Kandi Technologies Group, Inc.

Greetings and welcome to Candy Technologies second quarter 2022 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to the IR manager, Kiwa Luo. Please go ahead.

Thank you. Hello, everyone. Thank you for joining us today to discuss Candice's results for the second quarter of 2022. 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. Hu Xiaoming, Chief Executive Officer, and Mr. Alan Lin, Chief Financial Officer. Mr. Hu will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&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 call today are in U.S. dollars. With that, let me now turn the call over to our CEO, Hu Xiaoming. Go ahead, Mr. Hu. Hello.

Despite the repeated conflicts with Russia due to the epidemic, the economic environment is facing many challenges, but our team still achieved some results through hard work. In the second quarter, due to the long-term closure of major cities, especially Shanghai, China has exposed its unprecedented supply chain shortage. Despite these disadvantageous factors, the management of the company is still in a difficult position. Our business, according to the current Thank you, Kewa.

Hello, everyone, and welcome to Candice's earnings conference call today. I'm proud of outstanding effort made by our team to deliver solid results despite many challenges in the economic environment caused by waves of COVID and Ukraine-Russia conflict. Early in the second quarter, there was unprecedented supply chain disruption in China due to prolonged lockdowns in major cities, especially Shanghai. Despite these headwinds, our team rose to the occasion. We have continuously refined our business strategy, and we saw the positive impact of this effort in the second quarter.

In a very poor external environment, we have achieved relatively successful quarter performance. Mainly, we rely on our flexible business model. We are constantly innovating to pursue new products to deal with new growth areas. A good example is the non-tourist use area. In the second quarter, non-tourist income increased by 84% compared to last year. In the first half of this year, we have also launched a pure electric high-voltage transaxle car. The number of cars produced per month has grown from two units in March to 2,000 cars per month. Customers are very satisfied with our new products and the demand is constantly increasing. As the trend of oil and electricity in these cars is very obvious, This relative success in a harsh environment was enabled by our flexible business model. We are constantly innovating to find new products to address emerging areas of growth.

A great example is the category of off-road vehicles. Our off-road vehicle revenue in the second quarter increased by 84% year over year. In the first half of 2022, we introduced the all-electric golf crossovers. Monthly production jumped to 2,000 units from just double digits in March. Customers are thrilled with our new products and demand is high. With the trend of electrification of vehicles, We intend to develop a variety of new all-electric off-road vehicles such as UTV, ATV, and so on. We will launch those new products as the year goes on.

All four vehicles represent a substantial market opportunity around the world.

Industry resources estimate that this product category will grow by 19% a year for the next few years, reaching a market size of $2.2 billion in 2028. We will work hard to capture a share of this growth by soon introducing more new vehicles and building our marketing and distribution ability.

Through strategic adjustment, in the near future, we will make an effort in the field of pure electric railways to become the leaders of the field. In addition, in the field of the domestic pure electric car market, our power exchange model is quite advanced, but according to the current epidemic response and the Chinese electric car market, it has not entered a healthy and interesting stage of development. Here I am referring to the fact that the first few manufacturers are struggling, so we are not able to enter the struggle. The business is now maintained to track and perfect small-scale operation. After the domestic electric vehicle market enters a healthy and sustainable stage, it will be accelerated and promoted.

Going forward, by strategically adjusting our business, we believe our near-term efforts in the all-electric off-road vehicle sector can make it a market leader. In addition, regarding our battery exchange equipment and battery exchange service, We have cutting edge battery swapping technology in the EV market in China. However, resurgent waves of COVID and the lack of healthy growth in the China EV market are impacting the battery swap effort. What I mean here by the lack of health growth in the China EV market is referring to many Chinese EV manufacturers are competing in laws in order to capture the market share. We will monitor market dynamics and improve operations moderately. We will accelerate the battery swap business once China's domestic electric vehicle market is healthy and stable. Meanwhile, we will continuously refine our business strategy to make candy more diversified and competitive. 现在开始问答华杰,科娃对英文的问题。 Let's now start the Q&A session. If you would take any English questions and translate for me. Operator, please go ahead.

