Kandi Technologies Group, Inc. (KNDI) Q2 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Kandi Technologies Second Quarter 2015 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] 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 Second Quarter 2015 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 to those conference call. Please note that 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 31st December 2014 and other documents filed with the U.S. Securities and Exchange Commission. Kandi does not assume any obligation to update any forward-looking statement 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 website. I will now turn the call over to Kandi founder, Chairman and CEO Mr. Hu Xiaoming.

Good morning to those in the U.S. and good evening to those participants in Asia. Thank you for joining our second quarter 2015 earnings conference call. Today we will discuss our second quarter financial results, recent developments and conclude with our outlook for 2015. In the second quarter we have achieved excellent growth in EV parts and EV sales this year. EV parts sales increased 168.3%. Our JV company successfully launched the directs sales program in April with 643 EV products sold in second quarter together with 3,803 EV products sold to the Micro Public Transportation program. The joint venture achieved total sales of 4,446 EV products during this quarter. In our previous earnings call, I mentioned that our new model K17, Kandi Cyclone, received regulatory approval from the Ministry of Industry and Information Technology. We are glad that K17 is now available for sales starting in Q3; we have been doing marketing in Beijing and Shanghai. Additionally we are excited about our recent strategic partnership with ZTE Corporation. Its cutting-edge technologies will enhance our MPT program. When happy and excited with market expansion, these developments will contribute to our continued strong growth and profitability. On June 2, 2015, we signed agreement with Alibaba (China) Company Limited which will allow Kandi brand EVs to use Alibaba in OS system as their operating system while connecting individual platform accounts [ph] incorporating the Internet Plus concept into our pure electric vehicle technologies. This integration will collect MPT users driving preferences and help us to provide on a consistent driving experience when renting different EVs. We believe this cooperating with Alibaba will enhance the intelligence of our EV products, improve user experience while further strengthening Kandi’s leading position in China’s EV market. I like to mention that on June 2nd, even though we have signed this agreement with Alibaba, as per the terms, either of us can’t release information till the legal department approves the agreement. So as of now, that both legal department have already approved the information, so today is the first day we release the information to the public. By end of the second quarter, the new car of our JV company completed the equipment installation and is now preparing for the testing of the production line. We remain highly confident that we will realize our 2015 EV self target for the JV company which is between 20,000 to 25,000 units including 5,000 to 10,000 units for the direct sales program and 10,000 to 15,000 units for the MPT program. Now, I would like to turn the call to our Chief Financial Officer, Mr. Henry Wang to give you more details on our financial results.

