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Kandi Technologies Group Inc (KNDI 3.06%)
Q3Â 2019 Earnings Call
Nov 12, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the Kandi Technologies Third Quarter 2019 Financial Results Call. [Operator Instructions] At this time, I'd like to turn the conference over to Ms. Kewa Luo, IR Manager. Please go ahead, Ma'am.
Kewa Luo -- Manager Investor Relations
Thank you, operator. Hello, everyone, and welcome to Kandi Technologies Group Third Quarter 2019 Earnings Conference Call. The company distributed its earnings press release earlier today, and you can find a copy of it on Kandi's website at www.kandivehicle.com.
With us today are Kandi's Founder, Chairman and Chief Executive Officer, Mr. Hu Xiaoming; and Interim Chief Financial Officer, Ms. Zhu Xiaoying. Mr. Hu and Ms. Zhu will deliver prepared remarks followed by a question-answer session.
Before we get started, I'm going to review the Safe Harbor Statement regarding today's conference call. Please note that the discussions today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may differ materially from views expressed today.
Further information regarding these and other risks and uncertainties are included in the company's annual report on Form-10 K for the fiscal year ended December 31st, 2018 and in other documents filed with the US Securities and Exchange Commission. Kandi does not assume any obligation to update any forward-looking statements, except as required under applicable law.
As a reminder, this conference call is being recorded. In addition, a audio webcast of this conference will be available on Kandi's Investor Relations website.
I will now turn the call over to Kandi's Founder, Chairman and CEO, Mr. Hu Xiaoming.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Hello to all the attendees. Thank you very much for joining our third quarter 2019 earnings conference call today.
(Foreign Language) As Kandi Vehicles and Geely jointly established a affiliate company, formerly known as the JV company. The affiliate company has been engaged in manufacturing pure electric vehicles and Kandi Vehicle did quite a lot of changes at that time in order to be focusing on supplying EV products through the affiliate company. At the beginning of this year, the affiliate company made substantial progress in leading the effort in organizing the online ride sharing service alliance projects of offering 300,000 government accredited vehicles within five years.
Later in March to accelerate its growth, we sold a part of our equity interest in the affiliate company to Geely to allow Geely to own more controls in the affiliate company and assisted to become a prominent company with the hope that the affiliate company can fully utilize its potential to accelerate its growth. Although, Kandi Vehicles equity interest percentage in the affiliate company was reduced to 22%. While we believe that with Geely's help, our profit from the affiliate company after the adoption of the refined and upgraded business plan will far exceed the profits we received when we originally owned 50% equity.
I believe everyone will agree on this. Over the past six months the affiliate company has made substantial progress with Geely's help in restructuring and adjusting its business strategies. For now they have not disclose any progress yet, but they will release details of the progress in up coming December.
(Foreign Language) Due to the restructuring of the affiliate company, we have adjusted Kandi Vehicles business model accordingly after dedicating the past six months to adjust Kandi Vehicles business plan, its business will have the following priorities.
(Foreign Language) Number one, after Geely Holdings took control of the affiliate company, their online ride sharing service alliance project which offers 300,000 government accredited vehicles within five years became conflicted with Geely's joint [Phonetic] venture program. Due to the fact this project is very sizable and Kandi has done a lot of work. Therefore, Kandi has taking over the online ride sharing service alliance project and reorganized it to bring in other partners with greater experiences and resources. Currently, the preparational work is going very well, more details of this project will be announced in the near future. Also, this project is expected to drive the sales of the model K23.
(Foreign Language) Number two, further improving the operating management's and production ability of the Hainan facility to capture the opportunity of raising online ride-hailing market and the US market demand.
(Foreign Language) Number three, as a EV parts provider continuing to supply battery, motors and electronic control components to the affiliate company and Hainan facility.
(Foreign Language) Number four, strengthening our relationship with DGL group USA, while ensuring the growth of the all-terrain vehicles business.
(Foreign Language) To all of our shareholders, due to the impact of the affiliate company's equity adjustment the company's various financial indicators were not satisfactory. But we believe that our refined plan will be more conducive to future development. We have full confidence in the company growth in 2020.
(Foreign Language) The format of this conference call will be as the same as last conference call since we have already released our financial numbers, we will skip the CFO's part to address all the financial numbers and we'll the save the time for answering your questions. Now I can take your questions. Thank you.
Kewa Luo -- Manager Investor Relations
Operator, we are ready to take some questions.