Thank you.

Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Harold who's a private investor. Please go ahead.

Hello. I have two questions. Sorry, having to do with Candy's temporarily cable highway speed EV cars, both in China and in the U.S. Question one. Back in April, a China auto web portal reported that the Candy K23 has been relaunched in China as the Hengi HRQ7000BEV01. Can Mr. Hu explain the rationale and significance of this on Candy to include what it means financially to Candy, both now and in the future? It does say that Candy is the assembler of the car.

Okay, thank you for your question. Let me translate what you have so far. Okay. 7000B1V01. Mr. Hu Xixi, can you explain the background of this? And for Condi, what is the financial meaning of the future? The report does say that Condi is the founder of this car. Well, Henghe is the trademark we use when we cooperate with Henglun.

Our cooperation with Henglong is mainly that we are responsible for the production of pure electric vehicles in an electric mode. And Henglong uses our parts to assemble the whole car. This cooperation is mainly to achieve the right production and sales. Therefore, it will increase the sales of our electric vehicles.

Thank you for your question.

To address that, Hen He is a trademark and basically a brand we use for all the EVs we cooperate with Hen Ren. Our cooperation with Hen Ren is mainly that we're responsible for the production of the electric vehicles that enable the battery swap mode. We produce the motors, the parts, and then Hen Ren will adopt our parts and assemble to be a whole vehicle. So basically, the corporation is mainly to achieve the compliance in terms of the production and sales in the PLC market. In terms of the impact of financials, it will definitely increase our sales of the EV parts.

Thank you. Question two. Facebook Marketplace has a small used two-door white UTV EV with the candy name on the grill that looks exactly like the Hengi HR-S1 in China. It's being sold by the Dallas-based iDrive1 dealership. There's not a lot about this car on the net. I noticed that the Chinese version is a full-speed 102-mile-per-hour car as compared to the U.S. 35-mile-an-hour limited car. What is Candy's relationship to the small EV?

My second question is, I'm quite curious. In the Facebook market in the United States, there's a marketplace where you can see a small second-hand It's a two-door pure electric car with a white UTV. And on the front of the car, there is a Condi logo on the intake manifold. It looks exactly the same as the Chinese one, the HR-S1 I mentioned earlier. And it's on sale at an iDrive1 dealer in Dallas. But there is not much information about this car on the Internet. And I also noticed that the Chinese version of this car is full speed, which means that the speed can be turned up to 102 kilometers per hour. And the US speed limit is only 35 kilometers per hour. So I want to ask what is the relationship between the Condi and this small electric car? Well, because this car is a model that we cooperated with.

to make a low-speed UTV. Due to the fact that there is no car in China that can meet the technical requirements of DOT. In fact, there is no car in China that can be sold in the U.S. So in the U.S., we can only limit the speed according to the standard of UTV, which is the standard of non-autonomous vehicles.

Yeah, so basically we are using the same layout, the frame from the cooperation with Hang Ren. And why we can order... And why we cannot offer the full-speed EV in U.S.? It's basically because we have not yet met the airbag technical requirements by DOT, especially for the safety issues. Hence, we can only offer, you know, those that UTV or NEV version in the U.S. market at the moment.

Thank you. Sorry, last question. The iDrive1 dealership in Dallas also seems to be a primary seller with a big inventory of both the K32 NEV truck and the $3,500 Trail King electric bike. How are they selling overall, and will the K32 ever be considered for sale in China as a full highway truck?

My last question is, the iDrive1 dealership in Dallas seems to be the main seller. These are two questions. You said this company's sales box should be American sales box, right?

Our American company... Yes, it's in Dallas. Yes, it's in Dallas. Our American company, the American HC company, sells products to the company. As for the specific sales situation of the company, we don't know that much. This may be a question for the American company. Because it seems that the bicycle is not produced by us. In addition, So there are two questions here. First of all, it's about the question for the iDrive One. That's the dealer in Dallas.