Thank you, Mr. Hu and hello to everyone on the call. I would like to provide a brief overview of our financial results for the second quarter 2015. Please note that all numbers I will discuss today are U.S. dollars unless otherwise noted. First, let me talk about the company’s revenue. Total net revenue for the second quarter of 2015 was $48 million, an increase of 45.5% compared to $33 million for the same quarter of 2014. The increase in revenue was mainly due to the growth from EV parts sales during this quarter. The majority of EV parts sales came from battery sales. The EV parts sales were approximately $46.7 million, which is 97.3% our total net revenues, an increase of $29.3 million or 168.3% compared to the same period of last year. We initiated our EV parts business in the first quarter of 2014 which primarily consisted of the sales of battery packs, body parts, EV driven motors, EV controllers, air-conditioning units and other auto parts to JV company for their manufacturing of EV products. Please notice that under the agreement with our joint venture partner, Shanghai Maple Guorun Automobile Company Ltd., 99%-owned subsidiary of Geely Automobile Holding Ltd, our new EV products manufacturing business was quarterly transferred to the JV company starting in March 2013. The transfer was completed by the end of 2014. Kandi is now primarily responsible for supplying the JV company with new EV parts while the JV company is primarily responsible for the production of the EV products, as such we no longer report any EV product sales. Our cost of goods sold was $41.5 million during the second quarter of 2015 which means an increase of 61.1% compared to $25.7 million in the second quarter of 2014. This increase was mainly due to the increase in corresponding sales. Gross profit for the same quarter of 2015 was $6.4 million, a decrease of 10.1% compare to the $7.2 million for the same period last year. The overall margin decreased to 13.5% during the second quarter of 2015 from 21.9% during the same period of the last year as the company starting selling high margin EV products later this year. Gross margin on EV parts decreased from 15% during the second quarter of 2014 to 13.5% during the same period of 2015 due to a decrease in the sales price to the JV company. General and administrative expenses in the same quarter of 2015 were $3.8 million, an increase of 21.2% compared to $3.2 million for the same period of last year. General and administrative expenses included $3.5 million in expenses from common stock awards and stock option for employees and consultants compared to 1 million for the same period of last year. Excluding stock award cost, our net general and administrative expense for the three months ended June 30, 2015 were $0.4 million, a decrease of $1.8 million or 83.2% from $2.2 million for the same period last year. The decrease was primarily due to $0.9 million additional office expense in the same quarter of 2014 and the severance [ph] from the other operating expenses in this quarter. Now I would like to have a discussion about our JV financials. For the second quarter of 2015, the JV company’s net sales were $69 million, gross profit was $10.7 million and the net profit was $1.6 million. During the second quarter of this year, a total of 4,446 units of EV products were served by the JV company, an increase of 9.1% compared to 4,114 units sold in the same period last year. 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 which is $0.8 million for the second quarter of 2015. After eliminating intra-entity profits and the losses, our share of this after tax profit of the JV company was $0.3 million for the same quarter of 2015, a decrease of $0.4 million compare to the same period of last year. The decrease in the JV company’s profit was primarily due to significant interest expenses from our increase of bank loan to support operating need and the increased operating expenses compared to the same period last year to prepare for the JV company’s future growth. Let me finish with net income discussion. Kandi’s GAAP net income was $5.4 million for the second quarter of 2015, compared to the net income of 11.2 million for second quarter of 2014. The decrease in net income was primarily attributable to a $4.9 million decrease in the fair value of financial derivatives compared to the same quarter of 2014 and other factor was $2.5 million increase in stock compensation expenses compared with the second quarter of 2014. Our non-GAAP net income was $4.9 million for the second quarter of 2015, an increase of $1.7 million as compared to $3.2 million for the same period of last year. The increase in non-GAAP net income was primarily attributable to savings from operating expenses during the three months period ended June 30, 2015. Next, I will review the company’s cash flow. For the second quarter of 2015, cash used in operating activities was $3.2 million [ph] compared to cash used by operating activities over $34.1 million for the same period last year. The major operating activities that provide cash for the first six months of 2015 were net income of $11.6 million and $54.7 million increase in accounts payable. The major operating activities that used cash for the first six months of 2015 were $15.2 million increase in receivables from the JV company, $13.1 million from other clients and $12.1 million increase in inventory. Cash used by new investment activities for the first six months of 2015 at $1.8 million primarily due to the result in our $5.6 million issuance of notes receivables and a $4.1 million repayment of the notes receivable. Cash provided by finance activities for the first six months of 2015 were 2.6 million, primarily due to the $19.1 million proceeds from the short-term loans and the $9.9 million proceeds from the notes payable. Cash used in finance activities for the first six months of 2015 of $9.1 million, primarily due to cash deposits for the bank for the higher interest income and also the deposit [ph] for the issuance of the notes payable to the client. Finally, let’s take a look at our guidance. For the third quarter of 2015, Kandi expects net revenue to be in the range of $49 million to $51 million with a gross margin in the range of 13.5% to 14.5%. The company also expects the JV Company to deliver 5,500 to 6,500 EV products in the third quarter and a total of 20,000 to 25,000 EV products in the full year of 2015. This outlook reflects Kandi’s current view which is subject to change. This concludes my prepared remarks for the second quarter of 2015. Operator, we are now ready to take some questions please.

Thank you. We will now be conduction a question-and-answer session. [Operator Instructions] Our first question comes from the line of Steve Miller, a private investor. Please proceed with your question.

I’ve got a two part question, so bear with me. The first part is, you reaffirmed your target for 20,000 to 25,000 sales target in 2015 for the JV from 10,000 kind of last year. Are you feeling that we’re looking at the high-end or low-end or possibly be in that range? And at that kind of range, what would the expected revenues be to the JV and to the Kandi for the part? And then I’ve got a follow-up. Thanks.