Questions and Answers:
Operator
Sure, ma'am. Thank you. [Operator Instructions] We will now take our first question from Mr. Karl Scherer, Rang Ring Consulting.
Karl Scherer -- Rang Ring Consulting -- Analyst
Good morning. Thank you for taking my call. So on the conference call in early March, Mr. Hu said early on in 2018 we prepared a three year plan for 2018 through 2020 based on our companies and the industry situation. 2018 was to be the year of survival, 2019 of revival and 2020 will be the year of prosperity. Since Mr. Hu probably knew about the restructuring with Geely Holdings at that time. Does he feel still so strongly about 2024 Kandi? And if so, does he have any ideas on how to get this closely undervalued Kandi into a year of prosperity story out to Wall Street investors, which means, are you going to step up your marketing efforts and your self promotion toward professional investors?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Although being impacted by the affiliate company's equity restructuring, Kandi Vehicle is still on the right track for growing business, like what I said in the opening remarks. We are confident that the Kandi Vehicles will have a big breakthrough in 2020. In terms of our plan to get the story out to Wall Street investors we are working on the marketing plan. Once it's ready, we will disclose it to the market.
Karl Scherer -- Rang Ring Consulting -- Analyst
Thank you. Could I have a follow-on question?
Kewa Luo -- Manager Investor Relations
Yes, please.
Karl Scherer -- Rang Ring Consulting -- Analyst
I'm still puzzled by the fell back of Kandi shares in the joint venture and the structure of how these shares can be regained again. I'm having two completely different readings on it. One reading is, Kandi can buy back its share in the joint venture at any given time in the future for the exact same price it sold its shares. Or the other version I'm finding is, Kandi can issue new shares in the Kandi incorporated, in the KNDI stock and exchange these shares in the Kandi joint venture which would basically come down to a dilution and basically keep Kandi's portion of the joint venture at the same 20 some percent. So which reading would be correct, please?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) About this, when we signed the restructuring agreements with Geely, one of the terms is reading as the both parties further upgrade that within next two years Kandi may purchase a portion of the assets of the JV company or the affiliate company in the form of its shares, resulting that Geely becoming a significant shareholder of the company. And for that we also need to depend -- decide depending on how the affiliate company is doing in the near future. If the affiliate company has become large and then we will have to rediscuss the options. And so, for now we just cannot make a -- make a firm offer on that, but it depends on the specific situation of the -- its development and to find the best approach to maximize Kandi's interest and then we will make the decision then. So agreed timeframe is two years.
Karl Scherer -- Rang Ring Consulting -- Analyst
I see. And what affiliate are we talking about that might gain in value?
Kewa Luo -- Manager Investor Relations
I'm sorry, say one more time.
Karl Scherer -- Rang Ring Consulting -- Analyst
You mentioned there was an affiliate company that might gain in value, which would change the valuation of the joint venture, which affiliate would that be?
Kewa Luo -- Manager Investor Relations
Actually, the affiliate company is the JV company, since right we only one 22%, so we cannot call it the joint venture, we have to call it affiliate company.
Karl Scherer -- Rang Ring Consulting -- Analyst
I see. Okay. [Indecipherable]. Thank you. And one more question directly concerning statement Mr. Hu made in one of his last conference calls that the new models would be produced to the standard of the European common market. Is that still sell with the new models and would -- what would happen if the European importer of foreign vehicles would approach Mr. Hu, could he directly import the vehicles or would they have to be still modified and altered?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Mr. Hu is saying that [Indecipherable] possibility if the European company come to approach us, but however, he thinks that it's going to take a long time. For example, in order to export the EV to US it takes about a year, but he believe that there will be possibility.
Karl Scherer -- Rang Ring Consulting -- Analyst
Okay. Thank you for your precious time and congratulations for navigating very difficult waters in the automobile sector in China.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thank you.
Operator
Thank you. We now take our next question from [Indecipherable] Investment Company.
Unidentified Participant
Hello. Okay. Well, Kandi holders were forewarned that JV controlling partner Geely Holdings [Indecipherable] was going to curtail JV, EV sales efforts of pre-2019 models, which did not meet all of the new requirements for the government accredited programs. We also have had no news on how he is -- he is progressing with the new fleet. Can you update us on what new EVs are to -- we are to expect and when will they be released? Thank you.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thank you. (Foreign Language) Thank you very much for following up us closely. What you said is correct that previous models won't be able to meet the requirement for the ride-hailing market. And the affiliate company has done a lot of work. So the specific information will be released by the affiliate company in the upcoming December, by then you will find out more information.
