Full Year 2021 Cenntro Electric Group Ltd Earnings Call

April 25, 2022

Okay.

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Cenntro Electric Group Earnings Conference call for the year ended December 31, 2021. Currently all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections you may disconnect at this time.

As a reminder, we are recording today's call. If you have any objections you may disconnect at this time.

Now I will turn the call over to Marianne McInerney, Cenntro's Chief Marketing Officer. Ms. McInerney, please proceed.

Marianne McInerney: Thank you operator, and hello everyone. Welcome to Centntro Electric group's earnings Conference call for the year ended December 31, 2021. We have Peter Wang Cenntro's Chief Executive Officer, and Edmond Cheng, Cenntro's Chief Financial Officer, joining us on our call today.

Cenntro's Chief Financial Officer, joining us on our call today.

We released our 2021 financial results earlier today. That press release is available on the company's IR webpage at https://ir.cenntroauto.com as well as from Newswire services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion contains forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

at https://ir.cenntroauto.com as well as from Newswire services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion contains forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

please note that today's discussion contains forward-looking statements within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward looking statements include all statements that are not historical facts. Such statements may be but may not be identified by such words as may, believe, anticipate, could, should, intend, plan, will, aim, can, would, expect, estimate, project, forecast, position, potential, goal, strategy, outlook and similar expressions.

goal, strategy, outlook and similar expressions.

Examples of forward-looking statements include, among other things statements regarding assembly and distribution capabilities and decentralized production and fully digitized autonomous driving solutions.

Forward looking statements involve inherent risks and uncertainties and other factors that could cause the company's actual results to differ materially from the expectations expressed today.

Further information regarding these 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 statements, except as required under applicable law.

The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Also please note that unless otherwise stated, all figures mentioned during the conference are in US dollars.

In addition to our results determined in accordance with the US Generally Accepted Accounting Principles, we use adjusted EBITDA to evaluate ongoing operations and for internal planning and forecasting purposes.

Adjusted EBITDA is a supplemental measure for our performance that is not required by or presented in accordance with US GAAP.

Adjusted EBITDA is not a measurement of our financial performance under US GAAP and should not be considered as an alternative to net income or any other performance measure derived in accordance with US GAAP.

We define adjusted EBITDA as net income or net loss before net interest expense, income tax expense, and depreciation and amortization as further adjusted to exclude the impact of stock-based compensation expense and nonrecurring or extraordinary expenses, losses, charges or gains. For reconciliation of adjusted EBITDA, to our US GAAP net loss, please refer to our earnings release that we posted on the company's IR website shortly before this call.

to our US GAAP net loss, please refer to our earnings release that we posted on the company's IR website shortly before this call.

Finally, as an Australian Public Limited company, we are subject to the Australian Corporations Act of 2001, which requires financial statements to be prepared and audited in accordance with Australian Auditing standards and international financial reporting standards.

The financial information that we are discussing today was not prepared for the purposes of the Corporations Act and is considered none IFRS financial information under the rules and regulations of Australian Securities authorities.

For reconciliation of our US GAAP financial analysis to our IFRS financial results, please refer to our earnings release that we posted on the company's website shortly before this call. With that in mind, let me now turn the call over to our CEO Mr. Peter Wang. Please go ahead, Peter.

With that in mind, let me now turn the call over to our CEO Mr. Peter Wang. Please go ahead Peter.

Please go ahead Peter.

Yeah.

Thank you.

Thank you Marianne. And hello, everyone. Thank you all for joining our Earnings conference call today.

On the last day of 2021, Cenntro successfully became a public traded company on NASDAQ capital market through our stock purchase transaction with Naked Brand Group, making a significant milestone essential to history that opened a new chapter for us.

Central successfully become a publicly traded company on NASDAQ capital market through our stock purchase transaction was it makes it Frank.

Group.

making a significant milestone essential to history that opened a new chapter for us.

At the closing of the transaction the company concurrently divested the remainder of Naked historic closing business and it has more than $250 million cash on hand that can support production expansion and accelerate future business growth.

And that can support production expansion and the accident.

The future business growth.

Our mission is to lead the transformation in the automotive industry and to become a leader in the electric commercial vehicle sector

the automotive industry and to become a leader in the electric commercial vehicle sector.

providing

electrical commercial vehicle from class one to class four, mainly for will use in urban delivery and urban services.

With that mission in mind, we have developed vehicle models for each of our target markets in America, Europe and Asia.