[Foreign Language]

For the target this year, we will definitely achieve 20,000 to 25,000. Well, I can confirm right now it’s not going to be on the lower end. And as fair as the revenue breakdown, I cannot provide any details whether JV or Kandi’s contribution in the total revenue. However, with the growing demand in EV, our expenses were becoming lower. So right now what I can provide you is that total revenue will be increasing but the breakdown will be provided later when the numbers are available.

And then just a quick follow-up. How many of the sales are targeted to be the K17 and the K30 models and what would be the full sales price of each before and after the consumer subsidy benefits? And then finally with the volume currently picking up, will you guys be releasing monthly EV sales. Thanks.

[Foreign Language]

So K17 will start selling at the end of Q3, third quarter. So for the second half of 2015, the majority of direct sales will be K17. We are going start to have the K30 to start testing; however, the sales of K30 will be minimum, not as much as K17. And for the K17 price, it’s going to be 140,980 without any subsidy.

[Foreign Language]

Mr. Hu like to clear by the price, the retail price for K17 is RMB 140,980. This car is going to be sold in Beijing, Shanghai and they both are going to have 40,000 from local and 45,000 from national government for the subsidy. So, with both subsidies consideration in the payment, so the users pay about 59,000 on this K17 model. Starting tomorrow, other customers will see a lot of marketing promotion activity going on in Beijing and Shanghai for K17.

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

As you know, I’ve been a close follower of Kandi for eight years and meeting you several times, both in U.S. and China. I want to personally congratulate you and management for the almost seamless transition of Kandi from an always profitable off-road recreational vehicle exporter to now even a more profitable China’s number one pure EV provider. I have published many reports on Kandi in the U.S., but the most asked about area has to do with capacity growth and debt associated with this, in particular the 100,000 capacity Wanning, Hainan province facility under construction that’s discussed in the SEC filing of the direct responsibility of Kandi rather than that of the JV as was the case with new Rugao to just mention. For the sake of translation, I’d like to break my question into a main section as up to two follow-up parts. Kewa, could you give that to Mr. Hu right now?

Okay. [Foreign Language] Please go on with your question.

Again probably two follow-ups here, can the company provide us with an update on the Wanning facility and its completion status? Is Wanning still expected to be put into the JV upon completion and if so, all the decisions about Wanning and expenditures being made jointly with our partner Geely?

[Foreign Language]

First of all as the assumption as to the Wanning facility. The Wanning facility is right now being introduced in Wanning city, Hainan province. But ever since our new governor for Hainan and he likes to have some strategic planning for the city. So, as a result, he likes to move the Hainan, Wanning facility to Haikou National Hi-Tech Zone. And additionally, he also likes to include this as the priority project for the city. However, Wanning facility has been built for a time period. So the expenses that had been occurred, the government promises that it will make up to the company but right now we are still in the middle negotiation. As soon as those finalize, we can have finalized detail to the market. And the second question in regards to the expenses that occurred for the Wanning facilities, as per the term for the joint venture, upon the completion of the facility, it will be merged into the JV. So the expenses will be evenly contributed both Kandi and Geely.

That’s sounds like great news. We have a lot of excess capacity ready anyway right now. So, I guess the tail part of my follow-up question, my follow-up was pretty much the original cost was going to be about U.S. $160 million for the Wanning facility. And we reported last year that we’ve already spend $59 million on this facility. So since it’s going to be owned by the JV, I’m just kind of curious in the first place, why is it that Kandi independently is required to build this facility when the Rugao facility was built in the JV from the beginning?

[Foreign Language]

To answer your first part of the question, the recent Kandi build went fairly independently because this agreement sign with Wanning happened before the cooperation with Geely, so before the joint venture was established. So that time Kandi was going to build this independently. But after joint venture, we like to keep the things separately after we completed facility, then we’ll put into the joint venture. So, however, Rugao happened, the joint venture established. The second question is, if the negotiation with Wanning -- with Hainan went successfully. I believe we’re going to have a lot supporting policy from government including subsidy and other policies. So, I believe that’s going to be very helpful and very encouraging for us.

On the $59 million that we’ve already spent, certainly portion of, I believe it was said that we’re going to -- the government is going to try to reimburse us or whatever we haven’t spent. I assume the balance is put in hedge for right now? And I still have one more little follow-up after that.

[Foreign Language]

Mr. Hu is saying that other losses in building successfully, the money will eventually come to Kandi’s account.

