CBAK Energy Technology, Inc.

Ladies and gentlemen, thank you for standing by and welcome to CBAC Energy Technologies second quarter and the first half of 2024 earnings conference call. Currently, all participants are in listen-only mode. Lisa 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. Now I will turn the call over to Chen Li, CFO and Secretary of the Board of Seabank Energy. Mr. Li, please proceed.

Thank you, operator, and hello, everyone. Welcome to Seabank Energy's earnings conference call for the second quarter in the first half of 2020. Joining us today are Mr. Yunfei Li, Chief Executive Officer of Seabank Energy, myself, Chief Financial Officer and Secretary of the Board, and Jennifer, our interpreter. Our general engineer, Mr. Xiu Jun Tian, will join us for the Q&A section. We released our results earlier today. The press release is available on the company's IR website at ir.sebex.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. 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 involved in hearing 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 U.S. dollars. 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. Hello, everyone.

Thank you for attending our second quarter of 2024 and the first half of this year's conference call. Hello everyone, thank you for joining our earnings conference call for the second quarter and first half of 2024. This has become a very rare phenomenon in the entire new energy industry. Specifically, from the income analysis, the income of renewable energy has reached $3,357 million, which is a total increase of 60%. The income of car batteries has reached $200,000, which is a total increase of 46% as of last year. The income of two-wheeled cars and three-wheeled cars and other light electric vehicles has reached $1,830,000, with an increase of 59%. In terms of revenue, the main business of the company is still the energy storage business. We believe that in the long term, the energy storage business is still the main business growth point of the company. At the same time, we also hope that the two-wheeled car from the Indian market and the three-wheeled car battery sales order will increase dramatically in the second half of the year. In terms of profits, Our battery industry's net profit continues to maintain its high position, reaching 36.2% in the second quarter, which is a 20.9% increase since 2023, and is higher than most competitors. This fully reflects our battery quality and strong ground capacity. This year, our battery industry achieved a net profit of $11.68 million in the first quarter, In this quarter, we again created a net profit of $189 million in battery business. This year, we have achieved net profit in connection and progress. From the data from the first half of the year, in 2024, the sales of battery business increased by 55% to $8044 million, with a profit of 39% and a net profit of $1958 million.

The company's sales performance has reached unprecedented heights once again in the second quarter of this year. Revenues from our battery business surged to $35.6 million, representing a remarkable 60% year-on-year growth, an impressive feat given the overall pressures and downturns within the new energy sector. Here is a closer look at the revenue breakdown reviews. batteries for energy storage sector generated $33.57 million, reflecting a 60% year-on-year increase. EV batteries contributed $200,000, marking a 46% rise compared to the previous year. Batteries for light electric vehicles, including two-wheelers and three-wheelers brought in $1.83 million with a notable 59% year-on-year growth. Revenues from the energy storage sector remains the dominant force in our revenue composition, and we anticipate it will continue to be the principal driver of our growth for the foreseeable future. Additionally, we foresee a significant uptick in sales orders for two-wheelers and three-wheeler batteries from Indian market in the latter half of this year. In terms of profitability, our battery business maintains a robust performance, with a gross margin reaching 36.2% in the second quarter, an impressive 20.9 percentage points higher than the same period in 2023, and surpassing most competitors. This demonstrates the exceptional quality of our batteries and our strong market position. So far this year, our battery business achieved a net profit of $11.68 million in the first quarter, and we have sustained this positive trend with a net profit of $7.89 million in the second quarter, resulting in consecutive profitable quarters. For the first half of 2024, our battery division's revenue has increased by 55% year-over-year to $80.44 million, with a gross margin of 39% and a net profit of approximately $19.58 million. Thank you.

In terms of orders, as of August 1, 2024, our Dalian and Nanjing two major production bases have received but the total number of orders for delivery reached 4.1 billion yuan, which is about 5.057 billion US dollars. As for the customers that have been disclosed in the past, as of August 1, 2024, we have reached 66.4 million yuan, which is about 930.39 million US dollars, and the order volume of the Feistman Group is up to 2.13 billion euros, which is about 2.33 billion US dollars. We expect that these customers will continue to order.

