Kewa Luo - Manager, IR Hu Xiaoming - Chairman & CEO Henry Wang - CFO

Robert Lampert - RLR Mike Pfeffer - Oppenheimer Peter Dalrymple - LPD Investments Steve Miller - Yahoo Kandi Private Group Jerry McLemore - Williams Financial Group Arthur Porcari - Corporate Strategies Mark Kahnau - TA&P

Greetings and welcome to the Kandi Technologies Second Quarter 2016 Financial Results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kewa Luo, Investor Relations Manager. Thank you, you may begin.

Thank you, Operator. Hello everyone and welcome to Kandi Technologies Group’s Second Quarter 2016 Earnings conference call. The Company distributed its earnings press release earlier today and you can find a copy on Kandi’s website at www.kandivehicle.com. With us today are Kandi’s Founder, Chairman and Chief Executive Officer, Mr. Hu Xiaoming; and Chief Financial Officer, Mr. Henry Wang. Both will deliver prepared remarks followed by a question-and-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 U.S. 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 the 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 31, 2015 and in other documents filed with the U.S. 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, an audio webcast of this conference will be available on Kandi’s investor relations webpage. I will now turn the call over to Kandi’s Founder, Chairman and CEO, Mr. Hu Xiaoming.

Ladies and gentlemen, thank you for joining our second quarter 2016 earnings conference call. Today we will discuss our second quarter financial results of 2016. In the second quarter, we had total revenues of $55.2 million, 15.1% increase from the same quarter last year, and EV parts sales was $53.8 million, 15.4% increase from the same quarter last year. After more than 3 months of waiting, our JV Company finally obtained the approval for purchase tax exemption for its global hawk EV products and had good sales performance in May and June. The number of EV products sold in the second quarter was 7,200, a 61.9% increase compared to the same period of 2015 approximately 20% above our guidance. In the end of this quarter, our Rugao facility of JV Company has official trial sales for K12. Among the total sales, there were 150 units of K12 products. And the end users gave a positive feedback on this product. We had thought that JV Company would receive the national government subsidy at the end of the second quarter, but this subsidy payment has been delayed. The delay in receiving central government subsidy caused a big challenge for JV Company to achieve the whole year product and sales plan, which may also impact Kandi EV parts sales in the year of 2016. Nevertheless, we are still very confident in EV market growth in China. Recently the Service Company has expanded its micro public transportation program into some new cities, such as Tianjin, Jiangyin et cetera, while other cities will add more EV products at some extent to their current operations. In addition, Pang Da Automobile Trade Company Limited signed a framework sales agreement with our JV Company to buy at least 60,000 EVs for its Green Campus Drive Electric Campaign in the next four years. We are very happy to see those progresses for the future business growth. It is noteworthy that Zhejiang Geely Holding Group, the parent company of Geely Automobile Holdings Limited, recently plans to purchase 50% equity of Shanghai Maple Guorun Automobile Company, Limited, with a premium price a purchase price exceeding the amount of the aggregate of the original investment and the shared profits over the years, which will benefit the future growth for JV Company and also create better conditions for the JV Company to apply its EV production license and seek public listing in China. Now, I would like to turn the call to our Chief Financial Officer, Mr. Henry Wang, to give you more details on our financial highlights.