And so our U.S. entity, SCO, the sports, sells the products to all the dealers, including iDriveOne. And as for the specific sales of those dealers, we won't be sure because, you know, they may have some other products that's not provided by us. So we don't have too much information for the whole sales per se. And as for the K32, that's the used EV that we designed specifically for the U.S. market because it's in the scale of the fully enclosed EV type. And in China, there's no such market demand. So at the moment, we don't have the plan to sell it to China yet. Thank you.

Thank you.

Thank you very much.

The next question is from Terry McClemore of McClemore & Associates. Please go ahead. Yes, thank you.

I want to cover a little bit more on the battery swap with Hunan Hingren. There was a press release back in January that announced the initial framework to that battery swap. Can you tell me, has that deal been activated yet?

My question is about our battery replacement. In the past, we signed a contract with Hengwei. Can you tell us if this contract is already in place? The cooperation with Hengwei is in progress. In June, the H23 model

So the project we're working with Hang Ren is progressing in an orderly manner. In June this year, the Hang He brand

H-23, the model H-23, has already completed the relevant procedures at the Ministry of Industry and Information Technology of China, such as the put-up announcements, such as the environmental protection policies, and then the tax exemption. So basically, we have complied and fulfilled and completed the license of the cells in China.

Okay, is the Candy brand going to be used on that ride-hailing program, and is that for the 300,000 vehicle program for the battery exchange?

This question is for Condi. Is this brand going to be used in our Chinese online car project? The 300,000 online cars we mentioned and the So for the sales in the Calhoun platform in China and other

channels. The reason we are working with Heng Ren is because they have the production license and qualifications. So the brand Heng He will be the trademark and the brand that we cooperate with Heng Ren EVs for the China market down the road. So they'll be Heng He.

At the right time, we may still use the Condi logo, but now we use the Heng He logo first.

In the future, and in the right timing, we may use the brand Candy again. But for now, we will adopt the brand Hanhe as our sales of the product in China.

Okay. Finally, what does each partner primarily contribute, and what percentage goes to Hanhe, and what specific products and services?

The last question is that What is the contribution of each partner in this cooperation project? What are the specific products produced and what services are provided? And what is the percentage of HENRY? This is relatively simple. Currently, our cooperation is that we produce

It's the same as what we did in the past with Geely. We produced the so-called parts of electric vehicles. They simply assembled them and sold them after assembling them with their production rights. We did good things and sold them to our sales company through their assembly. For now, there is not much of this problem. The main thing is the parts we produce.

For our cooperation with Hang Run is similar as the model. We used to work with Geely in the past. Basically, we're responsible to manufacture the parts of those EVs and then sell them to Hang Run, which will assemble and sell it to the customers and even to our own sorts of customers. We're taking different steps in the whole flow. And so there's no such percentage of the process because we're working on different flows. Hope they can answer your question.

Yeah, it does. I appreciate it. Thanks for your time. Thank you. Thank you. Thank you. The next question is from Michael Fairford of Oppenheimer.

Please go ahead. Thank you for taking my question.

With candy stock, price trading at such a massive discount to cash, working capital, and shareholder equity, and Candy sitting on a huge cash stockpile. Why hasn't the company been more aggressive in completing and even adding to last year's announced $20 million share buyback?

Thank you for the question. The question is, the current stock price trade is relative to cash, operating capital, shareholder rights, There is such a big discount, and our company's cash reserve is also very large. Why didn't the company be more active in completing or even increasing the $20 million stock repurchase announced last year? This problem is constantly affected by the Russian-Ukrainian conflict due to the epidemic.