We are pleased to announce that we have seen improved operational performance for 2021. We had vehicle sales volume of 980 units representing gross of 29.8% from the previous year.

we have seen improved operational performance for 2021.

We had vehicle sales volume of 980 units representing gross of 29.8% from the previous year.

representing gross of 29.8% from the previous year.

This is a testament to our capability for producing and selling a continuously growing number of electric commercial vehicles despite the global supply chain crisis, and the shipping disruption and in resulting material cost increases.

and selling a continuously growing number of electric commercial vehicles.

continuously growing number of electric commercial vehicles.

despite the global supply chain crisis, and the shipping disruption and in resulting material cost increases.

the global supply chain crisis, and the shipping disruption and in resulting material cost increases.

As the demand for our vehicle remains very strong, our priority is to overcome the challenges of the supply chain crisis, ramping up the production to expand our market share.

our vehicle remains very strong, our priority is to overcome the challenges of the supply chain crisis, ramping up the production to expand our market share.

ramping up the production to expand our market share.

the production to expand our market share.

We have made meaningful progress on this front to support target long term growth.

Last month, we completed a strategic acquisition of a 65% equity interest in Tropos Motors Europe (TME) and wholly owned subsidiary of Mosolf SE and one of our largest channel partners.

wholly owned subsidiary of Mosolf SE.

and one of our largest channel partners.

The TME has a distribution networks of 50 dealers in Germany, and 30 importers in Europe across 16 countries and also sells directly to major fleet operators.

networks of 50 dealers in Germany, and 30 importers in Europe across 16 countries and also sells directly to major fleet operators.

dealers in Germany, and 30 importers in Europe across 16 countries and also sells directly to major fleet operators.

Europe across 16 countries and also sells directly to major fleet operators.

We expect the acquisition will expand our European Assembly capability with TME's facility in Herne, Germany which will produce some of our vehicles. That's our target for the European market.

our European Assembly capability with TME's facility in Herne, Germany which will produce some of our vehicles. That's our target for the European market.

which will produce some of our vehicles. That's our target for the European market.

We believe the acquisition combined with our distribution efforts in Europe will address growing local markets need in the region.

the acquisition combined with our distribution efforts in Europe will address growing local markets need in the region.

in the region.

In December we selected Jacksonville, Florida for our new US based manufacturing facility. This 100,000 square foot facility is expected to be capable of assembling up to 10,000 vehicles per year once fully operational.

This 100,000 square foot facility is expected to be capable of assembling up to 10,000 vehicles per year once fully operational.

In addition, we plan for further expansion to support additional vehicles and launching battery packaging operations. The site provides efficiency for materials, logistics and also support the export needs of finished vehicles for our partners and customer networks.

we plan for further expansion to support additional vehicles and launching battery packaging operations.

additional vehicles and launching battery packaging operations.

The site provides efficiency for materials, logistics and also support the export needs of finished vehicles for our partners and customer networks.

Besides the two additional plants, we are also planning to expanding our existing production capability through an acquisition offer, additional production space in Chongqing, China.

through an acquisition offer, additional production space in Chongqing, China.

Currently we have three vehicle plants, full production and assembly.

And we also outsource production and assembly of our new vehicles models to the third party OEMs. As we scale up our production, we hope the further increasing economy of scale will reduce material production costs.

vehicles models to the third party OEMs. As we scale up our production, we hope the further increasing economy of scale will reduce material production costs.

As we scale up our production, we hope the further increasing economy of scale will reduce material production costs.

the further increasing economy of scale will reduce material production costs.

Having secured needed working capital from our stock purchasing transaction with Naked Brand Group, we intended to put more accurate to develop our network of distributors and service providers to strengthen our marketing and sales capabilities.

our marketing and sales capabilities.

The acquisition of a 65% equity interest in TME has quickly increased our vehicle distribution capabilities in Europe, especially in Germany.

We continue to develop new vehicle models to meet the ever-growing demand and to improve vehicle quality and add vehicle features that respond to our customer needs.

to improve vehicle quality and add vehicle features that respond to our customer needs.

2022 will be a challenging year for all the industry sectors.