Thank you Mr. Hu, and hello to everyone on the call. Now I would like to provide a brief overview of our financial results for the second quarter of 2016. Please note that all numbers I will discuss today are in U.S. dollars unless otherwise noted. First, let me walk you through the second quarter financial results. Total net revenues for the second quarter were $55.2 million, an increase of 15.1% from $48 million for the same quarter of 2015. The increase in revenues was mainly due to the increase in EV parts sales. EV parts sales were approximately $53.8 million for the second quarter of 2016, or 97.5% of our total net revenues, an increase of $7.2 million or 15.4% compared with the same quarter of 2015. Our cost of goods sold was $46.8 million during the second quarter, an increase of 12.8% from $41.5 million in the same quarter of 2015.This increase was mainly due to the increase in corresponding sales. Gross profit for the second quarter was $8.5 million, an increase of 30.2% from $6.5 million for the same quarter of 2015. Gross margin increased to 15.3% in the second quarter from 13.5% in the same quarter of 2015. Margin increase were mainly due to the reduction in the material purchase cost for battery packs in this quarter. Total operating expenses in the second quarter were $10.8 million, compared with $4.5 million in the same quarter of 2015. The increase in total operating expenses was mainly due to a $4.8 million increase in stock compensation expense and also a onetime expense reversal in the second quarter of 2015. Net income was $2.8 million in the second quarter, compared with $5.4 million in the same quarter of last year. The decrease in net income was heavily affected by significant increases in stock option expense amortization and also the change of the fair value of financial derivatives. Non-GAAP net income in the second quarter was $10.8 million, a 114.8% increase from $4.9 million in the same quarter of 2015. The increase was mainly attributable to the growth of revenue and gross profits, net profits from JV Company and government subsidy income. Let me touch on the JV’s financials, for the second quarter of 2016, the JV Company’s net sales was $111.8 million, an increase of 62.1% compared to the same quarter of 2015. The EV product sold was 7,200 units including 2,128 units for direct sales and 5,072 units for micro public transportation projects. Net income was $8.6 million, a 444% increase compared to the same quarter of 2015. We accounted for our investments in the JV Company under the equity method of accounting as we have a 50% ownership interest in the JV Company. As a result, we recorded 50% of the JV Company’s profit for $4.3 million for the second quarter of 2016. After eliminating intra-entity profits and losses, our share of the after tax loss of the JV Company was $4.9 million for this quarter. Next, I will review the Company’s cash flow. For the first half year, cash used in operating activities was $6.4 million, compared with cash used by operating activities of $12.6 million in the same period of 2015. The major operating activities that provided cash for the first half year were an increase in accounts payable for $38.4 million and a decrease in accounts receivable from related party for $29.2 million. The major operating activities that used cash in the first half year were an increase in accounts receivable of $33 million and $49.2 million due from JV Company. Cash provided by investing activities in the first half year was $6.9 million as the result of the repayment of notes receivable of $49.3 million by netting off the issuance of notes receivable of $42.6 million and also a short term investment matured for $1.6 million. Cash provided by financing activities in the first half year was $2.7 million, as a result of proceeds from notes payable for $4.8 million by netting off the repayment of notes payable of $4.8 million [ph] and also $1.3 million for the decrease of restricted cash. Now please, Operator, we are now ready for Q&A session.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Robert Lampert with RLR. Please proceed with your question.

Hi, good morning. My question has to do with electric vehicle regulations in China. It was a surprise change to see the requirements changing on the range and the speed. Does Mr. Hu think I mean, it was terrific that we were able to meet the new requirements, but the future, does he think that the Chinese government is going to be more stable as far as regulations, or does he think that this could be a trend of new requirements? And I have a second question.

Ever since China started to develop the EV industry, the government also has a very high expectation for the high growth. So from the development from 2013 to 2015, the policy has been changed quite a bit. The government also noticed there are a lot of room to improve in this sector. And as far as the policy is concerned, there are still a lot of details to be confirmed. Therefore, the government has been trying their best to adjust the best policy to work with industry and for other manufacturers. As you all know, earlier this year there are industry-wide investigation happening nationwide. The results have been very different from the investigation, but the government has not concluded the results yet. That’s also the major reason for the 2016 subsidy has been delayed. However, as you can see, the other concern -- so there should be a better policy coming out of their decision. That’s what we hope, and we also believe that once the new policy and the new standard comes out, this process of getting subsidies paid will be more feasible than before, so we still have very high confidence in the government’s policy in this sector going forward.

My second question, thank you, by the way. My second question has to do with the K17. I just was thrilled to see the terrific engineering, and I noted in looking at the video that some of the controls were in English. Could this car ever be exported?

We always keep open minded for all kinds of opportunities, but now we feel the China market is already tremendous for us, and we don’t think we can even meet all the demands in China at this moment. However, we will have open the discussions with companies like, [technical difficulty] but right now we like to focus in China. The model K17, and even K12 also is very well received from the market, and we believe these products will have great potentials in the future.

Thank you.

Your next question comes from the line of Mike Pfeffer with Oppenheimer. Please proceed with your question.

Hi. Can you hear me?

Yes, but a little noisy.

Okay, I’ll try to [technical difficulty] Hi, I’m Mike Pfeffer, I’m from Oppenheimer. Recently there have been several media outlets in China that have said that the Kandi JV EVs may not be eligible for state subsidies under the new guidelines. Now, we are aware that the Company did put out a recent POR for new MPT programs in Tianjin and Zhejiang, which clearly states 45,000 RMB subsidy would be available but doesn’t mention for which EVs. My question is, do all four Kandi EVs now qualify under the new state subsidy program, and if so, will the subsidies be the same as the 45,000 RMB for all four Kandi EVs, and if so, what can the Company do to better inform the China media so not to be putting out wrong information about Kandi EV eligibility? Thank you.