The international economic situation is also very tough. In such a situation, the management of the company admits that in order for the company to have enough cash to deal with the changing economic situation, we are clear that the company's stock price is seriously underestimated. But we believe that with the gradual adjustment of our business strategy and the improvement of the company's business performance, our stock price will definitely return to its original state. The management thinks that in this economic situation, because of the So, thanks for your concern. At the moment, because of there's all the huge influence from the first outbreak of the COVID, the resurgence of the COVID and the lockdown in PLC market,

plus the military conflict between Russia and Ukraine, the whole international economic situation and the conditions is very severe and uncertain. And in such conditions, the management believes that we should hold to cope with the upcoming uncertain economic situation. We want to go through this time and our In the meantime, we know that the share price of the company is seriously undervalued, understated. However, we believe that with the gradual adjustment and refinement of our business strategy and then the improvement of our company's financial performance, the share price will back to the reasonable level. The management believes that in the current economic situation, It's just not a good move to blindly rely on the buybacks to increase the stock price because that may not be a firm or consistent move. But definitely, we will do that. We purchase the shares as planned.

One other comment.

To be able to buy back shares at less than half book value, and a 25% to 30% discount to cash seems like a no-brainer, particularly when compared to past buybacks at prices up to mid-$5 price by both the company and Mr. Who personally, along with at least one other director. On the last conference call, a suggestion was made to the company consider looking into a more formal Dutch auction tender, something that would certainly bring a lot of tension a positive tension to Candy at this perfect time to do to its strong cash position and likely revenue explosion ahead this year. The key to success with the Dutch auction is it will remind all that Candy is trading under cash in the bank. Thanks.

Okay. Okay. to 30% of the price to buy back the stock. This seems to be something that is not worth the effort. Especially the company itself, and Mr. Hu himself, and last year, there was at least one board member who bought back the stock at a price of up to $5 in the past. And in the last press conference, someone suggested to the company that they could consider researching a kind of Dutch bidding, which is a way of repurchasing stocks. This is a very perfect opportunity. This will also bring a lot of positive market attention to Condi in the process of repurchasing. can help the company not only with cash, but also increase income. And it will constantly remind other people that Condi is trading under bank cash.

As I just said, in the current economic situation, the stock price can be increased by buying and selling stocks. This may not be a good time. We have to wait for the right time. As for the Netherlands, to be honest, I just heard it today. I don't know what the situation is. Kowal, you can connect and explain what the Netherlands auction is about. This is my first time hearing it today. You can understand it. If you have any good suggestions or good solutions, we can consider it.

So, as I explained earlier, we try to be conservative and keep our cash flow in the meantime because we believe that the buyback may not be a long-term that will a plan that will increase so we find our share price from a fundamental standpoint. We rather focus on our business strategy and operations. However, we would like to explore the Dutch auction, the Tandover, and see if that works and if that makes sense to the company and if that makes sense in the current market. We will explore and, you know, get back to you guys later if we have a plan to do so. 另外,我们在那个去年什么

Besides, Mr. Hu and some other FLEC parties, we purchased a share price of candy at around $5 per share in last year.

that shows that we have confidence in our company's future. And ongoing, we will explore and determine whether it's a good time to have more with purchase of the shares.

But definitely, we have the confidence in our company's future.

Well, it's probably a much better buy here at these levels than half the price. Thank you.

Thank you.

The next question is from Arthur Bocari of Corporate Strategies. Please go ahead.

Thank you. Good evening, Mr. Hu. On last quarter's conference call in 10Q, The company surprised the shareholders with the unexpected $70 million U.S.-based golf cart agreement with units already being sold. Though this huge two-part order in size was disclosed in the Q1 10Q, this order was never announced as a freestanding PR. Yet the new product line, if target reached, as reported in last quarter's 10Q, would likely generate revenues this year almost equally Candy's total revenues last year. Can you explain to us what possessed management back at the time in Q1 when everyone's business was crashing for Candy to suppress publicly announcing a new product order of this size at a time when Candy stock was also collapsing and has never recovered along with the market? Also, from the comment in today's PR, it's safe to assume Candy's golf cart business is expected to grow in future years. If so, how much? Could you pass it on and ask that question to Mr. Hu, please?

