CBAK Energy Technology, Inc.

Q2 2022 Earnings Conference Call

8/15/2022

spk05: The conference will begin shortly.
spk01: To raise your hand during Q&A, you can dial star 1 1.
spk02: good day ladies and gentlemen thank you for standing by and welcome to CBAK energy technology second quarter and first half 2022 earnings conference call currently all participants are in list and only mode later we will conduct a question and answer session an instruction will follow at the time as a reminder we were recording today's call if you enable objection you may disconnect at this time now i will turn the call over to theory Investor National Director of CBAK Energy. Mr. Li, please proceed.
spk10: Thank you, operator, and hello, everyone. Welcome to CBAK Energy's second quarter and first half 2022 earnings conference call. Joining us today are Mr. Yunfei, our Chief Executive Officer, Mrs. Yuna Pei, our Interim Chief Financial Officer, Mr. Wenwu Wang, our Vice President, Mr. Xiujun Tian, our Engineer, and Mrs. Yang, our Interpreter. We released results earlier today. The press release is available on the company's IR website, ir.cbank.com.cn, as well as from NewsWeb Services. A relay of this call will also be available in a few hours on our IR website. 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 storage. 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, you can speak.
spk09: Thank you, Mr. Li.
spk10: Thank you, everyone. Thank you for joining our earnings conference call today.
spk09: In the first quarter of 2020, we achieved a remarkable result. The company's revenue in the second quarter reached $56.35 million. In the first half of the year, the revenue reached $1.37 billion, respectively increasing by 8.57 times and 7.92 times. The growth was amazing. Among them, our electrical business revenue reached $25,720,000, which is more than three times higher than the previous year. The huge growth in revenue comes from the management level of the company and the spiritual confidence in the development of the industry. In China, the government, with carbon neutral as its policy, encourages the new energy industry to actively develop and invest in funding to expand the production line of the battery industry. And because of the fire in the electric vehicle industry, that caused the supply of oil and battery materials to not meet the demand and the price to go up, we have decisively acquired the material business. This series of decisions without solid industry experience and industry resources is certainly not possible. On the basis of high performance innovation, we want to further expand the sales performance and research and development progress and other three dimensions to give shareholders and investors to fully introduce our huge progress in the second quarter.
spk10: Following our great success in the increase of revenues in the first quarter, which had already surpassed that in the entire 2021, we have again achieved another remarkable success in this quarter. Our revenues reached $56.4 million in the second quarter and $136.5 million in the first half. which have respectively increased by 8.57 times and 7.92 times from the same period last year. Specifically, revenues from battery business were about 25.7 million, up by over three times if compared to the same period in the last year. Such an increase was astonishing. The significant increase in revenues was attributed to the precise understanding of our management team on the new energy industry. In the context that China views carbon neutralization as one of its basic development guidelines and that governments put great resources into the new energy industry, it is our decision to expand our current production capacity for new energy batteries. Understanding the business of new energy vehicles is getting harder, which leads to the shortage of battery material supply. It is again our decision to acquire hydrants as our battery materials unit, to support our development. Both of these decisions, without self-understanding on and solid experiences in the industry, cannot be precisely made. Besides our record high revenues, I'm also happy to extend to all shareholders and investors here our efforts for development from three perspectives, from capacity expansion, from sales performance, and from research and development progress perspectives. Thank you. First, please allow me to have an introduction on the entire blueprint of our capacity expansion plan.