The requirement for receiving the national subsidy is to be included in the directory of recommended EV models issued by the MIIT, which is the Ministry of Industry and Information Technology of China. This year, all of our four Kandi models are listed in such directory, which means all our EV products are eligible to receive such subsidy from the national government. There are all kinds of media outlets in China publishing news based on their own resources. To be honest, I don’t think we can get in touch with all these media outlets and correct the news every time when a journalist published the information, which is not accurate, therefore we encourage all investors to rely on the Company’s official announcements, not just based on some third party’s news to make the judgment.

Does that complete your question, Mr. Pfeffer?

I believe so. Thanks.

Our next question comes from the line of Peter Dalrymple with LPD Investments. Please proceed with your question.

Congratulations on the great quarter. Can you give us an update on the status of carbon trading in China and how this will affect Kandi?

As far as carbon trading, the related department in China actually has been to L.A. United States to rally learn, how they’re doing this. So right now I have to say it’s still a learning process for China to really think of the way to do this. As for now, there is no actual policy out yet, but I believe once they have the policy to be confirmed, this bunch will have, we’re going to have some focus on the carbon trading but now since we don’t have anything, so I think I cannot comment on this subject.

Thank you.

Our next question comes from the line of Steve Miller with Yahoo Kandi Private Group. Please proceed with your question.

Good morning. Just have a quick one for you. In license for the JV, license for Kandi and JV IPO, those three events, can you give us an update on the timing of those three events and what factors impact the timing of each? Thanks very much.

Applying the manufacturing license and also preparing for the IPO process are both we are now in the process. We will update the market once we make any significant progress. Actually, the recently announced news about the equity transfer Geely announced in the news is part of the effort for the IPO application. We cannot really predict when the timing of these will be done, but I believe we are doing our best to move this process forward.

Okay, thanks very much.

Our next question comes from the line of Jerry McLemore with Williams Financial Group. Please proceed with your question.

Good morning, and great quarter, guys. Last week there was a lot of publicity on the release of the K17 in Shanghai. The article talked about the new four door hatchback, which included the wireless internet, the G3 cell phone internet, and it’s fast charge capabilities, but also it talked about the consumer sales price of around $12,000 from the [$65,000] manufacturer’s suggested retail price after subsidies and other incentives, a price hardly above the licensing fee of the internal combustion engine cars in Shanghai. So my question, will you tell us what type of initial response for preorders were taken in the Shanghai for the K17, and also is this EV being sold in Beijing? Thank you.

The price $12,000 is what the consumer pays after deducting the national and local subsidies, so the price we give to the retailers is actually higher than 12,000, and we are now working on applying for Beijing local subsidies and applying to be included in the directory, so once we have received approval, our EV products will also be available for purchase in Beijing. Since the launch of the K17 happened on Thursday, and so far we have received very good feedback, but since it's happened, we don’t have the number of pre-orders yet, but I believe it will be really good.

Our next question comes from the line of Arthur Porcari with Corporate Strategies. Please proceed with your question.

[Technical Difficulty] United States sometime in the near future. I have a multi-part question over here, but a little bit of context first. Back on July 25th, you did put out the announcement of the framework agreement with Pang Da, which you discussed earlier, China’s largest retailer with over 1,250 outlets. And in that press release, it was quoted that it would take not less than 60,000 EVs from the Company in the next four years for its timeshare campus lease program. Based on the mix in the EV’s current wholesale prices [technical difficulty] future value of this JV will be in excess of a billion dollars from just this one program alone, yet amazingly the stock had little positive reaction to the announcement. And I think this was due to the fact, the use of the word framework agreement. So, I’ve got a multi-part question on this very important subject, and here are the questions. Do you want to just repeat that part to him first, Kewa?

Okay, let me translate this first. Go ahead, Art.

Okay. Since it was stated not less than 60,000 EVs for the framework agreement, the Company must be quite confident in this happening. How confident are you that Kandi can deliver these purchases, and is this specific agreement just for college campuses and who will be managing the operator of the campus program? And I have a follow up behind that.

Our Green Campus Drive Electric campaign, which was initiated by Pang Da, is really highly encouraged by the national policy and strategy but because it promotes the option of the renewable energy vehicles. This program will also reduce the carbon dioxide emissions and enhances the younger generation’s awareness of EV and their familiarity with EV, and also this is nationwide, so all the campus in China will have the opportunity to participate in this program. It’s noteworthy that electric vehicles for this campaign are customized and the [technical difficulty] two companies, Pang Da and Kandi, and I’m very confident that Pang Da will purchase 60,000 EVs over four years, so not too many per year, so I think chances are we may even exceed this number. Also, Pang Da will take responsibility for the operation of this program too.