Okay, thank you. Okay, thank you. That's really surprising. Because this one-off contract will cost US$70 million. It may be generated in this year's income. It's almost equivalent to the total revenue of the county last year. So can you talk about this contract in the current market situation? We also saw in the news that we mentioned our golf ball. uh, uh, uh, uh,

We have been working with Xingzhi to do this since March. In March, we launched 60 units. Now we have about 2,000 units per month. From the 60 units in March to the 618 units in April, to the 1,019 units in May, to the 1,900 units in June. But most of these are still on the road. It hasn't been realized yet. Because this will only be able to enter our financial data after the sales company in the U.S. sells it. But this year's $70 million, I think this car will definitely exceed it. Right, so our mindset was to establish the fundamental of the new business.

because we always try to adjust our strategy, so our plan was to get it materialized before we have further, very concrete announcements to the public. But we will definitely take that in mind and be more prepared in the future. As for the questions, basically, from March, we have already shipped out from China to our U.S. entity with a few of the dozens of the pieces of the golf carts. And from April and May this year, we started to deliver over thousands of pieces of the golf cart to U.S. However, because a majority of those deliveries is still in shipment at the moment, so we only recognize a few hundreds of the revenue of the golf cart for Q2. The rest is still on the way to U.S. entity. But from now on, it's no problem for us to have a consistent production of over 2,000 pieces per month. And so that's our situation for now.

Well, that sounds like a pretty good answer, 2,000 pieces per month. At the retail level, that would be, what, $60 million a month? That's quite a number for a company that's sitting here with 100 employees. what do we have, $180 million market cap, only $18 million in debt, and $230 million in cash. Seems to me like you should be in a position where you can start buying back some of those shares. But go ahead and put that, send that on to them right now, Kewa, just what I just said.

He said, if you can maintain a two-day production per month, Go ahead. We will consider this when we are in Sedan.

Yeah, I mean, definitely, we have a bright future in the golf cart.

and we definitely can achieve a really good target of the sales in all the ideal and smooth circumstances. However, there's just a lockdown in high coal, which our facilities is located, get locked down lately, and so definitely that will kind of have some impact and hold off our productions. But down the road, we believe we can deliver a very good performance in terms of the golf cart productions.

Okay. Well, by the way, I may have misspoke a moment ago. I'm not sure if I said $60 million per month. I meant $60 million for the quarter. But again, that would be the gross amount at the retail level. For the past couple of conference calls, there seems to be a continuous disconnect between Candy's stock price and the reality of And, you know, I don't know, it just seems like we ask the same question each time about if we're going to do anything about trying to increase the exposure. All we've done is we've actually gained and lost a couple of analysts during that time. And for us to be sitting here, you know, trading at a 35% discounted cash with no debt, cash even went up this past quarter, as you said, $232 million in cash and $180 million market cap. It just seems like we get the same question every time. Well, we know we must do better in trying to find analysts for the company. But it just never seems to happen. So my feeling is that we've got to do something. I mean, you have Blue Shirt that's been getting paid for four or five years now. All that's happened is the stock's gone down since then. What are they getting paid for? I mean, they supposedly have a great reputation in the world. But anyway, if you can pass that on right now, I still got a few more things to say, if you will.

He said, but I still feel very upset. That is to say, our current stock is trading at a 30-35% discount compared to the cash. And then the whole market value is only 1.8 billion. And it looks like we have a very good direction for this quarter cash. Then every quarter, we are repeating the same problems. The company said that we will increase our credibility and will continue to do it, but it seems that there is no actual action. Our company has been taking care of the BlueShirt investor-related company for several years. They also took a certain amount of money to help us improve the stock price, improve the credibility of the stock. This question should be like this. Because we...