Now one last, the JV company has increased its capacity after completion of Rugao and Wanning to about 400.000 EVs per year. That seems to equal the targeted sales projections mentioned in an answer to a question at the San Francisco Shareholders Day as being our goal for 2020. So, is 400,000 units by 2020 still a realistic target? And the last part of the question is even with unit sales more than doubling to 20,000 to 25,000, why was so much excess capacity built so early?

[Foreign Language]

Mr. Hu answer is, first of all, he has different factors in regarding to the capacity. And said rather -- either not to do the facility or build a facility each scale. Additionally, all our facilities are in the different regions. And in order to capture many market share is impossible; we would like to be able to being the first one to have a facility and that facility in the EV production. So, we have these facilities still into the different areas. And this way we will also enjoy the benefit and the favorable policy from the local government. As the facility is not in the local region, then the company wouldn’t be able to receive local government subsidy or other benefits. In conclusion, we are doing all this work as to prepare for the high growth. And from the cost perspective, the effort and the cost to do a 10,000 capacity facility is pretty much the same to do build a facility that has 100,000 capacity. So in order to have the ability to grow the market share, so we need to have the facility in scale to be ready for the market growth.

This one last part of that that I didn’t hear an answer for, since the government is anticipating to have 5 million cars on road by 2020, again, I’d like to ask a question, is it feasible, is it possible to target of 400,000 by 2020; is that realistic?

[Foreign Language]

We are very confident to achieve that target and I like to specially thank for your long-term support and other shareholders with their support and especially market growth, we believe that we are going to achieve that target.

Our next question comes from the line of Ray Jones with Jones & Jones Financial Services. [Ph] Please proceed with your question.

Certainly congratulations in order for wonderful and beautiful second quarter in both sales and earnings. I was very pleased with you at this morning. My question is what competitive advantage do you see that Kandi has and the JV now over kind of EV manufacturers?

[Foreign Language]

For the last question, I will try to cover this. First of all as to how to say what exactly competitive advantages are for Kandi and JV, what I can tell us is last year in 2014, the pure EV sales, Kandi ranked number one in China and I believe we’re going to remain that leadership in China this year as well. In regard to the advantage, I think first of all, Kandi and also joint venture will have -- our understanding and our EV business model, technologies, even user experience, in that perspective, we are beyond what the market has. And these features clearly have been satisfying the customers so far. Especially Geely as is the biggest automaker in China, their technology, their management talent has been also helping us to achieve overall experience for the electric vehicles. And tomorrow, you will see our K17 in Shanghai and Beijing promotion and marketing, then you will really see the difference between K17 and our older model. You will see the improvement we have been having in this particular model. And I believe that after K17 being released, we will really achieve even better leading position in China by providing the mid-tier electric vehicle in China.

Our next question comes from the line of Frank Swagerman, [ph] a private investor. Please proceed with your question.

Yes, my question is [indiscernible] can you update the progress to provide any specific detail of significance from the JV with regard to your focus on new cities like Wanning and Rugao, also how many total cities have been [ph] with regard to the program and then do you have any cities to receive program [indiscernible] and I have a follow-up.

[Foreign Language]

We have so far about nine cities that are already being about MPT program business model and by the year-end I expect them to have 15 in total including the ones that we have already in, so 15 in total cities that we’ll have MPT programs. So I think we of course reach the target and especially the volume, the delivery will be larger as compared to last year. So last year some of the cities that have been initiated MPT but the first lever ranging in 100 by this year, total will be 1,000, at least a 1,000 for the delivery, some of the cities we think will be 5,000.

Do you have any idea what the typical mix of the K10 and K11 will be in the program and have you done any thinking or figuring of the expected number cities [ph] in the program for 1 million population going forward?

[Foreign Language]

Going forward, K10 and K11 production going to decrease and we are going to add K12 and K17 into the program as they are more high-tech, more advanced and more appealing on the design. But the breakdown of the number right now, I cannot provide you with more details. As this currently depends on city’s preference and it really depends. And to answer your second question, what is the expected number of EVs in the program per 1 million population. To be honest with you, we have never had that kind of calculation. But I can provide you that by 2020, we expect that we are going to have 2.5% to 3% of the total EV use in China. So, our target is in line with national government target of 5 million EVs on the road by 2020 of which we believe that 2.5% to 3% EV will be ours. That’s our expectation.