As of August 1, 2024, our two primary production facilities in Dali and Nanjing have accumulated a substantial order backlog totaling 410 million yuan, or approximately 57 million US dollars, which remains undelivered. For our non-customers whose names were disclosed before, Power OAK has placed orders amounting to approximately 66.4 million yuan, or about 9.3 million US dollars. Wilsman Group has secured orders worth a substantial 213 million euros, equivalent to approximately 233 million US dollars. Jingpeng Group has committed to orders totaling around 62.64 million yuan, roughly 8.78 million dollars. Additionally, the cumulative order volume with Anchor has reached 103 million yuan or approximately 11.43 million dollars. We anticipate continued order placement from these established clients and are optimistic about receiving substantial new orders from the Indian market in the latter half of this year.

In terms of the R&D, our R&D team has completed the R&D .

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. . . . . . . to meet the current demand and demand of the market. We are also looking forward to a rapid increase in sales. In terms of technical parameters, our 40135 battery has increased its capacity by 5% to 600% compared to the 2026650 small nuclear battery. The density of energy has increased by 10% to 20%. The cycle life has increased by 30% to 50%.

Regarding research and development, our R&D team has successfully completed the development of a new large cylindrical battery model, 40135. We are on track to officially purchase production equipment in September of this year and plan to complete equipment commissioning by March of the next year, with mass production scheduled to commence shortly thereafter. The model 40135 battery is highly anticipated in the current battery market, driven by strong demand Based on our comprehensive market research, we are confident that the 401 batteries will address existing market gaps and significantly boost our sales growth. In terms of technical specifications, the 401 battery represents a substantial advancement over our current model 26650 battery, featuring a 500% to 600% increase in capacity a 10% to 20% enhancement in energy density, and a 30% to 50% improvement in cycle life. The production line for the model 40135 battery is set to be established at our Darling production base.

Thank you. In general, our battery business has continued to grow well for a quarter. Whether in sales revenue increase We still maintain a high profit margin and maintain a profit margin. The company has given us satisfactory answers. We still maintain an optimistic attitude towards the year-round profit of 2024 and hope that after the company's 40135 model of new battery production, we can challenge the market to realize the rapid increase in performance again.

Overall, our battery business has sustained impressive growth momentum from the first quarter. The company has achieved notable success with substantial increases in sales revenue, as well as maintaining robust growth profit margins and net profits. We are confident in our positive outlook for the full year of 2024. With the anticipated launch of our new model 40135 battery, we are poised to capture market share and drive another surge in our sales performance. Now let me turn the call over to our CFO, Thierry Lee, who will provide details on our financial performance. Thank you, Mr. Lee, and thanks everyone for making time to join our earnings conference call today. As our CEO highlighted, our battery business has delivered impressive financial results for the second quarter, marking a double digit increase in net revenues and achieving positive net income for the second consecutive quarter of 2024. We are delighted to witness ongoing growth momentum in our battery division. With our strong foundation, we remain confident in our growth trajectory for the remainder of 2024 and anticipate achieving a robust full-year net profit for our battery business. As previously noted, HITRANS, the raw materials manufacturing unit we acquire, operates independently from our core battery business and doesn't directly affect the financial performance of our battery business. Acquired in 2021 primarily for investment purposes, HITRANS is currently experiencing net losses, which may influence our consolidated financial statements. To provide investors with a clear understanding of our core battery business's performance, this earnings release focuses specifically on the battery segment. We encourage investors to review the segment information section of our Form 10-2, where the performance of our battery business and HITRANS is presented separately. I will now provide an overview of our financial results for the second quarter of 2024. In the interest of time, I will be presenting abbreviated highlights only. We encourage you to refer to our press release issued earlier today for the complete details. In the second quarter, our total net revenues increased by 13% year-over-year to $47.8 million. Net revenues from sales of batteries reached $35.6 million, a year-over-year increase of 60%. Our total gross profit grew 227% year-over-year to $12.7 million, resulting in a gross margin of 26.6% compared to 9.2% in the prior year period. Growth profit for the battery business increased by 276% year-over-year to $12.9 million, with growth margin climbing to 36.3% from 15.4% in the prior year period. Our total operating income amounted to $5.95 million compared to an operating loss of $3.77 million in the prior year period. Net income attributable to shareholders of Seabed Energy after deducting the change in fair value of warrants was $6.45 million compared to a net loss of $2.7 million in the prior year period. Net income from the battery business was $7.89 million compared to a net loss of $1.13 million in the same period of 2023. In summary, we have secured net income for the second consecutive quarter in 2024 and achieved an exceptionally high growth margin. As we prepare to begin mass production of the new model 40135, we anticipate a significant increase in order volumes. We are confident that this will drive continued growth in our sales revenues. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. This will take a few moments. Thank you.