Unidentified Participant
Thank you.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thanks.
Operator
Thank you. We now take our next question from Mike Pfeffer from Oppenheimer.
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Hi. Thanks for taking my question. I have a quick comment which kind of sets up my two questions. So real quickly, in the second quarter 10-Q Kandi's increase in gross margins was partially attributed to the increased selling price of Kandi 100% own Jinhua Ankao high margin charging and exchanging equipment and battery processing business. Year to date, other than announcing Ankao, Kandi's largest acquisition ever in 2017 we have seen no other mention of the company or its products in the press release, do you want me to ask my question now or do you want to just translate that?
Kewa Luo -- Manager Investor Relations
I will translate.
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Okay.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language)
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Can you upgrade -- can you please explain just what Jinhua Ankao does with its battery processing that makes it so valuable and most importantly, it's battery exchange both for internal use by the JV and third party use?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Jinhua Ankao has its own unique pure electric vehicle battery exchange system technology and also plugging power connection pack technology and they also own a number of patents. A couple of days ago, which is on the 10 -- November 10, the fully automated Kandi intelligent battery exchange system developed by -- developed by Jinhua Ankao has also passed the inspection and this system is more efficient in terms of time and the money. And this system also ranks among the current top battery exchange equipment and the company's products can be of course used by the third parties as well and we have included the video of this system on our company's official website.
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Okay, thanks. And just one other quick one, is Kandi's side slide patented quick battery exchange being used with Jinhua Ankao charging units or does Ankao have its own technology and will all new JV EVs come with Kandi quick battery exchange? Thank you.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Jinhua Ankao is Kandi Vehicles wholly owned subsidiary. Therefore, some technologies are definitely used together by both parties. In view of encouragement for using the battery exchange method. As you know the quick battery exchange is innovative by me, but in -- in the past, this method was misunderstood by the authorities and it wasn't being promoted. But however, this has been changed. And right now the national authority are very encouraging the industry to using the battery exchange technologies. Therefore, we believe that the system can not only provide services for our Kandi's vehicle, but also play a very positive role in promoting renewable energy vehicles in China. So there will be a very good future for this technology I believe.
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Thank you very much.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thank you.
Operator
Thank you. We now take our next question from Arthur Porcari from Corporate Strategies.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Well, I was impress by the quarter, Mr. Hu. Thank you very much. Just say, I got a couple of areas I want to just touch on, be relatively short. But based on recent reports in the states, it appears that most China based auto or EV companies like NEO and even Buffett's BYD have unexpectedly seen China car sales slowing dramatically in the past two quarters, which is causing them to have some major sales projection misses and even some of the weaker companies going out of business. However, Kandi's partner is showing up in the media, it seems to be leading the pack in China, and it's actually still in a growth mode. So it looks like you pick the right partner, I've got just a couple of questions on that area. And then I want to follow up with those shift to a different -- a different area. So why don't you carry that on to Mr. Hu. Thank you.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thank you. (Foreign Language) Go ahead.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. When Mr. Hu negotiated the partial sale [Indecipherable]. Curiously, did he anticipate this country wide auto and EV slowdown? And in his opinion what is causing the industry contraction, is it temporary and what is Kandi JV doing to address this?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) You actually have asked two questions. I'll answer one by one. First, I don't think this is a question about the sales slowing down, because the industry has reached to a point where the reorganization and the restructuring have become -- have to become necessary and only the fittest will survive. At present there are hundreds of large and small automobile factories in China and the production capacity has become seriously oversupplied. In my opinion, under normal circumstances the number of China's automobile factories should be around 10 and Geely ranks the top. Therefore, I still firmly believe that letting the affiliate company run by the management of Geely Holdings is definitely a very wise choice.
And the second question you asked, what's causing the industry contraction. I think it has many factors, but the primary factors are -- is slow economic growth and the market situation and the third is the capacity is oversupplied. However for the affiliate company managed by Geely, they will have a plan accordingly that they think is going to help the company to grow. And more details will be disclosed in the coming December like I said earlier.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. That's fair. I'm going to add one more little question there, then I'm going to shift to a slightly different subject. Well, it appears that the decision made last year to concentrate with Geely, the credited government program, the 300,000 car program in the next four, five, it seems to be the smart move to go then, because that seems to be a pretty captured marketplace. But again, that's an observation and you can ask whether he wants to agree with or not. But really, here's my second question, can Mr. Hu tell us more about Kandi decision to enter into the new product lines and its relationship with US based DGL. The major Walmart [Indecipherable] for China product and why the company decided to enter this new product line excluding exporting the scooters and micro autos. Go ahead and pass on Mr. Hu and I had one more question.