Our next question comes from the line of Charles Heath with E-Trade Securities. Please proceed with your question.

Congratulations on a good quarter, showing sequential unit sales growth though the market seeing the 20,000 to 25,000 annual number being realistic. My question is, can you give some additional color on the direct sales from brand that we have and specifically what kind of feedback are we receiving from the store dealerships and how many dealerships have now been so far and how many do we expect to have year-end? And I do have a follow-up question as well.

[Foreign Language]

So far, we have 30 stores that being selling the cars. But I believe the K17 will be very popular and well received in two cities, Shanghai and Beijing. The reason is Beijing, all the drivers are restricted to drive one day of the week and in Shanghai the license plate have to be going through the lottery. However for pure EV, for our car, the license plate is free. So, these are few benefits in Beijing and Shanghai. And starting tomorrow, we’re going to have a very aggressive marketing in these two cities. And so I wouldn’t want to give out the expectation of how many dealerships will be by the year-end, as I believe the sales will be progressed and our target given the demand in these two cities Beijing and Shanghai.

A follow-up question, to my understanding, the PRC has the mandate out there for 30% percent of all new government auto purchases being EVs by 2016. Is that still in effect and if so, is Kandi aggressively going after that business?

[Foreign Language]

This is still the 30% of the car use will be new energy is still our plan and a lot of our local governments; they have been having this plan. However, it’s not been effective yet at this moment. Our K30 is specifically designed to target government car use. However, right now as the government still has not really taken into the action, so right now, we are prepared for that. And next year G-20 conference will be held Hangzhou. And I believe they are going to adopt to one of our car models for the event.

The last question, several months back we announced a sale of I believe it was 60 units for police use. So, was that well received; do we anticipate further sales with other police departments and such?

[Foreign Language]

This is still going pretty well, but it’s not directly sold by Kandi to or at least from Kandi to the police department. So, we are not really involved with operation. However, ZZY is on top of that and think it’s going well and one more police department or other patrol department is interested in leasing the cars.

Our next question comes from the line of Harold Gavoy, [ph] a private investor. Please proceed with your question.

My question is, do you sell EV parts to any other car manufacturers and if not now, would you expect to sell some in the future?

[Foreign Language]

For now, we don’t have any other comment car manufacturers that we sell our parts to -- EV parts to. This is a very long process as the EV part manufacturers, we are being prepared to grow and in scale and to grow to sell to all other car manufacturers. But right now, it’s still the beginning and we’ll start to build our production hopefully in the future. We will be open to more car manufacturers.

Our next question comes from the line of John Moore with J.P Turner and Company. Please proceed with your question.

My question is with the possibility that the PRC may seemly open the issuance of new auto manufacturing licenses, this can be intent to apply for its own license and how long would that take; and once received, how would you anticipate Kandi would use its own license?

[Foreign Language]

Right now, China has the new policy to open to the new energy vehicle manufacturer to apply for a license. But so far, as far as I know there is no one has been received a license yet. Kandi is the applicant. But how long we will receive the license will depend on the government, how quickly they turn around the application. But however, right now we are using Geely license to manufacturing Kandi brand vehicle. But once Kandi receives its own license, there is no doubt that Kandi is going to use this license to manufacture Kandi’s own brand vehicle.

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

When I was in San Francisco at the investors conference earlier this year, shareholders conference, you mentioned about you were developing and testing a new lower price extended range battery. What is the status of that and what makes this battery different than conventional lithium batteries.

[Foreign Language]

Yes. The cooperation with Tianneng Power is still going well, but it’s still long way for the batter to be ready and to be installed into the electric vehicle. Additionally, we also are applying for the subsidy from the national government. And without national government’s subsidy, then this we still have to -- cannot be able -- or not able to install the -- use battery. And also right now so far, China national government only subsidize for the lithium battery. We don’t have any subsidy policy for these type of new batteries yet. And we are working hard to applying for that and hopefully we’re going to have some update soon. In regards to the difference for such a battery is two folds, one is the batter is more safer; and the other is the battery price is more competitive.

Is it going to affect -- I assume the range of the car is going to be increased dramatically or what is the status of that? Will the battery increase the range of the car?

