CBAK Energy Technology, Inc.

Good day, ladies and gentlemen. Thank you for standing by and welcome to CBAK Energy Technology first quarter 2022 earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session and instruction will follow at the time. As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time. Now, I will turn the call over to Terry Lee. Investor Innovation Director of CBAK Energy, Mr. Lee, please proceed.

Thank you, operator, and hello, everyone. Welcome to CBAK Energy's first order 2022 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer, and Mrs. Yuna Pei, our Chief Financial Officer. We released results earlier today. The press release is available on the company's IR website at ir.cbac.com.cn. as well as from Newswire Services. A relay of this call will also be available in a few hours on our IR website. On the call with me today are Mr. Yunfei Li, Mrs. Yuna Pei, Mr. Xiujuntian, who is our general engineer, Mr. Wenwu Wang, who is our vice president, and our interpreter, Jennifer. 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 firings with the SEC. The company doesn't assume any obligations to update any forward-looking statements except as required under applicable laws. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in your stores. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese and I will translate his comments into English. Go ahead, Mr. Li. Yunfei, please continue. Thank you, Dylan. Thank you and hello everyone. Thank you for joining our earnings conference call today.

$1500 million income comes from battery business. Battery business income is 69% of the same growth as last year. About $6500 million income comes from the purchase of HITRON and the entry of Li battery raw materials business. In addition, the rapid growth of the demand for light vehicles and the continuous promotion of the demand for non-discharge power batteries. The company's high-power Li battery sales have also improved, leading to an increase in revenue. Considering that our Nanjing battery factory is still in the stage of production, we have already achieved excellent performance and performance, showing that the company's battery products and ecosystem have great potential for development. The plan of Nanjing base can reach up to 18 kWh of maximum production, We are very excited to kick off 2022 with a strong first quarter. Our net revenue surged more than eight-fold year-over-year to $80.2 million this year.

Of that, roughly $15 million was from the battery business, and about $65 million was derived from the business of materials for making lithium battery cells, which was brought by the hydrogen's merge. Addiction of these strong cells of high-power lithium batteries led by the rapid growth for its usage in light electric vehicles and the continued increase in its uninterruptible supplies also contributed to the growth in revenues. Spectacular performance and results were made even while we were still ramping up production at our 19 battery manufacturing plant and thus reflected the immense potential of our battery product ecosystem. Our 19 facility has a maximum plan capacity of 18 gigawatt hour, which is about multiple times as our current capacity if our 19 facility is fully grounded and operated. Along with gradually increasing battery production, we are even more optimistic about the growth and future of our business. You are very welcome.

Next, I would like to introduce the product development and production process. We continue to develop and adapt to

Next, let's move on to our recent product developments and production. We continue to develop large cylindrical batteries to target at the LEV and passenger-grade EV markets. 除了繼續優化現有原住量產產品的電池性能外,

In addition to efforts to continue optimizing the performance of our current cylindrical battery products, we are working to produce a prototype for model 42140 steel-shear batteries.

At this moment, we have already designed the research and development plans for the Model 42140 battery and will expect steady progress as planned.

Thank you very much. We are also happy to see that the market is very positive about our product. As of May 9, 2022, the company's current delivery battery order is close to 400 million yuan, about 59 million US dollars.

We are also happy to see that market feedback for our battery products has been strong and positive. As of May 9, we have outstanding battery orders worth approximately 400 million yuan, or about $59 million. With these orders, our main factory in Dalian is in full production, and we are increasing production at our 19th plant. We also announced to receive orders from one of our major clients, worth about $30 million, which further suggested that the quality and performance of our products are being widely recognized by key global players.

In the second quarter, our main business focus is still to maintain the stability of the power and battery business and the raw material business. In addition, we will continue to acquire more new electric vehicles

In the second quarter, our main focus will be on maintaining stable revenues from batteries used in uninterruptible supplies and the raw material business. In addition to that, we will also continue expanding the revenue share of large cylindrical batteries by sticking new contracts with LEV and EV manufacturers. Why continue?

Now let's introduce the development of the material business brought by Haicheng. As previously expected, Haicheng's business has become the main part of the company's total income after the merger. This part of the business has been affected by the rise in material prices. By relying on leading technology and increasing product advantages, Haicheng has accumulated a large number of strategic customers. We are currently in a state of full production, and we have maintained our optimism in the operation of Haichuang material business in 2022, and plan to further improve the professionalism of Haichuang's operation and technology. Haichuang will also expand its investment in R&D and product innovation, producing high-tech materials that can improve the safety performance and battery life of electric vehicles. Now let's turn to our material business resulted from the acquisition of hydrogen.