Given the backdrop of ongoing supply chain shortages, the global economy, the continuously evolving COVID-19 pandemic, and associated regional lockdowns and the Russian-Ukraine conflict, we expect both the cost of logistics and the cost of materials of our critical components, including steel and batteries to continue to increase while near term industrial conditions are fluid.

and associated regional lockdowns and the Russian-Ukraine conflict, we expect both the cost of logistics and the cost of materials of our critical components, including steel and batteries to continue to increase.

and the Russian-Ukraine conflict, we expect both the cost of logistics and the cost of materials of our critical components, including steel and batteries to continue to increase.

we expect both the cost of logistics and the cost of materials of our critical components, including steel and batteries to continue to increase.

both the cost of logistics and the cost of materials of our critical components, including steel and batteries to continue to increase.

while near term industrial conditions are fluid.

Our focus on leading commercial vehicle electrification remain strong. We are building a global brand to address growing needs and we believe we currently have adequate cash to navigate the challenging environment.

leading commercial vehicle electrification remain strong. We are building a global brand to address growing needs and we believe

We are building a global brand to address growing needs and we believe

we believe

we currently have adequate cash to navigate the challenging environment.

Looking ahead, we believe we will maintain our solid growth to capture the vast demand for electric commercial vehicles as we strive to become a pioneer and a front runner in the automotive industry transformation.

we believe we will maintain our solid growth

Turing.

to capture the vast demand for electric commercial vehicles as we strive to become a pioneer and a front runner in the automotive industry transformation.

automotive industry transformation.

Now, let me turn the call over to our CFO, Edmond Chen who will provide details on our 2021 financial performance.

Edmond?

Thank you Peter. Thank you everyone for joining our call today.

Thank you everyone for joining our call today.

I will now go over our key financial results for the year ended December 31st 2021.

For the full details of our financial results, please refer to our earnings press release.

financial results, please refer to our earnings press release.

We are very delighted to have delivered record revenue and gross margin improvement led by increased vehicle sales and other service income.

increased vehicle sales and other service income.

The performance demonstrated our ability to manage an increase supply despite higher raw material and shipping costs.

Additionally in support of further revenue growth, we continue to step up sales and marketing efforts and boost production.

Importantly, with the closing of the stock purchase agreement with Naked Brand Group, we solidify our balance sheet with a strong cash position which gives us additional strength to feel our next phase of business development.

which gives us additional strength to feel our next phase of business development.

Moving on to our results. Our net revenue for the year ended December 31st 2021 was $8.6 million representing an increase of 57.1% over 2020 driven by growth in sales of our vehicles and other service income.

driven by growth in sales of our vehicles and other service income.

Within that revenue in 2021, vehicle sales accounted for 85% with another 13% from other service income and the remainder from spare part sales.

vehicle sales accounted for 85% with another 13% from other service income and the remainder from spare part sales.

Geographically, we generated 51% of our revenue from Europe , and 40% from United States with the remainder from Asia and others.

Compared to 2020, our cost of goods sold rose 44.7% to $7.1 million in 2021 primarily due to an increase in the number of vehicles sold through our channel partners. Despite higher costs, resulting from supply chain and logistics disruption, we were able to improve our gross profit.

our cost of goods sold rose 44.7% to $7.1 million in 2021.

primarily due to an increase in the number of vehicles sold through our channel partners. Despite higher costs, resulting from supply chain and logistics disruption,

we were able to improve our gross profit.

We were able to generate gross profit of $1.5 million up 163.7% from $0.6 million in the previous year.

163.7% from $0.6 million in the previous year.

previous year.

In addition, our gross margin was up 710 basis points year over year to 17.5% primarily driven by an increase in vehicle sales and an increase in service revenue.

our gross margin was up 710 basis points year over year to 17.5% primarily driven by an increase in vehicle sales and an increase in service revenue.

driven by an increase in vehicle sales and an increase in service revenue.

Meanwhile, total operating expenses increased 60.3% to $18 million. The increase is largely due to an increase in selling and marketing expenses due to higher freight costs.

due to higher freight costs.

The increases in general and administrative expenses relating to transaction expenses in connection with Cenntro's combination with Naked Brand Group and its proposed IPO and also on the expansion of its US operations.

and its proposed IPO and also on the expansion of its US operations.

and also on the expansion of its US operations.

Selling and marketing expenses rose 32% to $1 million.

General and administrative expenses increased 71.5% to $15 million and R&D expenses were up 8.3% to 1.5 million in 2021.

As a result, net loss was $16.4 million compared with net loss of $5.2 million in 2020.

net loss was $16.4 million compared with net loss of 5.2 million in 2020.