Unidentified Speaker
(Foreign Language) Yeah, go ahead.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. And just out of curiosity, I mean, very complementary the Kandi has somebody as big as Walmart, Sam's Club and DGL would have such an interest in it. And I think we were all quite surprised by the $70 million order for 800,000 units over the next 12 months of self leveling scooters and scooters which effectively I think are hoverboards and scooters. But anyway, what was really surprising was how in three weeks the company already delivered -- announced that already delivered 40,000 of the units -- 45,000 like $4 million. So I'm curious between now and year-end, it seems like Christmas type products between now and year-end, is it fair to say that maybe as many as half of those would actually be delivered? And again, this is all Kandi's, in case anybody's not aware? That's my question.
Unidentified Speaker
And so you are asking -- can you repeat the last part?
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. Effectively, let's put it in three ways. Let's just say how did Mr. Hu gets involved with this company in such a high level initially -- the shift of our business right now, which I think is a good thing? And what type of margins are involved in this product line. Let me -- let's say a smaller one too, what type of margins are involved in it, and are US tariffs affecting this, and for that matter all our US products for the shift on you there.
Unidentified Speaker
Okay. But still if you want to ask whether -- you asked earlier, whether we can execute the deals for the rest of the year.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Yeah. Well, at least half the deal over between now and the end of the year. Since these products seem to be Christmas type products.
Unidentified Speaker
Okay. Okay, got it. Thank you. (Foreign Language) Okay. Mr. Hu answer all the questions. I'll try to us summarize the all. First, he doesn't believe that this move is shift of our focus, because we have been doing and producing this type of product in the past, but they were not enough demands, so we never really had a lot of sales. But however, this time we were able to be introduced to the CEO of DGL and he came to visit us and realize that we do have this advantage from producing the ATV, UTV. So we decided to partner together.
In the past, they have been working with companies in Shenzhen, but right now since Shenzhen is focusing on high technology, so they also wanted to find a new partner to work together and we believe this is a great opportunity for us.
And next question is -- and for this contract we have signed 300,000 and 500,000. I don't think we're going to execute half of this contract within this year. Right now still in a small amount, but we believe next year we're going to hit the greater number in terms of the number of vehicles we're going to send it to them. And also for the tariffs, we think it definitely has some impact depending on the outcome of the US-China trade negotiation. If the tariff is reduced, we are going to have a higher profit margin. But for now, the margin still small since the value is -- volume is still small.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. [Multiple Speech]
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Did I cover everything? [Multiple Speech]
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Well, actually you did. But there is one other little area over here as a follow-up after what he said. Did Mr. Hu see the possibility, I mean, does he see the possibility that Sam's Club and Walmart may one day actually be selling really high-end products like EVs. I mean, I know they sell $10,000 hunting UTV, I see that in Sam's Club when I walk in Sam's Club in the front door. But does he feel there's going to be an opportunity sometime in the next several years where like Walmart, we'll actually be selling autos, electric autos and such. Ask him that question and then I have several wrap-up questions.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Okay. Mr. Hu was saying that, actually from discussion with DGL they have already have the plan to expanding to the EV distribution, but we haven't really got into more details. Mr. Hu believes that in the near future there will be possibilities for that. And also, he want to mention that these scooters are being manufactured on the products -- the product line of ATV and UTV.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. That's I kind of thought that might be where he was going with this. So effectively I guess they're being made right now in the Jinhua facility?
Unidentified Speaker
Yes.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. And here is just the last, I wanted to go back to the former subject. After the December revealed by Geely of what he's been doing behind the scenes for the past several months with the JV. Will Kandi still be as proactive to keep shareholders aware of all the aspects of the JV. I haven't had a chance to look at the new 10-Q to see whether like there is still a breakout in such, but will there be breakouts with the JV still? And then finally, in what format do you anticipate this Geely revealed to be on the JV's progress? Well, it just be something announced in China, will it be a co-release with Geely and Kandi or Geely Holdings and Kandi. How do he see us getting because that news, obviously, could be quite monumental really for Kandi?