As expected, the business is a major stream of our current revenues and is benefiting from material price inflation. By leveraging its advanced technology and reliable quality, Hightrends has accumulated a number of strategic customers and is now in full production. In 2022, we will maintain Hightrends' material business operations while strengthening its core value and professionalism. Hightrends will make further investments into research and development and product innovations to make high-end nickel cattle materials that can improve safety and range for electric vehicles as we seek to make Hightrends become a world's first-class manufacturer of capital materials for new energy-powered lithium batteries.

At the same time, the increase in the price of raw materials has also affected the profit level of the downstream battery business. In order to actively deal with this impact, we have taken measures from three aspects. First, we signed a long-term supply agreement with some major suppliers to ensure that the key material prices can be set before production. Second, we also successfully entered the industrial upstream through the acquisition of Haichuang. This way, we can control some raw materials or use raw materials to increase the price of goods in the market. Third, we also started to re-competed the price of downstream customers, and successfully negotiated the price with some important customers. Due to the time required for price transfer, the price of raw materials increased, which brought some pressure to the current current flow. However, we believe that these are all short-term fluctuations. As the production of raw materials gradually expands,

Meanwhile, the material price hikes decreased the profits of our downstream battery business. In order to counter this impact, we have actively taken measures in three main aspects. First, we signed long-term contracts agreements with some major suppliers to secure key materials in advance to ensure production. Second, we have expanded into the upstream with our merging of hydrants so that we are capable of managing some raw materials or use the material price inflation to offset the decrease in the gross profits of the battery plants. Third, we started to renegotiate prices with our downstream customers and have successfully raised our prices for a few of our key customers. The rise in material prices added certain pressure to cash flow as it takes time to transmit the price increase to downstream customers. However, these are short-term fluctuations. As the raw material manufacturers expand production, the prices of the materials will decrease and gradually return to a reasonable level. With that, we expect both profits to increase in the future. Thank you very much.

As our business expands to upstream raw materials, we will increase the ability of the market to use it quickly. We want to continue to strive for the production ability of lithium-ion batteries and the solution of electric energy. This will bring greater value to the shareholders. At the same time, the company will actively look for new workers in the industry in the future.

We aim to lead the lithium-ion production and electric energy solutions while maximizing value for our shareholders with our expansion into the raw material business and sweep the response to the market. Going forward, we will also actively search for quality assets and highly valuable targets along the upstream and downstream of the new energy industry to invest in an attempt to stabilize our supply chain and enhance our investment returns. Thank you.

Next, let's have our CFO, President Pei, introduce the company's financial performance.

Now let me turn the call over to our CFO, Yuna Pei, who will provide details on our financial performance.

Okay. Thank you. Thank you, Mr. Li, and thank you, everyone, for joining our call today. I will now go over our key financial results for the first quarter of 2022. For the full details of our financial results, please refer to our earnings press release. Our significant revenue expansion validates the effectiveness of our growth strategy. The raw material price has remained as short-term headings to the battery business, but we've taken quick action in order to mitigate its impact. Additionally, we expanded our investments into our infrastructure with primary focus on sales and marketing, as well as research and development for our next phase of growth. Moving on to our results, in the first quarter, net revenues surged 742% to $88.2 million US dollars. from the same period of 2021, primarily due to additional revenues from lithium battery materials brought by the acquisition of hatchlings and the strong sales of high-power lithium batteries. Cost of revenues was $74.9 million in the first quarter, up 888% from the previous year. Gross profit was $5.3 million, an increase of 189% from the prior year. Gross margin was 6.6% in the first quarter, compared with 19.5% in the same period of 2020, as raw material costs rose. As noted earlier, we send long-term contacts with certain suppliers, expanded into raw material business, and began renegotiation with our clients to tackle the price hacks. And we expect the prices of raw materials to decrease while new capacity is being added by the industry. In the first quarter, Our operating expenses rose 256% to $6.7 million, primarily due to growing headcount and the acquisition of hedges. Within that, our research and development expenses increased by 585% to $3.3 million, Sales and marketing expenses increased 290% to $0.8 million, and the general and administration expenses increased 69% to $2.2 million. Even with these increases, our operating expenses were held only 8.3%, relative to our revenues, compared with 19.8% in the same period of 2021. Our change in fair value of warrants was $1.6 million in the first quarter, compared to $28.4 million in the prior year. Thus, net income attributed to shareholders of CBAG Energy was $0.4 million during the period, compared to $29.6 million in the same period of 2021. As of March 31, 2022, our cash and cash equivalents reached $5.6 million, compared to $7.4 million as of the end of 2021. Looking ahead, we will remain committed to our long-term growth strategies for our development in the industry. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Thank you.

Thank you. We will now begin the question and answer section. Audio participant with question to pose, please press 01 on your telephone keypad and you will place in the queue. To cancel the queue, please press 02. Once again, 01 on your telephone keypad now.