Adjusted EBITDA after adding back nonrecurring expenses related to the combination with Naked Brand Group and the proposed IPO was -$7 million compared with -$5.6 million in 2020.

1020.

Upon the completion of the stock purchase transaction with Naked Brand Group, we were able to enhance our balance sheet in 2021, laying a strong foundation for the expansion of our manufacturing capacities and product portfolio.

laying a strong foundation for the expansion of our manufacturing capacities and product portfolio.

product portfolio.

As of the end of December 2021 our cash equivalents and restricted cash were $261.1 million compared with $4.5 million a year earlier.

Now, let me turn the call back to our CEO, Peter Wang for his closing remarks.

Peter Wang: Thanks Edmond.

Looking ahead, we believe our strong financial position, coupled with a robust product roadmap and advanced technologies, well positioning us to address this market, offer broader prospect and driving higher revenue and profit level in the long run, while creating value for our shareholders.

well positioning us to address this market, offer broader prospect and driving higher revenue and profit level in the long run, while creating value for our shareholders.

and driving higher revenue and profit level in the long run, while creating value for our shareholders.

in the long run, while creating value for our shareholders.

We have made strong progress against the backdrop of pervasive global and industry challenges.

of pervasive global and industry challenges.

We introduced the four new product lines, we've made a strategic acquisition and we are adding new capacity on three continents, all of which have positioned us for gross and market share gains.

all of which have positioned us for gross and market share gains.

To set we, like almost all other EV companies are concerned with the challenge in the global supply chain and in shipping sectors.

we like almost all other EV companies are concerned with the challenge in the global supply chain and in shipping sectors.

almost all other EV companies are concerned with the challenge in the global supply chain and in shipping sectors.

While we believe we can navigate these challenges we continue to exercise a strong degree of caution and continue to incorporate localization into our supply chain.

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Let's now open the call for questions. Operator, please go ahead.

Operator, please go ahead.

Operator: Thank you. To ask a question you will need to press *1 on your telephone. T withdraw your question press the pound (#) key. You may ask a maximum of three questions at a time. You can come back again to the queue if you have more questions. Please standby while we compile the Q&A roster.

You may ask a maximum of three questions at a time. You can come back again to the queue if you have more questions. Please standby while we compile the Q&A roster.

Please standby while we compile the Q&A roster.

Uh huh.

Our first question comes from the line of Bruce Chan of Stifel. Your line is open.

Okay.

Bruce Chan: Thank you operator, and good afternoon to you Peter, Edmund and Marianne. I'm going to max out my three question allotment here, if I may. max out my three question allotment here, if I may.

max out my three question allotment here, if I may.

First one, you stated in the release that December was your highest volume production month so far, which I think is great news. Can you maybe help us to extrapolate that number to what 2022 production could look like and how that's influenced by the China COVID shutdowns, the Ukraine situation and the supply chain issues that you mentioned? And I guess, specifically what I'm curious about is whether we're going to continue to see that 600 vehicle per month number and then how that changes once Jacksonville comes fully online.

the Ukraine situation of the supply chain issues that you mentioned? And I guess, specifically what I'm curious about is whether we're going to continue to see that 600 vehicle per month number and then how that changes once Jacksonville comes fully online.

that 600 vehicle per month number and then how that changes once Jacksonville comes fully online.

Peter Wang: Okay.

Thank you Bruce, yeah.

In the last year 2021, the last months we produced 628 vehicles and due to the supply chain issue and others, but of course, we have also encountered shipping issues. And this year, we will continue this way and we will continue, as we add in our new product line and adding our capacity. So we are very confident we are going to maintain this pace.

vehicles and due to the supply chain issue and others, but of course, we have also encountered shipping issues. And this year, we will continue this way and we will continue, as we add in our new product line and adding our capacity. So we are very confident we are going to maintain this pace.

Does that did that.

the supply chain issue and others, but of course, we have also encountered shipping issues. And this year, we will continue this way and we will continue, as we add in our new product line and adding our capacity. So we are very confident we are going to maintain this pace.

encountered shipping issues. And this year, we will continue this way and we will continue, as we add in our new product line and adding our capacity. So we are very confident we are going to maintain this pace.