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) It's hard to say for now, but this will be disclosed in accordance with SEC regulations.
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Okay. Well, again, congratulations. Mr. Hu, this was a pleasantly surprising quarter, not so much on the bottom line, but on the overall revenue line. And the fact that he has finally got the debt to equity ratio down to a nice reasonable 0.75 to 1 is very impressive. Thank you.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Thank you.
Operator
Thank you. We now take our next question from Li Gao [Phonetic], Private Investor.
Li Gao -- Private Investor -- Analyst
Hi. Good morning, Kewa and good evening, Mr. Hu. Thank you for taking my call. I have two questions. The first one is about Jinhua legacy facility. In late 2017 Mr. Hu reported in an SEC filing that government was interest in signing Jinhua for in excess of RMB1 billion, which is about US160 million. In spite of Kandi carrying this facility it's booked for RMB7.7 [Phonetic] million. Mr. Hu has told us, it is not time to sell since the value keeps rising, is that here the case since the economy in China is slowing down, how can the company unlock the heating value. (Foreign Language)
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) I think value is -- it won't be changed much. But however, we cannot take too much initiation because the property will only show its value by working for the government to come to us to discuss when needed. As a matter of fact, the government has contact me for further discussion in two days. So there is really no real progress. But however, we have been keep in contact.
Li Gao -- Private Investor -- Analyst
My next question is about Hainan facility. Mr. Hu told as he wants to keep the new RMB250 million Hainan facility for Kandi Technologies. And recently Hainan was designated by the central government as [Indecipherable] and also Hainna -- our local government -- the government announced that it will be the first to [Indecipherable] by 2030 I think. Aside from using the facility to built Kandi EV for exports, does Mr. Hu feel the -- under current situation the facilities where you has significantly increased. (Foreign Language)
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) Okay. Regarding to how much value has been increase, it's hard to say. I don't know the accurate number to share with you, but Hainan facility is worth quite a lot of value due to its special status, that's for sure. Kandi 20 -- K23 is the model that being made in Hainna, which will be launched in China's online ride-hailing market as well as exporting to the US market.
Li Gao -- Private Investor -- Analyst
So we all know K23 is being produced in Hainan. So do we have any other EV models are being produce -- are being developed in Hainan. (Foreign Language)
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) We do have plan to manufacture other EV model, but we haven't started yet. And K23 has been going through a lot of upgrades. And right now, it's -- everything is ready to be launched in the market. If you remember before K23 was manufactured under Geely's license since Kandi right now has its own production license. So in the future K23 is going to be under Kandi brand to be launched in the market.
Li Gao -- Private Investor -- Analyst
So I have one follow-up question for Mr. Hu since he mention about the license for K23. For US investors all was confused by the license ownership. So previously we own 50% of JV, now we only own 20% of the JV. So how would the license work, because now presumably the license belongs to JV. And what's the agreement for Kandi Technology, which is the owner own K23 to use the license. (Foreign Language).
Xiaoming Hu -- Chairman, President and Chief Executive Officer
(Foreign Language) We have agreed the terms in terms of using the license, it's very similar procedure like how we used to use Geely's license to produce vehicles for JV, and right now Kandi also going to use the license of -- from JV to produce the vehicle. And you have to -- do you get what I trying to say.
Li Gao -- Private Investor -- Analyst
Yeah. Thank you very much. Thank you Mr. Hu. Bye
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Thank you.
Operator
Thank you. We do not have any further questions at this time.
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Okay, Thank you. (Foreign Language) Thank you, ladies and gentlemen for attending today's meeting. On behalf of the Board of Directors and the management team of Kandi Technologies Group, I would like to reaffirm our commitment. We will continue to work diligently to maximize shareholders' value by focusing on growing our EV business strategically, while delivering strong operational results.
Thank you very much for your understanding and support. We look forward to talking with you in the next meeting. If you have any additional questions, please don't hesitate to contact our Investor Relations person. Goodbye.
Operator
[Operator Closing Remarks]
Duration: 66 minutes
Call participants:
Kewa Luo -- Manager Investor Relations
Xiaoming Hu -- Chairman, President and Chief Executive Officer
Unidentified Speaker
Karl Scherer -- Rang Ring Consulting -- Analyst
Unidentified Participant
Michael Pfeffer -- Oppenheimer & Co. -- Analyst
Arthur Porcari -- Corporate Strategies, Inc. -- Analyst
Li Gao -- Private Investor -- Analyst