Before the company has once released your progress about production of the Model 4600,

and nowadays the markets are all very interested in the development progress of 46800 battery. Could you give us more updates on the development of 46800? Thank you.

Thank you, Laura. This question is for Mr. Tian to answer.

Okay, let me answer this question. We have also announced that we have invested in the development of the 4680 battery. At this stage, we have completed the development of the A-type battery. It has met our original design requirements. Now, the battery life cycle continues. We will steadily promote the battery development plan. That's all.

Okay, so yes, we did release our announcements on the development of 46800 as well as the investment of R&D on this battery model 46800. And at present, we have already finished the development of the prototype. And we can find that this development, this prototype can well satisfy the original design requirement. And we are going to continue to proceed steadily in our development, in our further developments.

Okay, thank you very much. My second question is about understanding the situation of the company's production in Nanjing Factory. Can you give a specific introduction to the products that the company will produce in Nanjing Factory in the next three to four seasons? And can you give us some progress in the development of the client? Okay.

Okay, so my second question concerning the company's development plan and customer development progress in the Nanjing plant. I would like to know more about the production situation in the Nanjing plant and in the coming three to four quarters, what will be the major products to be produced in Nanjing plant? And also, could you share with us some updates in the development of the customers targeting at the products that will be produced in Nanjing?

It is also steadily advancing according to our product and market needs. Currently, there are a lot of orders. However, the quantity may gradually increase from the end of the second quarter and the beginning of the third quarter. Currently, our product is mainly in the market direction. It is still in two or three rounds, such as changing stores and rents. We also have a large order that is close to completion. It may be at the end of June. It is also a single order. It may be 100 to 1.5 million pieces. That is more than 50 million yuan. The rest is in the direction of storage. We... At present, the market is paying more attention to this product. Several customers are testing it. Some have started to use it in small batches. It is expected that there will be a batch order in the third quarter. And the number will increase. Our next step is to uh uh Okay.

Okay, so if we talk about the production capacity of 9G, we are happy to see that the production capacity has been increasing since the beginning of the year, and we have been exploring and developing the markets, and we can see according to the market demand, and we are happy to see that orders have been coming to us, and we believe that from the the end of the second quarter or the beginning of the third quarter, there will be more and more orders will be expected to arrive. And then if we have a product, we always develop our product according to the market demand. And at present, we mainly focus on developing products for two-wheelers and three-wheelers And the main business will be focused on the swapping of batteries and leasing. And in this sector of business, we have already, we almost reached a deal with a big client And we expect the clients to place the order at the end of June. And the total sales amount brought by this order is expected to be about $1 million to $1.5 million. So it will be a big order. And when it comes to energy storage, the market has been paying close attention to our business in this regard. And several customers have already started their shakedown test with us. And even a small bunch of them have already started the small lot production already. And it is expected that in the third quarter, we're going to receive orders, bigger orders. And the quantity, the sales quantity will keep increasing after that. And if we have a look at the future, we plan to develop our products focusing on low-speed vehicle, AOO grade passenger vehicle, forks, vehicle, forklift, as well as some vehicles for logistics. We estimate that we're going to have two to three projects introduced for this area of business and they will fulfill our two new production lines in the fourth quarter and then secondly we also try to develop more customers so that after the 18 gigawatt production capacity is well ready, then we can have enough customers or enough orders from big customers. We believe that our efforts that we have been making will lay a solid foundation for securing more orders from bigger customers. And then for the rest of Or let's say in the coming three quarters, our sales target is to reach 300 million. That's it. Thank you.

Okay, my last question is concerning the serious situation brought by the COVID pandemic.

On the one hand, we can see there has been tight in the supply chain. And secondly, we also noticed that in China, due to the surge of pandemic, quite a lot of cities are undergoing lockdown at the moment. So we would like to know what kind of impact will it bring to the performance of the company in the second quarter as well as the rest of the year.

COVID-19. So,

We admit that the pandemic has brought some uncertainties to the running of the factory. However, as we know, since the outbreak of COVID-19 at the beginning of 2020, our three plants, located in Dalian, Nanjing and Shaoxing respectively, haven't been affected by the COVID-19 or lockdown. Although in the future, we cannot exclude the possibility of under lockdown due to the pandemic. However, we have to say so far so good. But we also feel lucky that our three plants are scarcely located. The plants are located in three different places. So if in the future, if one day the lockdown is happening in one of the cities, then we can have the confidence to take active measures to mitigate the impact.

Thank you, Rola.

Thank you. Next question is Howard from Leeton. Please go ahead.

Okay.