[Foreign Language]

The driving range will be about the same compared to lithium battery, but the safety and the price will have more advantage compared to lithium battery.

Our next question comes from the line of Michael Fearnow with Focus Tech Investment. Please proceed with your question.

My first question relates to margin. My understanding is the operating margin as a part supplier to the JV is somewhat less than the margin of the completed vehicles and the JV. If the company proceeds with the sales expected to be in the 100,000 plus range, can you give us some guidance on how those margins will look going forward?

[Foreign Language]

Okay, let me explain the margin. Actually compared to same period last year, the margin, the overall margin decreased which mainly due to we have the EV products sold in the last -- essentially last year and EV products which a little bit higher margin in the last year. So, basically we sold EV parts in this year and the EV parts margin will be maintained -- they still enable us as our guidance that is about 13.5% to 14.5% in the year. What I want to explain more is because we the JV agreement that we already transferred EV product producing in the JV company, so while we consider the margin, actually we need to maybe -- if we put some JV company’s margin which was shared to the Kandi, the overall margin for Kandi should be like 25% to 30% something like that.

A quick follow-up question, yes, understand that the PRC is instigating or pollution tax for polluting companies. Can you give us some color on how this might affect Kandi as the part manufacturer and also as the JV sales?

[Foreign Language]

This is definitely going to be benefit for us…

Okay, let me explain a little bit about this. Actually we will have the carbon in trading arrangement, maybe starting from the next year. And for Kandi, we are under production chain, I think from Mr. Hu’s point of view; we can get the benefits or advantages on this.

Our next question comes from the line of Ted Schwartz, [ph] a Private Investor. Please proceed with your question.

What is the status of the Hangzhou local government subsidies and how much is estimated that they still owe ZZY? And will Kandi make any kind of an announcement when ZZY does get the local subsidies and I have one little follow-up.

[Foreign Language]

First of all, the Hangzhou local government subsidy is already available; as announced for our electric vehicles, especially our MPT program is still in the discussions. What we are having discussing is not just how much money they are going to subsidize each car, the government is also planning on providing some grant for the infrastructure. So, we are hoping since that is for the time period from 2013 to 2015, so we’re hoping by the year-end we are going to have answers from the government. By then, each payment we receive can be well announced to the market. And additionally, I like to announce that yesterday we have received the payment from the national government that about approximately RMB360 million and we will be announcing very soon about that.

As the follow-up, do they expect, when it goes into these cities that they will get the subsidies, the local subsidies on a more timely basis than they had with Hangzhou with all the delay?

So, one more time, are you asking other cities will also delay the local subsidy?

Yes, I am trying to -- local subsidies in new MPT cities.

[Foreign Language]

Mr. Hu is saying that for the subsidy between 2013 to 2015 should be gradually being paid by the year-end.

And other cities, do you expect that the pace will be on a more timely basis?

[Foreign Language]

As you’re saying that it’s gradually being paid, so it’s hard to say whether they are being on time. But hopefully by the year-end that will be paid upto -- from 2013 to 2015.

Our next question comes from the line of Bob Lambert with RLR Capital. [Ph] Please proceed with your question.

Two part question, with China’s macro economy slowing down, how does that impact Kandi sale?

[Foreign Language]

This is only going to benefit for the new energy vehicles; it won’t be impacting the EV negatively.

And my second question was will other cities adopt the same rules as Beijing as far as allowing only electric vehicles in the city every day, if I heard that correctly? I think I heard that correctly.

[Foreign Language]

Beijing is the capital of China and with a lot of people, and also not every city in China has the restriction on the car driving. So that for those who have restrictions on the driving, and I believe they are going to also learn from Beijing to adopt such policy. But as for those who doesn’t have the restriction policy, then they wouldn’t be applying.

Ladies and gentlemen, due to time constraints 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.

[Foreign Language]

Thank you, ladies and gentlemen for attending Kandi’s second quarter earnings call. On behalf of Board of Directors and the management team, I would like to reaffirm our commitment and diligence to maximize shareholder value by focusing on the strategic growth initiatives of our EV business while delivering strong operational results. Thank you very much for your support for Kandi over the years. 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 or the Piacente Group. Have a wonderful day.

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.