After strategic adjustment, the sales revenue data is constantly being adjusted. In fact, it is still declining. We slowly adjusted it this year, and then it slowly rose again. I think that before this, we still haven't realized some of the electric vehicles we talked about in the past. Because it's very strange in China. Each of these electric vehicles has several head companies. It's all a loss of tens of thousands of yuan for the market. So we have no way to compete with them. So we make strategic adjustments. It's the electric car part. When we really do it big, it's the electric car that produces more. So now every car, they're all fighting for losses. Every car is losing tens of thousands of yuan. So in this case, we're going to follow this market first. Do it on a small scale. Follow it first. Thank you. It is indeed leading in China, and it is very promising. The key is that it is still not normal. Everyone is struggling. We can't afford it. We only have this little money, one or two billion dollars. You say they are losing billions and billions of dollars. So we think we have to get in here. It's not clear.

All right. So we understand your frustrations and send for us. We will, of course, try to expand our productions and sell scale in China EV market. However, you may have heard about our update or you may have heard about the articles in China that, you know, it's still in unhealthy conditions that those major competitors, the EV production companies, they will just, in order to occupy the market shares, they will sell with loss. Each car they sell, they may have a deficit or loss with a few tens of thousands RMB. It just doesn't make sense to us. Well, for them, they may have spent over billions of US dollars to burn and to take up the market occupancy in China market. However, with the cash we have, over a million or so of the cash, it's definitely not enough to compete with those companies. So we can only wait until when the market becomes more healthy in a more orderly manner, then we can go in and expand our sales on the production scale. Definitely, that's our plan. But at the moment, it will be unwise or doesn't make quite much sense to do so, just to burn the money for no reason. So we'd rather be more conservative and wait until there's better timing for us to expand the sales productions.

All right, well, anyway, okay, so based on the now reported first half, the balance of the golf cart order talked about in the 10Q and some comments you just made, you know, it looks like candy could actually have its best year ever based on both business and financial condition this quarter, I mean this year. Very unique based on current overall economic and market conditions, yet in spite of this likelihood, you still manage to keep this thing as a best kept secret. You haven't answered me why. We've only put one press release out the company the whole year, yet in the past we put out 20 to 40 every year. The one press release was way back in January 10th and it really had nothing to do with golf carts. So is this just going to be a new policy? You're just going to go dark or are you going to start putting out press releases again? It's just amazing. Pass that on and I got a few more short questions and I'm done.

Okay. to report the progress of the company's various businesses. And this year, in addition to this kind of regular news, it seems that in January, there was a news about the business. Is this a new policy of the company or a practice that doesn't happen anymore? I don't know. I don't know. I don't know.

I hope you understand that it's still rather a transition period for us to adjust

our strategy and refine our work plan to compete in the EV market. And of course, I understand that if certain investors or shareholders, they are not satisfied, we cannot make them stay. But hopefully, we can have the confidence to have the shareholders stay with us to encounter such a transition period. And hopefully, we can enjoy the fruitfulness result in the future.

Okay, just a couple of quick ones now. I'm sure Mr. Hu's not happy with what he's seeing. He and I go back together all the way to 2008 when his company started. And that year, he had, I think, 13.5 million shares of stock. And at the peak, it was probably worth, I don't know, 65, 70 million. You look at the stock he has today, he has more stock. And I know he's paid $5 million for the stock he's already bought. He's got more stock. And at today's price, it's probably worth closer to – I don't know, $25 or $30 million. So he can't be happy with this. But he has done, in my opinion, that's why I feel frustrated, he's done a great job of keeping us alive and well and safe and, yeah, gave people an opportunity to buy the most undervalued stock in the world. It's certainly not going to go out of business. Maybe in this market that's a great deal. But getting off that bandwagon, I just got a couple of last questions here. How much of an effect does the China tariff have on Candy's golf cart, electric bikes, power sports, and off-road business? And does the company anticipate a lifting of U.S. restrictions on these? And one last piece with it. Next to golf carts, how much are the EV and electric bikes expected to contribute to this year's revenues? And does management have an estimate for total sales in the off-road business this year?