But we also, as the supply chain comes as especially valued recently and it happened that the chip supply and battery are our main issue and also the shipping and the internal lockdown because most of our current supply chain is made in China. So that's hurting us a little bit and so we're going to maintain that and also in order to counter this thing, we have ordered three months battery for our short term inventory and to cope.

valued recently and it happened that the chip supply and battery are our main issue.

and it happened that the chip supply and battery are our main issue.

and also the shipping and the internal lockdown because most of our current supply chain is made

supply chain is made

in China. So that's hurting us a little bit and so we're going to maintain that and also in order to counter this thing, we have ordered three months battery for our short term inventory and to cope.

inventory and to cope.

And also we're going to ask our Jacksonville facility operational, we're going to pack our battery in the United States.

Jacksonville.

facility operational, we're going to pack our battery in the United States.

So we're still extremely cautious, how are we going to deal with that, we'll prepare ourselves but at this moment, we cannot give the number and how it is going to happen because the whole situation is still developing. We really don't know.

extremely cautious, how are we going to deal with that, we'll prepare ourselves but at this moment, we cannot give the number and how it is going to happen because the whole situation is still developing. We really don't know.

but at this moment, we cannot give the number and how it is going to happen because the whole situation is still developing. We really don't know.

Bruce Chan: Okay. That's really helpful and actually that was going to be my second question about the battery supply issues. So that's encouraging to hear.

So maybe, jumping to the third question then. An this one probably is for you Edmond. I noticed that you had a press release towards the end of the year, talking about a change in your auditor. I just wanted to see whether there are any concerns or implications to read from that auditor change?

probably is for you Edmund. I noticed that you had a press release towards the end of the year, talking about a change in your auditor. I just wanted to see whether there are any concerns or implications to read from that auditor change?

I noticed that you had a press release towards the end of the year, talking about a change in your auditor. I just wanted to see whether there are any concerns or implications to read from that auditor change?

wanted to see whether there are any concerns or implications to read from that auditor change?

Edmond Cheng: Yes Bruce.

Michael was a previously our SEC auditor for the Cenntro Group prior to the stock purchase transaction with the Naked Brand Group in the end of 2021.

our SEC auditor for the Cenntro Group prior to the stock purchase transaction with the Naked Brand Group in the end of 2021.

to the stock purchase transaction with the Naked Brand Group in the end of 2021.

end of 2021.

And due to the nature of the transaction, the historical financial statement of the Cenntro Group became the financial statement of the company.

the historical financial statement of the Cenntro Group became the financial statement of the company.

became the financial statement of the company.

company.

So with the audit committee's approval, we appointed Markham as our auditor for the FCC purposes.

as our auditor for the FCC purposes.

Separately also the company is an Australian public limited company.

Australian public limited company.

It is required to file IFRS audited financial statements with the Australian Security and Investment Commission. For the purposes of compliance with the Australian law, we appointed with Australia to conduct and audit under IFRS and file the required reports with Australian authorities. I wonder if I have answered your question.

audited financial statements with the Australian Security and Investment Commission. For the purposes of compliance with the Australian law, we appointed with Australia to conduct and audit under IFRS

with Australia to conduct and audit under IFRS

S and <unk>.

and file the required reports with Australian authorities. I wonder if I have answered your question.

Australian authorities. I wonder if I have answered your question.

I wonder if I have answered your question.

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Bruce Chan: No. You did. That's very helpful. I appreciate those answers and I'll jump back into queue for any additional questions.

Peter Wang: Thank you.

Operator: Thank you. Our next question comes from Michael Shlisky of D.A. Davidson Companies. Your line is open.

Michael Shlisky: Hello. Good afternoon, can you hear me okay?

Peter Wang: Yes.

Michael Shlisky: Great.

Thank you for having me on the call. I've got a couple of quick ones here. Maybe they're not so quick. Maybe can we first start off with talking about your current sales pipeline. Can you give us a sense as to the current selling environment? Are people unwilling to even speak with any of your companies given supply chain challenges? Are you seeing a lot of large orders versus like kind of one off smaller business orders? Give us a sense as to who you're selling to, who you're talking with today and kind of how it's been going over the last couple of months given all the global issues that you've been seeing.

unwilling to even speak with any of your companies given supply chain challenges? Are you seeing a lot of large orders versus like kind of one off smaller business orders? Give us a sense as to who you're selling to, who you're talking with today and kind of how it's been going over the last couple of months given all the global issues that you've been seeing.

smaller business orders? Give us a sense as to who you're selling to, who you're talking with today and kind of how it's been going over the last couple of months given all the global issues that you've been seeing.