spk09: In the first half of 2021, the production capacity has increased from 0.7 GWh to 1 GWh. And we are planning to expand the capacity of 17 factories in Nanjing to 2 GWh by the end of this year or early next year. In the face of the global market demand, I will introduce the capacity of our battery business. We currently have two major production centers
spk10: one of which is located in Dalian and the other is in Nanjing. Our Dalian center was put into operation roughly a decade ago and currently has an annual capacity of 1 GWh. We planned two phases in our Nanjing manufacturing center. Phase one was put into production in late 2021 with a carrying capacity increased from 0.7 GWh at the very beginning to 1 GWh at this moment. We anticipate to increase the capacity of Phase 1 to its fully designed capacity 2 GWh at the end of this year or early next year. Besides, our total capacity is far from enough given that the market demand continuously grows. Our Phase 2 project in Nanjing is thus much bigger with a capacity of 18 GWh. We believe that Phase 2 project will gradually start operating from late next year We will deliver 6 gigawatt hour per year until the capacity reaches 18 gigawatt hour. Going forward, our Nanjing plant will mainly produce large cylindrical batteries that are mostly power batteries for EV and LEVs. Our Dalian facility will continue focusing on its mature 26650 or 26700 batteries that are mainly for energy storage.
spk09: In terms of sales, we have continued to make good progress, but we are still in a state of supply and demand. By August 5, the company will have a total of 400 million yuan in paid orders in the battery business, which is about 55.35 million dollars. At the same time, there will be a large number of orders in the long run, which will strongly promote the company's income in the battery business in the second half of the year. Among the orders that have been announced in the past, Our order for Azeba and DaFa vehicles has already been handed over to about 1.5 million yuan. About 280,000 dollars worth of battery pack samples are being produced in the second round of samples. We expect that DaFa vehicles will have 5,000 to 10,000 battery packs next year. In China's largest light electric vehicle group, Jinpeng Group's electric vehicle production department, We have already provided samples to Jinpeng Group for testing. After the testing, we will continue to receive more orders from Jinpeng Group. Currently, we are still in close contact with many electric car customers. We hope to bring better and more valuable order information to investors in the future. In this quarter and first half of 2022, we continued our strong momentum in the sales of our battery and battery material products. The demand of our products is far over our current supply.
spk10: As of August the 6th, we have received orders worth of about $55.35 million that have not yet been delivered, and we'll have a great number of orders coming in line. We believe that these orders will strongly enhance our sales performance in the second half of the year. I will also introduce the latest developments on the dues that we have announced before. We have already delivered samples of battery packs worth of about $208,000 Doris to Azapa and Diehards, and now are producing more samples. We anticipate to receive an order of 5,000 to 10,000 units of battery packs from Diehards next year. In July, we announced a framework cooperation with Gmail, which is a LEV manufacturing unit of JP Group, one of China's biggest LEV manufacturers. We have already provided several samples for testing. Once we pass the test, we anticipate to start receiving a great number of orders from Gmail and JP Group. At this moment, we are also approaching more LEV and EV manufacturers in anticipation to bring much more valuable orders for our shareholders and investors. Going forward, we will continue developing our mature energy storage business, on the basis of which we vow to further expand our revenues from the EV and LEV sectors. Thank you.
spk09: Development is another key to business development. Developing batteries that meet the changing market needs can make our sales and market development easier. In the last quarter, we reported to investors and shareholders that the company is developing 42140 large-band batteries. In this quarter, the 42140 battery AER test has been passed. We are currently preparing for production. The larger battery like 42140 will be used more in the field of power batteries. We expect to use this battery to fully expand the low-speed electric car market. In addition, the company has also recently announced the information of China's first Na-li-si battery manufacturer to jointly develop Na-li-si batteries. At present, progress has been smooth in the direction of Na-li-si batteries. We have completed the development of A1, and completed the product test in the Chinese market. It is expected that it will be able to supply the mass production of NaCl in the near future. In China, many top companies are also setting up NaCl, and it is expected that it will form a market scale of more than one billion RMB. We first made a breakthrough in NaCl, which will help the company's future performance growth
spk10: We view our research and development capability as a key to Revit development. Developing new type of batteries that caters for variable market demands will make us easier in our marketing campaigns. In last quarter, we had reported that we were in the process of developing new model 42140 batteries. In this quarter, we are pleased to report that the testing on the prototype of model 4140 batteries was successful. We are currently preparing for the establishment of its production lines. Larger cylindrical batteries such as model 4140 are much more suitable for EV and LEV applications. This battery will surely be used for LEV market development. More excitingly, we recently announced a joint development agreement with one of the top players that is leading in the research and development of sodium-ion batteries. At this stage, we are moving smoothly in the development of sodium-ion batteries. The prototype was out and had passed the test. We expect to see mass production soon in the second half of the year. In these days, there are a number of top Chinese battery manufacturers that are investing in sodium-ion batteries, which will contribute to a huge potential market worth of tens of billions of RMBs. If we are able to take a lead in this area, it will be vitally and strategically important to our future growth.
