years, revenues approaching $500 million could be feasible?
Okay. Let me translate so far.
Okay.
[Foreign Language]
[Interpreted] So the purpose of purchasing a new warehouse in Garland of Texas is to increase our sales capacity. With the better fundamental, our sales in the States will definitely increase in a more significant manner. Our goal of the sales target is estimated to be close to $500 million within next 2 years.
Okay. On a prior conference call, the CEO anticipated the continuation of Kandi's 38% gross margin through year end. Does this still look to be realistic? And also, while it was just a small piece, Wall Street veteran growth investor Louis Navellier included Kandi in a strong buy recommendation a couple of weeks ago and projected a compound annual growth rate, CAGR, for Kandi of 25% from now to the year 2030. Could he be correct?
[Foreign Language]
[Interpreted] So first of all, regarding our gross profit margin, actually, in the second quarter of this year, the margin was 38.2%. And the average gross profit margin from January to September, 9 months, was 34.3%. So it depends on the development of market and conditions. It is estimated that the gross profit margin for the whole year 2023 will be about 30%.And then regarding the estimate from Louis Navellier, we believe that in certain years of the foreseeable futures, we can meet or even exceed 25%. But of course, it's hard to tell if we can meet such target year in and year out. So we try our best to achieve, definitely.
Our next question comes from Arthur Porcari from Corporate Strategies.
Glad to see this week that Kandi America announced the Rural King, a hardware store chain with 130 stores, 13 states, calling it "a milestone for Kandi in strategic expansion." However, when Kandi added Lowe's Corp., Walmart, and opened an Amazon store over this past year, though having already sold thousands of golf carts through these outlets, to date, Kandi has yet to even publicly announce any of these relationships, let alone call those mega relationships a milestone.It's hard to understand the logic behind Kandi's stealth growth business plan, hiding potentially millions of dollars of effectively free additional publicity for Kandi's new products, affecting dealers, consumers, and shareholders.Kewa, go ahead and give them that right now.
Okay. Go ahead.
Okay. My case in point is, right at -- 1 year ago in late October on a personal visit to Lowe's, I noticed some golf carts out front, not even knowing that Kandi was even making golf carts at that time. I took a closer look, and to my surprise, I found the Kandi name and logo on the inspection plate. I posted this with pictures on the Kandi private chat.As most know, Lowe's is the nation's top retailer with 2,300 stores. I've been checking back with the product manager who tells me the Kandi golf carts have been hot sellers in his store.This past August, 1 week after the last conference call, another member of our chat board discovered the world's top retailer, Walmart, with 4,600 stores, had just added Kandi golf carts to their online store with free delivery within 5 days. And curiously, both Lowe's and Walmart, at least for now, are offering Kandi golf carts exclusively. A few days later, another stealth release of Kandi golf carts, this time, through Kandi opening its own store at Amazon. In each case, not only full line of golf carts, but also full offering of Kandi parts and accessories. But never a word from Kandi in the media about any of these 3.Go ahead with that right now.Okay. While it's no surprise to U.S. consumers and independent dealers that most golf carts are made in China, what could be a surprise is that Kandi carts and other off-road vehicles that they're offering as -- I think somebody already said earlier today, Kandi is a conglomerate that makes virtually 90% of each golf cart. But on top of that, it's also on NASDAQ. And that to me is a big sales point.I doubt seriously if any of the other people out there that are making these golf carts are trying to compete with us and other similar type stuff have been on NASDAQ for 15 years.Anyway, obviously, neither Lowe's or Walmart are trying to keep Kandi's name on the quiet since each have numerous sponsored ads all over Google and other websites highlighting the Kandi brand along with their name. And by the way, most of them have 4 plus star ratings, which is a real compliment to the company.Okay. Pass that on. Then I'll get to my questions.
Go ahead with your question.