Peter Wang: Okay. Hi, Michael.

Uh huh.

Hi, Michael.

So first of all, the overall market demand for electric commercial vehicle still remains very very strong and in Europe and also in the United States, and especially Europe and in Japan there are very strong demand. And the issue is not getting the order and how are we going to supply our product and with aftermarket support. So that's very very important. So this year we spent so much time to develop our local distributor network and after sales network and also the spare parts supply.

the issue is not getting the order and how are we going to supply our product and with aftermarket support. So that's very very important. So this year we spent so much time to develop our local distributor network and after sales network and also the spare parts supply.

getting the order and how are we going to supply our product and with aftermarket support. So that's very very important. So this year we spent so much time to develop our local distributor network and after sales network and also the spare parts supply.

our product and with aftermarket support. So that's very very important. So this year we spent so much time to develop our local distributor network and after sales network and also the spare parts supply.

so much time to develop our local distributor network and after sales network and also the spare parts supply.

So for the customer, we are right now targeting the mid-tier and also the small business. That's our market and target customer instead of the big market three.

and also the small business.

That's our market and target customer instead of the big market free.

our market and target customer instead of the big market free.

target customer instead of the big market free.

the big market free.

Because the big three takes time and also requires nationwide aftermarket support. But we usually don't give the the purchase indication. And we only confirm the order knowing that we can deliver on time. And we don't take and confirm any orders if we don't know exactly why we can't deliver. So currently we are not announcing any backlog of orders, we do have a lot of so called back log, the interest indication and in this moment our key is to make sure we can deliver on time.

don't give the the purchase indication. And we only confirm the order knowing that we can deliver on time.

the purchase indication. And we only confirm the order knowing that we can deliver on time.

And we only confirm the order knowing that we can deliver on time.

confirm the order knowing that we can deliver on time.

And we don't take and confirm any orders if we don't know exactly why we can't deliver. So currently we are not announcing any backlog of orders, we do have a lot of this

so called back log, the interest indication and in this moment our key is to make sure we can deliver on time.

our key is to make sure we can deliver on time.

And to answer your question, the demand is not the issue. The order is not really the issue. The issue is how we can deliver the product with quality, with time and with the aftermarket support.

With the aftermarket support.

Michael Shlisky: Got it. And actually let me get into my other question. Can you give us sense as to how the 2021 vehicles that were delivered

maybe how they perform relative to promised reputations as far as range, as far as performance. And this is going to be in the file but can you give us any sense as to what the warranty experience has been on those proof of delivery vehicles so far here in 2022.

warranty experience has been on those proof of delivery vehicles so far here in 2022.

Okay Yeah.

And so what we do is we purposely build our vehicles, which is targeted for urban delivery and old urban services. Mostly they don't require long range, but it will have provided sufficient range for daily use.

what we do is we purposely build our vehicles, which is targeted for urban delivery and old urban services. Mostly they don't require long range, but it will have provided sufficient range for daily use.

purposely build our vehicles, which is targeted for urban delivery and old urban services. Mostly they don't require long range, but it will have provided sufficient range for daily use.

And also, because of the nature of commercial vehicle you have to make sure that the vehicle is operational 24 hours a day. You don't want a stoppage because they will hurt your business. So we have to make sure that the aftermarket support capability is there and also our warranty. And in Europe and this regulation requires minimum two years of warranty.

because of the nature of commercial vehicle you have to make sure that the vehicle is operational 24 hours a day. You don't want a stoppage because they will hurt your business. So we have to make sure that the aftermarket support capability is there and also our warranty. And in Europe and this regulation requires minimum two years of warranty.

the vehicle is operational 24 hours a day. You don't want a stoppage because they will hurt your business. So we have to make sure that the aftermarket support capability is there and also our warranty. And in Europe and this regulation requires minimum two years of warranty.

Europe and this regulation requires some minimum two years of warranty.

regulation requires some minimum two years of warranty.

But actually we provide the warranty much longer than our competitors or our counterparts in Europe. For example, the battery we provide a warranty for five years and also a five year or 100,000 kilometers. Or we also provide our motor and controller with AES warranty and with 200,000 kilometers, so which won't comes first. So we are very confident in our quality and so we'll provide that our warranty is longer or better than our competitors.

kilometers. Or we also provide our motor and controller with AES warranty and with 200,000 kilometers, so which won't comes first. So we are very confident in our quality and so we'll provide that our warranty is longer or better than our competitors.

kilometers, so which won't comes first. So we are very confident in our quality and so we'll provide that our warranty is longer or better than our competitors.