spk09: In the past quarter, the company has made satisfactory progress in sales, research, sales, and production. At the same time, the company is actively working on the battery business and the battery material business to achieve all-round leading due to the lack of raw materials and the rising price, will be effectively controlled. At the same time, the company's net profit level will return to normal. At the same time, at the end of 2021, Nanjing Biotech will start investing. The production line is gradually rising. It is in the early stage of investment. As Nanjing's production line gradually stabilizes,
spk10: In the second quarter, we have achieved comprehensive progress in revenues, research and development, sales, and capacity expansion. We are actively investing in the battery material business and the potential sodium-ion battery business in an attempt to obtain greater competitiveness. Despite the inflation of the price of raw materials has resulted in a rising manufacturing cost and led to a slow progress in our profits growth. We believe that the inflation will eventually be effectively controlled as a result of capacity expansion from battery material producers and the introduction of new type of batteries such as sodium ion batteries. We will definitely see our profits normally grow at that time. Plus, our Nanjing plant was put into use just at the end of 2021. We are still ramping up its capacity and will not be surprised to see it generate greater profits once it takes reasonable time to reach its full capacity.
spk09: In the strategy, the acquisition of HITRON has already proved to be a successful investment. The company is also continuing to pay attention to the upper and lower priority assets with a team and the company's potential. We are looking to invest in the company's strategic development and rich investment revenue. In the future, the company not only hopes to make breakthroughs in the battery industry, but also hopes to make full use of the team's judgment and experience in the industry, and to build part of our business into an investment platform in the energy and power industry. Our decision to acquire Hightrends, which is our battery material business, has been proved to be a successful investment.
spk10: We are still monitoring any valuable targets alongside its supply chain and talking to experienced teams in an attempt to search for valuable and profitable investment opportunities. In the future, we not only wish to grow faster in our principal business, which is battery producing, but also anticipate to act as an industrial investor with focus on the new energy sector. With our solid experiences in the industry, we are confident to activate any acquired assets, and make our book look better. Our management team has full confidence about this company's future.
spk09: Now let me turn the call over to our CFO, Yuna Pei, who will provide details on our financial performance.
spk04: 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 second quarter and the first half of 2022. For the full details of our financial results, please refer to our earnings press release. The strong sales in our battery and battery material products are fully reflected in the astonishing increase of revenues. Even if the raw material price hike is still a short-term setback to the factory business, which limits the growth of the office, we've taken actions in order to mitigate this impact. As always, we've continued our investments into our new facility to enhance our capacity to cater for growing orders. We also increased significantly our investment in research and development and sales marketing efforts. Moving on to our results. In the second quarter, our net revenues surged by 857% to $56.4 million from the same period of 2021. primarily due to growing sales in our battery products and battery materials. Specifically, net revenues from our battery business grew by about 337% from the same period of 2021. In the first half of 2022, net revenues still demonstrate a great growth momentum which increased by 792% to $136.5 million from the first half of 2021. Revenues in the battery sector grew in the first half of 2022 by approximately 176% from that of 2021. Cost of revenues was $50.8 million in the second quarter and $925.7 million in the first half, up by 961% and by 916% respectively from the same period in the previous year. Growth profit was $5.5 million in the second quarter and $10.9 million in the first half, representing an increase of 404% and 270% respectively from the prior year. Growth margin was 9.5% in the second quarter and 8% in the first half, compared with 18.6% and 19% respectively in the same period of 2021 as raw material costs rose. As noted earlier, we signed a long-term contract with 13 suppliers, expanded into raw material business, and began renegotiation with our clients to tackle the press hack. And we expect the price of raw materials to decrease while new capacity is being added by the industry. Our operating expenses rose by 41% to $4 million in the second quarter, and by 100% to $12 million in the first half, primarily due to