Watching last weeks mess has focused me on value and when the key catalyst will take place.
I really don't think it's this coming earnings report. We didn't have enough EV volume to move the bar. Subsidies by Handzhou will keep things going but an uninspiring eanings report will wash that away.
Expectations are high amongst the fans but our Break Even expense level is about $8 million per Q. 4114 EV's at an average kit price would get us $41,414,00 is sales. (for everything including batteries) Legacy business would outperform if it hit $10 million...more likely $8 million at 23-25% margins. With batteries running at 3% margin and about 45% or the sales dollar we just don't have the GPM$ to drive any kind of EPS surprise this quarter.
So what do we make on these EV's? Of a $14 K BEV 7001 our kit cost ... I think ... is around $10K ... until we see quite a few more 10Q's we just don't have much data to sift through. In that example $5400 is non battery parts and let's guess that these are sold at 23-25% (overall non-battery margins for KNDI for the 1st Q 14) margin from historic example and that gives us $1300 per vehicle kit in GPM$. Then add a $4600 battery at 3% GPM% so that adds $140. And then we have our share of the JV profit which, 1st Q 2014 was about $200 per vehicle. That is $1640/ vehicle. ( If everything stays in-period).
So 4114 x $1640 = $6.5 million in 2nd Q 14 plus whatever we make off legacy ... we are having a victory lap if we hit break even. EPS of .05/share is assuming we pre-sold into the JV's 3rd Q needed goods / inventory,
Now things can happen out of quarter for KNDI vs the JV that makes it look better but even with legacy sales I see a .05 EPS as the most likely conclusion. OK Plus of minus 100%. Still no big deal. We are stuck in this range until we drive volumes that push us over our Break Even.
So even though I added 20% during the short raid I am rethinking my strategy. Good news will continue on subsidies and the will of the Chinese government. That will be offset by weak earnings and the shorts until the Oct 14 report.
So what happens then?
All the cash from PRC and Hangzhou will ignite purchases from ZZY. My estimates are 7300 during 3rd Q, 14,000 4th Q and 20 K 1st Q 2015. As the cash becomes available via subsidies, power poles are planted, subsidies are paid, no-tax policies take hold, and the Ctiy Beuaty begins to lure the retail buyer, I think KNDI will certainly add 10K vehicles per Q in 15.
What does this look like on the P&L?
3rd Q 14
7500 vehicles but now KNDI is buying batteries over 10% cheaper via Lishon. Instead of $140 per vehicle pack they make $500 - 600 per EV. (someone look into this please - I noticed the difference in a recent post and can't believe KNDI would not find a way to profit on this cost reduction)
So KNDI can make Per Vehicle - $1300 parts + $500 Battery + $200 JV Share = $2000 per vehicle in GPM$.
Fixed Expenses run $8 million. So BE is $8 million divided by $2000 = 4,000 vehicles ( roughly speaking in the legacy vehicles reduces that and variable expenses increase that but ... if you agree on the profit per EV model we can go on to say ... in general.
For every 1000 vehicles beyond 4000 you add $2 million to profits or about .048/share.
So a table for my forecast for the next 6 quarters
3rd Q 14 7500 EV = GP$ 15 mill - 8 mill = 7 mill = .17/sh
4th Q 14 14.000 EV = GP$ 28 mill - 9 mill = 19 mill = .46/sh
1st Q 15 20,000 EV = GP$ 40 mil - 10 mill = 30 mill = .73/sh
2nd Q 15 30,000 EV = GP$ 60 mill - 12 mill = 48 mill = 1.17/sh
3rd Q 15 40,000 EV = GP$ 80 mill - 16 mill = 62 mill = 1.51/sh
4th Q 15 50,000 EV + GP$ 100 mill - 18 mill = 82 mill = 2.00/sh
So things really kick off when the 4th Q 14 and 1st Q 15 reports come out ... April and May of 2015 is what you need to prepare for ... till then either ride it out or gamble on not being there when it goes off. IMHO.
Now things can happen out of quarter for KNDI vs the JV that makes it look better but even with legacy sales I see a .05 EPS as the most likely conclusion. OK Plus of minus 100%. Still no big deal. We are stuck in this range until we drive volumes that push us over our Break Even.
If we can hit 7500 EV's next Q