Michael Shlisky: Okay. That's great. I'll jump back in the queue. Thank you so much Peter.

Operator: Thank you. Again to ask a question, please press *1 on your Touchtone telephone. Again that's *1 on your Touchtone telephone to ask a question.

Our next question comes from Karl Birkenfeld of American Trust Investments. Your question please.

Karl Birkenfeld: Yeah. Okay, Great presentation. Thank you very much. On the call there, Peter Wang and Edmond Cheng. The question I have is on the recent lockdown in Shanghai. How will they affect the overall gross margins in 2022?

Okay, Great presentation. Thank you very much. On the call there, Peter Wang and Edmond Cheng

Peter Wang and Edmond Cheng

The question I have is on the recent lockdown in Shanghai. How will they affect the overall gross margins in 2022?

Yeah.

Sure.

The question I have is on the recent lockdown in Shanghai. How will they affect the overall gross margins in 2022?

Sherri Hi, how will that affect you.

the overall gross margins in 2022?

Sure.

Yeah.

Peter Wang: Yeah, Okay. So it is very hard to see where this will ultimately go. But it is hard not to see that continued issue of the lockdown, especially in China could have a big impact on the sector. And as it touches many aspects of the shipping, the supply chain shortage, we do not know how significant it might be since the situation is still developing.

So with this.

it is very hard to see where this will ultimately go.

But it is hard not to see that continued issue of the lockdown, especially in China could have a big impact on the sector. And as it touches many aspects of the shipping, the supply chain shortage, we do not know how significant it might be since the situation is still developing.

that continued issue of the lockdown, especially in China could have a big impact on the sector. And as it touches many aspects of the shipping, the supply chain shortage, we do not know how significant it might be since the situation is still developing.

big impact on the sector. And as it touches many aspects of the shipping, the supply chain shortage, we do not know how significant it might be since the situation is still developing.

And as it touches many aspects of the shipping, the supply chain shortage, we do not know how significant it might be since the situation is still developing.

we do not know how significant it might be since the situation is still developing.

how significant it might be since the situation is still developing.

is still developing.

There's so little we can do about it. Besides we have a place in order, major parts and components for the next three months. So in other words, for the next three months, we should be okay if the situation is deteriorating, because we're already warehousing the three months, the key component.

So in other words, for the next three months, we should be okay if the situation is deteriorating, because we're already warehousing the three months, the key component.

situation is deteriorating, because we're already warehousing the three months, the key component.

So and also we're going to continue to develop the supply chain source in our local markets. That means we're going to in near future, we're going to pack our battery in Jacksonville, our own facility.

in near future, we're going to pack our battery in Jacksonville, our own facility.

in Jacksonville, our own facility.

Now how that's going to impact on us, I think the impact is on us just like anybody else, we cannot avoid. But at this moment in this situation I think we should be able to implement our plan as we plant, but we do have to be very cautious how they're going to go. And if the situation continues or its deteriorating, then we will see our gross margin going to be deteriorating a little bit and also we are going to see the revenue going to hurt because the shipping is very crucial for us because we are global supply right now. We supply to Europe, we supply to the US, we supply to Asia. So the vehicles shipping will be the problem because how are we going to realize the sales, not only on production. And production wise I don't see the big impact, but the sales realization maybe if the shipping situation continues to deteriorate.

plant, but we do have to be very cautious how they're going to go. And if the situation continues or its deteriorating, then we will see our gross margin going to be deteriorating a little bit and also we are going to see the revenue going to hurt because the shipping is very crucial for us because we are global supply right now. We supply to Europe, we supply to the US, we supply to Asia. So the vehicles shipping will be the problem because how are we going to realize the sales, not only on production. And production wise I don't see the big impact, but the sales realization maybe if the shipping situation continues to deteriorate.

because the shipping is very crucial for us because we are global supply right now. We supply to Europe, we supply to the US, we supply to Asia. So the vehicles shipping will be the problem because how are we going to realize the sales, not only on production. And production wise I don't see the big impact, but the sales realization maybe if the shipping situation continues to deteriorate.

will be the problem because how are we going to realize the sales, not only on production. And production wise I don't see the big impact, but the sales realization maybe if the shipping situation continues to deteriorate.

shipping situation continues to deteriorate.

situation continues to deteriorate.

continues to deteriorate.