growing head costs in the first half primarily due to growing head cost in our new 19 facility and the acquisition of our battery material business. Within that, our research and development expenses increased by 120% to $2.3 million in the second quarter, and by 267% to 5.6 million U.S. dollars in the first half. Sales and marketing expenses increased by 12.9% to 0.7 million U.S. dollars in the second quarter and by 103% to 1.7 million U.S. dollars in the first half. and the general and administration expenses increased by 5% to $2.5 million in the second quarter, and by 8% to $4.7 million. Even with this increase, our operating expenses were held only 9.6% relative to our revenues in the second quarter, and 8.8% in the first half, compared with 64.9% and 37.2% in the same period of 2021. Our change in fair value of warrants was $2.1 million in the second quarter and $3.8 million in the first half. compared to $5.8 million and $34.2 million in the prior year. Thus, net income attributed to shareholders of ZBAC Energy was $0.8 million during the second quarter and $1.3 million in the first half. compared to $2.7 million and $32.3 million in the same period of 2021. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Operator, please.
spk02: Ladies and gentlemen, we now begin the question and answer session. To ask a question, you will need to press star and 1 on your telephone.
spk03: Star 1 and 1 on your telephone.
spk01: Hello, this is the interpreter. I just want to check whether you can hear me. Hello.
spk02: Yes, we can hear you.
spk03: Okay, great. Thank you. Sorry for the interruption. Once again, star 1 and 1 if you wish to ask a question. There are no questions at the moment.
spk10: Hi, operator. We have an investor saying that she pressed start 1.1 and cannot be put on the line.
spk02: They have to press... Oh, we have a question now.
spk03: The question is from Laura Liu.
spk02: Please go ahead.
spk05: Thank you. I have a few questions. The first question is about the development of NaCl battery. The company just mentioned that it is expected to be mass-produced soon. Will the development of NaCl battery become the company's future main business? And what is the meaning of the strategy? And what are the advantages of NaCl battery compared to LiLi battery?
spk01: Okay, so this question is concerning sodium ion batteries. The company announced the plan to develop sodium ion batteries. And as you just mentioned, it is expected to be ready for mass production soon. Will sodium ion battery become the company's main business in the future? And what is its strategic significance to the company? And what are the advantages of sodium ion battery over lithium ion battery?
spk03: Hello, I can hear you.
spk06: Let me answer this question. Li-ion battery is a very good supplement for Li-ion battery. In the current era, Li-ion battery has a high energy density, stable performance, and a relatively safe industrial chain. It is still a mainstream battery system for R4 battery. So at this stage, we will still use Li-ion battery as our company's future main business. But since 2020, Li-ion has not been able to rise in price, and as we all know, the battery market is huge. This may lead to a structural shortage of Li-ion, and Na-ion will be a good supplement in the short-term and energy-saving battery travel market. In terms of power supply, compared to Li-ion batteries, its biggest advantage lies in its wide storage capacity. Its price is relatively low, and Li-ion batteries have a long-term development prospects. Our company has now realized a mass market in the B stage. Li-ion batteries are very stable in terms of performance, and from the point of view of equipment, it has been fully integrated into its process. Yes, so we believe that
spk01: Sodium ion battery is a very good supplement for lithium ion battery. But we have to say that at present, lithium ion battery enjoys quite a lot of advantages. For example, it has higher energy density and performance is stable. And there is a complete supply chain surrounding lithium ion battery. So it is still our main business currently. However, we also noticed that since 2020, the price of lithium has been increasing, and the market demand for lithium batteries has been growing dramatically. And all these factors will lead to a structural shortage of lithium-ion batteries. And as we know, sodium ion battery it enjoys a large amount of storage and reserves and the price is relatively low and so uh we for for our company we have already finished the prototype development and uh Prototype production is also stable and the performance is satisfactory. We have overcome various difficulties in terms of the production technology and the performance turned out to be satisfactory. so we believe that sodium ion battery will become a very good supplement for our product portfolio and it will also become a very good driving force for us to cover the niche markets and improve the competitiveness of our company so we believe sodium ion battery is of great strategic significance to the company That's it for the answer. Thank you for the question.