Well, 60,000 does sound like a large number right now, over four years with a company as big as Pang Da with 1,250 outlets, that really only works out to one EV per month per Pang Da location over four years. So will Pang Da also be a sales point for other Kandi JV cars for retail sales and leasing in the future? And also, what other major outlets like Pang Da does the Company anticipate having agreements with?

We have signed a strategic partnership with Pang Da in the beginning of this year, if you remember the press release. This campaign is only one specific program within this agreement. Since last year, we have already in discussion with Pang Da about a sales partnership, so I believe that in the future there will also be the possibility to sell our EV products through Pang Da’s sales points. And as far as other major outlets, like Pang Da, of course we’re always open for discussions with any major outlets that would be willing to work with us. And for example, Guangzhou Hengxin is one outlet that we have been actively discuss about the partnership, and we believe that there will be more opportunity to come in the near future.

Okay, one last question over here. Earlier in the year, the Company gave sales guidance of approximately 35,000 units for the full year. Does the Company still feel that they can reach that goal?

We are still working very hard at times to achieve this goal. As, the national subsidy delay and their decision on finalized subsidy policy have been causing a lot of uncertainty to our sales plan, full year sales plan, so we want to be more prudent, and once the policy is finalized, we will be [technical difficulty] to achieve this goal.

So, effectively if I understand your answer correctly, it’s not a matter of the market being there to sell the cars, it’s just a matter that the Company doesn’t want to have to do any outside financing, excessive financing to build all the vehicles to deliver. Is that correct?

That’s not quite way on [technical difficulty] quite but, because there is still going to be certain adjustments regarding to the policy, so please understand that our first EV retail price is also reflected [Technical Difficulty]

How soon are we expecting this policy to stabilize, I guess [indiscernible]

We believe that once the policy is confirmed this time, it’s going to be stable. You can see that the government has been taking a long time to make the revisions. So they are also very serious and putting a lot of effort into this. So the market has a lot of speculation and we’ve also seen how [technical difficulty] the smaller amounts and how they’re going to subsidize the vehicle. So we believe that with the amount of time of this consideration and the policy should be more favorable, so again we want to really work along with the policy, not wanting to sell the vehicle at a price that not reflecting [Technical Difficulty] good fees. So we think we will be soon, we don’t know when, but once it’s confirmed we think it’s going to be stable for at least four to five years.

So, I guess once the subsidy policy is in place, they’ll reinstate the sales guidance for the future?

Absolutely.

One last point. Is it that -- is that going to be much of a negative effect in the interim as far as being able to remain profitable and such?

I think we should be okay if the policy will come out in the near future, we should okay.

Thank you very much. Tell him [indiscernible] save a little bit of money and fly over to see us.

Thank you. Operator, we’re going to take the last question.

Thank you. Our final question will come from the line of Mark Kahnau with TA&P. Please proceed with your question.

Good morning. Now here is my question. On the last conference call, it was reported that the construction of the new Kandi 100,000 annual capacity Haikou Hainan facility was running ahead of schedule with the building structure expected to be enclosed in August and ready for production in early 2017. My question would be, is it still on schedule? Second question is then what is expected to be the completion cost, and how is it going to be financed? And third one, based on yesterday’s PR where the Hainan government is lending Kandi some $45 million to develop a new EV, can you tell us if this new Kandi car had already been under development or now beginning to develop, and how soon could it be ready for production? Thank you.

On last quarter conference call, we were talking about its going to complete the roof of the factory, which doesn’t mean it’s going to complete the building construction. There is still a lot more work to finish the construction of the building. But however the overall process is still in line with our expectation, we are still on schedule, this is unchanged. The cost of this factory is expected to be RMB1 billion, approximately $150 million. We have paid $54 million for equipment, for R&D expenses, and the rest of the money will be partially self-funded and also partially through the bank loans. As you see, government also provides up to RMB300 million for R&D, so we should be okay with the cost. And as far as the new model, I cannot tell you which model yet, however I believe we are not going to disappoint the market. And the steep progress of this model should be in line with the facility. We are hoping to start testing production next year once the facility starts running.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to Management for closing comments.

Thank you, ladies and gentlemen for attending Kandi’s 2016 second quarter earnings call. In closing, please allow me to represent the Board of Directors and the Management Team at Kandi Technologies Group 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 support. We look forward to talking with you next quarter. If you have any additional questions, please don’t hesitate to contact our Investor Relations department. Goodbye.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.