The Kandi we own stock in has three main functions (excluding the legacy recreational vehicle business)
- Design EV's
- Manufacture and procure parts to make the EV's, and sell them to the JV (also named Kandi), which our Kandi owns 50%
- Manage the JV, which assembles the cars, and ZZY, which buys the cars from the JV and runs the CarShare system and community leasing programs. Someday the JV may also sell or lease directly to consumers through Geely's 4S stores, but not yet. The JV may also someday make corporate fleet sales or sales to the government.
For now these are separate companies. They may merge some day, but for now our Kandi's revenues are from selling parts to the JV. After the JV sells the cars, we get 50% of the profits. This is how it has operated since Jan 1, 2014. The Kandi we own stock in is a parts company that also designs on the front end and manages the assembly and sales operations on the back end.
The parts have widely varied costs. The parts we manufacture have big margins. The electronic components and the batteries which we buy and pass along to the JV have a narrow markup. In quarters with large battery transfers, the margin will be lower.
Most of Kandi's profitability will eventually come from their 50% ownership of the JV. People who try to compare us to a typical car manufacturer are not making a valid comparison because we do not assemble or sell completed cars. The JV does that, and we cannot consolidate their operations with ours under accounting rules (must be over 80% or lower with qualifications).
This was a great earnings report! The two items that have spooked traders are easily explainable. The GP is low due to large number of batteries supplied to the JV with minimal markup, and the drop from 4,300 to 1950 JV deliveries was caused by a tax break policy that went into effect on Sept 1, thus killing July and August sales. They couldn't move all those 10K cars they produced in Q3 in Sept, which
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