spk05: Okay, thank you. My next question is about revenue and profit. I see that the company's revenue has increased rapidly, but there are not many breakthroughs in terms of profit. What is the main reason for this? And is there any direction or guidance for future growth in terms of profit? Okay.
spk01: The second question is concerning the revenue of the company. We can see that the company's revenue has witnessed a great increase again, but still we cannot see breakthrough in the profit growth. What is the main reason behind it? And will the company take any measures to boost profit growth?
spk04: Okay, thank you. Let me answer this question. Our current profit in the second quarter has not increased in the same proportion. The reason is due to the rise in raw material prices. which leads to an increase in our production cost. This part has a certain impact on our profits. On the other hand, the production capacity of the expansion of the two bases in Nanjing and Dalian is gradually releasing. We expect that in the second half of this year, with the complete release of the new production capacity and the decline in the material price,
spk01: we can see that in the second season our profits cannot achieve a proportional increase with the revenue and there are reasons behind it and the main reason is the price hike of raw materials and the increase of the raw material price lead through and growth of our manufacturing cost. And this will also have an implication in our profit growth. But we have to see that our production capacity expansion in Nanjing and Dalian has gone smoothly. And we believe that with the capacity reached its full full full production in the second half of the year and as the decrease of the raw material we believe that our profits will return to a normal level soon
spk05: Okay, we can see that
spk01: The plant capacity for the second phase development of Nanjing Manufacturing Center is huge, with nearly 18 times the capacity of the existing plant in Dalian. How does the company plan to allocate this capacity and what other types of batteries, such as sodium-ion batteries, will be developed in this plant in the future?
spk10: This question is for Mr. Wang.
spk08: Okay. Actually, our second phase of planning is relatively large, but it is also a process of continuous investment. We will start in August this year. It will be one-third of its capacity. Our plan is to continue in the next three to five years. to complete the construction and use of this production capacity. According to the current market conditions, including the trend of global new energy development, our current production capacity is also very suitable for our own ability and market demand, and it is far from enough for the overall market demand. As you can see, many of the new energy policies in the main countries have stopped the production of fuel trucks before 2030. In the future, Li Electronics' market will have a very large share. This is one aspect. The second aspect is that in order to match the development of the new energy industry, They are also planning a lot of production. Many of them are using hundreds of gigawatts every year. Even in the future, there will be thousands of gigawatts in the future. In the future, there will be a second big market, which is the energy storage market. The development of the global energy storage market will be very rapid. Especially now, the demand for this energy storage in domestic e-commerce classes Uh, uh, uh, uh, uh, uh, uh, uh, So I'm going to answer this question. For the second phase,
spk01: development plan. Yes, as you can see, the plant production, the plant capacity is very big. However, we are going to tap this potential year by year gradually. In August this year, we're going to kick off the establishment of the production line and the first phase will only finish one-third of our total capacity, exact capacity. And then for the rest of them, we're going to finish them in the coming three to five years. So we will gradually finish our construction, and then we will put into operation step by step. And for the expansion of new energy markets, we can see it enjoys very good momentum. And our capacity expansion is well matched with our own capacity and also the market demand. At present, we can see that the supply in this area is a false shock. of demand. And we can also see a tendency for the major economies. Most of them have already set the goal to stop the production of fuel cars by the year 2030. So we believe that in the future, new energy vehicles will occupy a huge proportion of the market. And secondly, Not only our company is going to expand our production dramatically, actually for other leading companies, they also have the plan to roll out and ramp up their production. For some of them, they even have the plan to build factories with over 100 or even thousands of gigawatt hours. So this is a huge market. This will be a huge market. And thirdly, let's have a look at the markets of energy storage. It is also a huge market as well. And for the global markets, it has been witnessing great developments, especially the grid-side energy storage. The market need is almost as big as the need of new energy vehicles. So if you ask me, how are we going to allocate our capacity, I can say that for 50% of our capacity, it will be allocated to new energy vehicle, and then 30% for energy storage, and another 20% for new power products or other related products. And what I can be sure is that sodium-ion battery will take up some proportion in our production. That's it for the answer. Thank you for the question.