Okay, after the acquisition of high trends, does the company have other plans to acquire or merge other battery plants upstream or downstream? And if yes, could you also share with us what's the motive behind it or it is out of what kind of strategic factors that you are considering doing this kind of acquisition?

This question is still up to President Pui to answer.

Okay, thank you for your question. From our current financial performance, the acquisition of HITRON is a relatively successful acquisition. Our subsequent companies also hope to have enterprises like HITRON. in terms of equity and strategic cooperation. This is mainly based on the perspective of Taiwan Investment and the strategic perspective of core business development. From the perspective of financial investment, under the background of global innovation, green clean energy, and low-carbon life, we all know that in the long term, including China and other countries around the world, the new energy industry will become a key industry that is important to the country. There is a lot of potential for new energy and electricity in the industry. From the perspective of financial investment, we think there will be a lot of room for growth. From the perspective of strengthening the core competitiveness of the company, as a high-end LiDen battery indicator manufacturer with more than 20 years of experience in the LiDen industry, we know that LiDen's up-and-down enterprises, especially the product quality and production stability of LiDen's key raw materials suppliers, play a very important role in our production of high-quality batteries. Thank you for your question.

We have to say that our recognition of high trends is a successful acquisition, and it is our hope that we can have more cooperation with companies like high trends in terms of equity or in terms of strategic cooperation. We have interest in this kind of cooperation because of two perspectives. The first one is financial investment. The second one is the development of the core business of our company. If we have a look at the perspective of financial investment, as we know, nowadays, a large number of countries in the world, including China, are advocating the development of green and clean energy, as well as low carbon development. So we believe that new renewable energy and clean energy will be a pillar industry and a promising industry in the future. So it is very important for us strategically to integrate the resources upstream and downstream of new renewable energy, especially in terms of lithium battery. We believe that it will boast great potential in the future. So from the perspective of financial investment, we believe that this will give us a bright future. And then we have a look at the second perspective that is the development or the sharpening of our competitive edge. As we know, CBAG is a high-end shader of lithium battery And based on our 20 years experience, we are fully aware that the quality of raw material of the lithium battery as well as the stability of production capacity is crucial for the development of the company. That is why we attach great importance in leveraging the resources upstream and downstream so as to ensure the quality of our products, in particular the raw material of our products, as well as the stability of the supply chain, so as to ensure a long-term development of our company's core capacity and core competitiveness in the market.

Okay, thank you very much.

Okay. From the report that you gave just now, I realized that the production capacity in Dalian is full. It is in full capacity. And I also noticed that recently quite a few battery manufacturers have their plans to build new production lines. so i'd like to know that for c-back in the year 2022 in terms of battery material or battery production what kind of plan do you have for the development of new production lines uh

Although we can see that the production capacity of the entire market is very fast. The same goes for Dalian, including Nanjing. This is not a conflict, because the direction of our market is still not very cross. We just talked about some of the applications of the enterprise warehouse, mainly in cars or electric tools, and similar applications. Then our Dalian's current products are mainly focused on energy storage and this kind of small power. The expansion of Dalian's production capacity this year is that the production line we built last year is in full production as planned this year. At the same time, to respond to that, As the number of customers increases, we are also deploying more new production lines. The production line that was added last year is now twice the original production line, which is three times the original total production line. For our current customer group, We are currently in the storage area. Our new production line is facing this storage area. The first three customers, we have already completed two customers, have received a large number of orders. In the future, this order may be even larger. Our new production line will not meet the needs of these customers. That is to say, Dalian's new production line is also in the early stages. Okay.

So, yeah, we also noticed that the market, especially those major players in the market, are quickly changing. expanding their production capacity and our plants in Dalian and Nanjing are the same but I don't see any conflict in it because our market customers are not overlapping because for those the other major players they're focusing or they're supplying more to the vehicle manufacturers or electric tools But for us, for CBEC, we are focusing on energy storage and small power vehicles. And our production capacity has been increased sharply in Dalian, and our new production lines are gradually entering into full production phase. And in the future, if the customer demand kept increasing, it is also possible that we are going to allocate and invest more new production lines. But so far, our new production lines in Dalian have already doubled what we have in the past. And in terms of energy storage, we After our new production line comes into operation, two out of three customers of ours have already placed orders. And we believe that the new production line in Dalian can well meet their requirements in the near future. And if we have a look at the raw material, we will keep a close look at the customer need in the downstream, and if they have the requirement to increase their orders, then we will also actively finance to expand our capacity so as to better satisfy their needs.

Okay, thank you. I have no more questions. Thank you.

Thank you, Howard. Since no more questions in the queue, let me turn the call back to Mr. Yunfei Li for closing remarks.

Yunfei, please sit down.

Thank you for attending today's call.

Thank you, operator, and thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you all again. This concludes the call. You may now disconnect.