Okay. He said, before these two questions, he had a feeling. He said, you may not want to listen, but in the past, when the stock price was very good, you may not have owned so many stocks, but your value is much more than the value of your current stock. Although you spent a lot of money to buy back stocks last year, But in the current situation, your value is shrinking. Of course, I know this company will continue to survive and develop very well. You also gave everyone a good chance to have the opportunity to buy such a value-defeated, unreliable stock at such a low price. But this is something that is hard to do. I have two questions. The first one is, how much does China's tariffs have an impact on the golf, sports, and public transport business of Condi? Will the company cancel these restrictions? The second and final question is that in addition to golf courses, short-term small cars and electric cars, how much do you expect these sales to make a difference in the overall sales of our company this year? How much do you think the management level will make a difference in the sales of the United States this year?

So, the first question you asked, the export of high-end luxury cars and other non-computer cars, China does not have tariffs, only tax refunds. In the United States, the import of such products is currently 10% tariffs. Under current conditions, the sales price in the United States is set according to current tariffs. As for the future, if there is a change, the sales price will be adjusted. This will not have a great impact on the company's income. First of all, about the questions for the tariff.

there's no such tariff from China imposed to our export, because there's only rebate, but then there's no tax or tariff charge on our exporter. For the shipping to the U.S., the U.S. government, they charge 10% tariff of all the import. So under the existing conditions, our sales price in the U.S. market is determined according to the existing tax rate. If there's any future adjustment down the road, our sales price will also be adjusted accordingly. So, basically, there's no such significant impact to the company's revenue upon the change or adjustment of the tax rate. And then the second question about our sales forecast, well, Because of the significant impact from the resurgence of the COVID, the lockdown, as well as the conflict between Russia and Ukraine, the whole market is uncertain. Definitely, there will be an increase of golf carts in this year. But for the sales, other than the golf cart, the ATVs, we expect the sales to be similar to the level of 2021. That's our estimation.

Okay, well, that'd be fine. Anyway, well, we'll just see what happens next quarter, but it sure seems to me like this could be a record year for the company, and it may be a record year for a low price as well of the stock, which is a great opportunity for those who are smart enough to take advantage of it, but, hey, to each its own. Thank you very much, and great job coming up with this new product line. It looks like it's going to be huge in the U.S. from what we've seen with all the dealers that have been added on recently. Thank you and talk to you later.

Thank you. we can take next question.

Thank you. The next question is from Frank Blatterman, who is a private investor. Please go ahead.

Yes, thank you. Good evening, Mr. Hu. Is there any agreement written or oral or Chinese law that prohibits candy from exporting street legal and highway-capable cars to any country, including the USA. I'll pause here. 美国是自我认证。

But once there is a situation, if you don't meet this requirement, the consequences will be very serious. China, as far as I know, has not yet reached the requirement of DOT safety equipment. This is much more strict than Europe. So there is no agreement on the surface and mouth. This is just a self-certification of its safety equipment standards. If self-certification is The main reason that we have not offered our full-speed EV product in the U.S. is because we have not met the technical requirements.

of the airbag safety requirements standard by the U.S. DOT. As a matter of fact, there is none, no one of the China-based EVs product has fulfilled such requirement has been offered in the U.S. market. Even though the mechanism is rather self-verification process, however, if something happened we are in big trouble if we have not met such standard and yet we offer the cells in the U.S. Because the airbag safety standard in U.S. is just higher than the rest of the world, like the EU or the China region. Even though there is no such written or oral documents or agreement to prohibit us to do so, but we're just doing it the right way to make sure that first we can fulfill such standard, then we can offer the full-speed EVs in the U.S. market. We just take it by the correct order.

Okay, thank you. I do have a second question and then a third one. Second question. Are other modifications needed besides the airbags for the K23 and K27s to be highway legal in the U.S.? Is that the only thing that is needed to make them sellable here in the U.S.?