spk05: Thank you. My next question is about the company's latest cooperation. I am also very happy to hear that the company has reached a cooperation with Jinpeng Group. Yes, we are delighted to see that the company has reached an agreement for cooperation with Gmail and JP Group.
spk01: Can you give us some brief introduction about this company? And could you make an estimate of the possible order volume to be brought by this corporation? And is the company still talking to other large group customers about other corporations?
spk10: Let Director Wang answer this question.
spk08: Okay. At present, we have tested the sample battery pack of XIMAI. We are preparing to launch it in the near future. It is expected to receive a small batch order in September. As the delivery goes on, the order will gradually expand in the future. XIMAI XINLINYUAN is under the Jinpeng Group. uh uh uh Uh, uh, uh, uh, uh, uh, uh, production and sales channels. In the future, we expect to make an order with it, probably in high-speed A00 electric vehicles and low-speed four-wheeled vehicles. Every month, the average is expected to be around 5,000 units. The order volume per year is expected to be 100 million US dollars. For us and other large companies, As the business progresses, we will reveal more information to everyone. Excuse me, let me confirm.
spk01: You just said 5,000 units. Is it one month or one year? Just four wheels. It's one month. One month, 5,000 units. Because it's a low-speed four-wheel car and a high-speed A000 car in total. Okay, thank you. Okay, I'm going to give you a brief introduction about GenMail. For our cooperation with GenMail, we have already passed the testing of the battery pack. And then it is expected that we're going to receive small load order in September. And after the delivery of these orders, we expect the volume of the orders to further expand. And then what about JP Group? Well, JP Group is a powerful company in China. And Jim Moore is a subsidiary under it, responsible for assembling and packing. And then for JP Group, its main product is electric three-wheelers and traditional three-wheelers. and it is the largest manufacturer in electric three-wheelers and traditional three-wheelers in the world. Every year, the shipment of this company is 1.50 million, and the sales also rank number one in the world. For GenMail, it has the production quality for complete vehicles. and it has its own plant to make the production. And it also produce, it also have the channels of production and sales for four wheelers. So in the future, the possible cooperation between us and JV Group is high speed AOO grade EV and low speed four wheelers. And it is estimated to bid 5,000 vehicles per month under our corporation. And the value of the order will reach 100 million yuan. And when you ask me whether we are talking to other large groups, well, the answer is positive. Yes, for sure. We are approaching more customers, our clients at the present. But due to the current stage, it is not convenient for us to tell you exactly who they are. But what I can tell you is that some of the clients that we approach is even bigger than JP Group. And we will tell you more information when it is appropriate. Okay, I don't have any further questions. Thank you very much for your answers.
spk03: Thank you for your question. As a reminder, start one and one if you wish to ask a question.
spk02: There are no further questions at the moment. I will hand the conference back to Mr. Yunfei Li for closing remarks.
spk03: Yunfei, can you do the closing remarks?
spk09: Thank you very much for attending today's call. We look forward to new developments in the next few weeks.
spk10: 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.
spk03: Thank you all. You may disconnect from the call.
spk02: Let's conclude the conference for today. Thank you for participating. The conference will begin shortly.
spk01: To raise your hand during Q&A, you can dial star 1 1.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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