And so I think in this moment and we cannot really project how the guidance will be and we'll see or monitor how the situation goes.

No.

project how the guidance will be and we'll see or monitor how the situation goes.

the guidance will be and we'll see or monitor how the situation goes.

see or monitor how the situation goes.

Karl Birkenfeld: Okay, well. Thank you. That was a great answer as far as making the supply chain localized. And I guess, you're preparing for three months stock, correct?

making the supply chain localized. And I guess, you're preparing for three months stock, correct?

And I guess, you're preparing for three months stock, correct?

Peter Wang: Yes.

Karl Birkenfeld: That's great. That's a good solution. Thank you sir for answering the question.

Operator: Thank you. Our next question comes from Bruce Chan of Stifel. Your line is open.

Yeah.

Bruce Chan: Alright, I appreciate the double dip here and I'm not sure if I missed this earlier on the call, but I wanted to ask about capital allocation. So you just wrapped up a major acquisition, our majority purchase of Tropos and you mentioned that you still have about $250 million in dry powder on the balance sheet. How are you thinking about priorities for capital here?

acquisition, our majority purchase of Tropos and you mentioned that you still have about $250 million in dry powder on the balance sheet. How are you thinking about priorities for capital here?

Jacksonville's asset and I assume fully funded at this point. So are you going to be more focused on battery development or new model development, distribution, is M&A still on the table for you?

is M&A still on the table for you?

Yeah.

Peter Wang: Edmond, could you answer that?

Edmond Cheng: Yes. Bruce. In the near future, what we're looking at is there are two priorities that we are focusing on. One priority we are focusing on is what Peter has mentioned is, to secure enough supplies. So investing in needed inventory, especially key parts and components is key for us.

Bruce.

In the near future, what we're looking at is there are two priorities that we are focusing on. One priority we are focusing on is what Peter has mentioned is, to secure enough supplies. So investing in needed inventory, especially key parts and components is key for us.

what we're looking at is there are two priorities that we are focusing on. One priority we are focusing on is what Peter has mentioned is, to secure enough supplies. So investing in needed inventory, especially key parts and components is key for us.

So we have, our first priority is to allocate enough money for securing our working capital. That's a very important piece for the inventory.

our first priority is to allocate enough money for securing our working capital.

That's a very important piece for the inventory.

Another piece of it is or both just in view is sudden death in that sense, but we still need to look into a continuation of Capex and also R&D development from that sense in terms of our new product development. So those are the two key focus that we have to secure and continue our technology leadership so our new product development for future revenue stream.

sudden death in that sense, but we still need to look into a continuation of Capex and also R&D development from that sense in terms of our new product development. So those are the two key focus that we have to secure and continue our technology leadership so our new product development for future revenue stream.

and continue our technology leadership so our new product development for future revenue stream.

our new product development for future revenue stream.

Bruce Chan: Okay terrific and then just a final question here. You mentioned the geographic split as roughly 51% Europe, 40% US. Do you expect that to remain the case going forward?

Yeah.

Edmond Cheng: Peter, do you want me to answer that?

Peter Wang: Yeah.

Okay.

Marianne McInerney: I certainly can, Edmond.

Edmond Cheng: Okay, go ahead Marianne.

Marianne McInerney: We do believe that Europe will continue to be the biggest market for our products in 2022.

While we're not in a position to offer guidance for the future period due to the evolving situation, we are excited by the response that our products have received in the US and other new developing markets. So we do anticipate that Europe will remain at least a 50% as we move forward at this time.

the evolving situation, we are excited by the response that our products have received in the US and other new developing markets. So we do anticipate that Europe will remain at least a 50% as we move forward at this time.

are excited by the response that our products have received in the US and other new developing markets. So we do anticipate that Europe will remain at least a 50% as we move forward at this time.

So we do anticipate that Europe will remain at least a 50% as we move forward at this time.

Again, it's very difficult to provide specific guidance for this period due to the uncertainties in the evolving situations with the supply chain and COVID and geopolitical issues.

Bruce Chan: Okay understood. Well received. Well thank you all so much for your time. I appreciate it.

Yeah.

Peter Wang: Thank you. If you have any other questions, please contact us via email. This concludes the call. You may now disconnect.

Edmond Cheng: Thank you.

Okay.

[music].

Full Year 2021 Cenntro Electric Group Ltd Earnings Call

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