Not at all.

Yeah, the major obstacle is really the airbag safety requirements and the technical standards requested by the DOT. Other than that, we have pretty much fulfilled the rest of the requirements.

Okay, very good. My final question. Why has Candy not devoted whatever resources are needed to quickly design and incorporate the needed airbag changes to bring Candy's vehicles up to DOT standards for highway use to take advantage of this opportunity to sell inexpensive vehicles in the United States due to the high gasoline prices and the climate change issues? It seems to me that this is not brand-new technology. China has some of the best engineers in the world. Why haven't we devoted whatever resources we have to getting this done? And that's my final question. Thank you.

My final question is that Kangdi has a lot of resources and a lot of very good engineers. Then why do we not understand why the economy has not invested in its own resources? It can be done according to the requirements of the United States for the use of cars on high-speed public roads to make changes to the car, especially in the current economic situation, and the oil prices in the United States are also particularly high. Because this is a golden opportunity to sell this kind of good quality and cheap electric car in the U.S. I just don't understand. Is this so difficult? No one can, the company just can't reach this standard to adjust the car to meet the requirements of the U.S. safety standards. As I said before, there is no car in China

to meet the requirements of the D.O.T. safety standards. Because the safety standard is that once a car is hit, it is at the point of explosion. You see, China and the European Union have the same standard, the standard of a fake person. In the United States, there are thin, fat, long, and short people. The point of explosion is different. So this is not something that we as a company can solve. I said before that China has not yet sold a bag of cars to the United States. Maybe this is the problem. There is a manufacturer in the United States that has not met the requirements of more than 180 cars. So this still has to do with the improvement of China's entire industrial level. So we are still working hard. I believe that China will soon be able to keep up with this level of technology. But it's not done yet. But when exactly, it's hard to say. Thank you for your concern. We will use the form of low-speed cars to open up the market in the United States. So thanks for your concern and suggestions. But as we mentioned in the past question,

The requirements of the airbag safety standard is just much higher than those in China and even EU. Because, well, in China and EU, basically we have the similar standards. But in U.S., we have to tackle different issues such as for different size of the passengers, the drivers. And then it's not just a matter of one single company being able to tackle. It's rather the whole industrial skill set level for the whole country that would work together to tackle such issue. So at the moment, we are trying very hard to do so, but I guess we have to wait until the whole standard being boosted in terms of the country level in China. But definitely, we try our very best to improve, though the timeline can't be determined at the moment. Meantime, we will focus on the NEV market and the sales in the U.S., and in the second half of the year, we will launch more different models on the NEV to improve our market occupancy in the U.S. market. So our focus now will be NEV, but David will work on the safety requirements in the meantime.

I understand what you're saying. It just seems that this is old technology at this point, and it should not be all that difficult to achieve considering the resources that are in China with the engineers and the fact that other companies are manufacturing electric vehicles, I'm sorry, gasoline vehicles in China, and seem to have solved the airbag issue, or export to the U.S. in their manufacturing plants. But no reason for you to comment on that. Thank you very much. Thank you for your time.

Thank you. He told me that I don't think this will be harder than today. He said that in China, many other companies that manufacture non-electric vehicles, such as gasoline vehicles, also have vehicles that meet the safety requirements of the United States. Why can't we achieve this technology? He said that you don't need to comment. Thank you for your time.

So thanks again for your question and your concern, but I guess we don't think there's any one, even the gasoline vehicle has been sold by the China companies to U.S. market yet. So basically that applies to all the automotives from China-based companies.

Thank you very much.

Ladies and gentlemen, that is unfortunately all the time we have for questions, and I'd like to hand back to Kewa Luo for some closing comments.

Thank you. Thank you again for attending today's conference call. If you have any more questions, feel free to contact us via email or our blue shirt IR company. We look forward to updating you on our next earnings call in November. This concludes our call for today. You may now all disconnect. Thank you. Bye-bye.