Okay. Here's my question. Why has Kandi been hiding its special relationships with 3 of these top world's largest retailers? It would seem that something as simple as a Kandi public press release announcing affiliations and products will not only be greatly rate publicity for Kandi and its stock price, but also drive new business from shareholders and others who see these news releases connecting to these retailers giving even more comfort to prospective buyers knowing that China's e-carts are from a longtime NASDAQ listed company. Does this release of Rural King signal Kandi will once again start putting out more press releases on these type of new location openings?
[Foreign Language]
[Interpreted] So first of all, definitely, we are not hiding anything, not at all. It's just when we try to publish news, as you may know, we have to consider interest of other parties, like our customers or our partners. Sometimes those parties may have their own concern, whether they feel comfortable or they have any other thoughts for us to release the names in the press release.And sometimes because if they don't want to do that, we will rather not publish than taking the chance or risk to do that. We definitely don't want to jeopardize our relationships with our customers and our partners. That is the reason why we gained the trust from our partners. We would not try to gain our own interest at the expense of other parties. And definitely we don't want to cause any inconvenience to the others.Moreover, regarding the Walmart and Amazon, they actually are still in the rather early stage of selling our products. As you may know, each company has its own way of selecting the suppliers and products. It may usually take more than 6 months of the market testing, the product testing before they move on to the next step. The reason why we have not published those statements in the past, we try to maintain a rather conservative approach, we want to wait until everything is clear, is concrete before we make -- spill the news. So I hope you understand our approach.
Yes, that does make sense. And curiously, watching the Walmart website, they started out with just 4 carts on it. Now -- as of 1.5 week, 2 weeks ago, now they have like all our products as far as golf carts. They have the 6 passenger on there. They've got the one with the dump trucks on there. Plus, they have a lot of our parts. So they've went from effectively 4 locations that you can click on to now it's more up around 30-ish. So I guess that's a good sign that they feel like we're moving along pretty well. But anyway, let me get on to my next question here then.Let's see. Just 2 years ago when not much was happening, Kandi was putting out as many as 45 press releases a year. Since that time, it appears that Kandi, the parent company, is no longer putting out much in the way of PRs other than financial releases. Instead, now what PRs we are getting seem to be generated by Kandi America.But there seems to be some confusion in here. Both companies are using different PR reps and wire services. So many investors using Kandi -- that use Kandi are used to seeing on the global business wire press releases, where Kandi America uses the Business Wire. So they don't necessarily show up in the same services. Considering Kandi the parent has both a VP of Investor Relations, and in my opinion, a worthless international PR firm, Blueshirt Group. Why is Kandi now putting out less news now that it's growing exponentially?
[Foreign Language]
[Interpreted] In the past 2 years due to our strategic shift of the marketing approach, we have adhered to the approach of few words, many deeds. Ongoing, we will plan to refine, fine-tune our related publicity methods and make certain adjustments based on your suggestions. So thank you for your opinions.
Okay. Just a couple of last here. I am intrigued by your comment. I think it was your comment earlier for us to stand by for a big announcement. I guess you wouldn't want to share any more on that for now. So let me just go on to my last question, which I'd like to direct to Mr. Hu.Over the past few years, Kandi has brought back some 3.5 million shares in open market purchases. With its record growth spurt underway, cash of $245 million, which seems to be going up every quarter, or about $3 a share in cash, profitable, stock trading at $2 under book value and below working capital. Is management prepared to at least take a look at reinstituting possible share buybacks? To Mr. Hu.
[Foreign Language]
[Interpreted] We are considering this issue and we will take action in the appropriate timeline.
Very good. And really looking forward to that $500 million over the next 2 years. Good job.
Operator, do we have any additional questions?
It does not look like we have any other questions, so this will conclude our question-and-answer session. I would like to turn the floor back over to Kewa Luo for closing comments.
Thank you. Thank you again for attending today's conference call. If you have any more questions, you may contact us via email at ir@kandigroup.com. We look forward to updating you on our next earnings call. This concludes our call for today. You may now all disconnect.