We are now going to proceed with our first question. The questions come from the line of Brian Luntier from Zach Small Cap Research.

Please ask your question.

Good evening, gentlemen. I was wondering if I could just ask a question about what you're seeing in the market right now. You're still posting pretty attractive margins relative to competitors. Are you seeing any increased competition for bids? I guess that's the first question about bids. market landscape right now.

Good evening, everyone. First of all, my first question is how do you see the market? I saw in your financial report that you have maintained a very good profit rate and are better than your competitors. I want to see how you see the current market pattern. Do you think the competition will increase further in the future?

Mr. Yunfei, please answer the question about the sales and market.

Mr. Tian, do you have anything to add about the industry? Regarding the profit, we have been making products that are different from others in this industry. Our products have been fully recognized by our customers. So far, we have exported products to German customers without any customs. Clients in the same industry also maintain a very strong competitive advantage. Of course, our 3R products are also among the top companies. They have always been very leading in their industry. So, the customers' recognition of our products also guarantees the profits of our products. In the future, the customers will Mr. Tian, would you like to add something about the current competition in the market?

Our company is based on small-power and small-power energy. So, the battery is made of small-format, flexible products. The 40135 that we made this time is a supplementary product based on the 2660 and 32140 products. As our CEO, Mr. Yunfei Li, said, we are mainly differentiating in the market. We are deeply digging into the needs of our customers. We want to make our products a single champion in the segment market. In this way, we can ensure that in terms of quality, we are relatively ahead of competitors in the same industry. In terms of profitability, the reason that we can maintain a substantial

gross profits and gross margins because we have always seek for differentiated development in the industry and the in differentiated products that we provide have also gained the recognition from the customers as you can see in all the products that we export to germany we achieved a zero complaint from the customers and because that we also maintain earned notable competitive edge with our data peers in the same industry and the same situation happens also in the tricycle sector and it is because of the recognition from the clients that allow us to maintain a good profitability in the markets And because of that, we believe that our customers will continue to raise higher requirements on us. But on our side, we will do our utmost to ensure a high product quality. And we believe that that will also lay a solid foundation for us to acquire and secure more orders from the customers. And besides that, we have another colleague who also adds that if we have a look at the market landscape, we've always tried to differentiate ourselves from the product portfolio, especially in terms of the small power and also storage battery and that is why we are we have been focused a lot on producing cylindrical batteries with flexible combination and we are adding we are developing a new model that is called 40135 and we believe that it is a very good supplement to our existing model 26650 and 32140 and then just as Mr. Yunhui Bailey mentioned that differentiation allows us to secure our market position and also we are diving deep into the customers demand. That is why we have been able to maintain market number one in the small segmented markets and also our superior product quality allow us to maintain a good market share and also our profitability. That's it for our answer. Thank you for your question.

Thank you very much. I appreciate that. If I could ask a couple of questions about the new model batteries, the 40135, do you think that will principally serve your existing customer base in the storage business? And then also regarding the announcement for the fast-charging 32140, I think maybe when might we hear something about an A sample on that product. And yeah, I guess if you have any technical information that you can share about that, the fast charging 32140, because I'm wondering about heat dissipation and things like that. We've just not heard a lot of detail on that battery yet. Thank you.

Okay. 好的 那我想问几个问题是关于这个新的电池型号40135的 那我想问的第一个问题就是 它是不是主要服务于我们现有的储能业务的客户群呢? uh uh Can you share some specific technical information with us? Because I'm more interested in the issue of heat dissipation. But we haven't heard much about the details of 32140 battery.

I'd like to ask if you can share this information. Regarding the market and customer situation of 40135, let's see if Mr. Fei or Mr. Tian can answer.

Let me answer. The first question is about the current market of 40135. We have achieved a market sequence. It can be applied in the storage market. Just like the product of 32140, it can also be applied in our convenience store storage, our current partner. It can also be applied in our home storage. The 40135 can also be applied in such a market. However, there is a difference in the market. Our 32140 product has a capacity of 15A, while the 40135 has a capacity of 20A. It is a product with a difference in capacity. So, our 32140 is equipped with a capacity system of 15, 30, 45, and 60. Okay. So,

So Mr. Tian just answered the question about the market of 40135. For this model, the sequence of this model allow us to put it in the use of storage battery. It is similar to 32140. It can be used both in portable energy storage and also household energy storage. just like the 4-0-1-3-5. Of course, there is some difference between these two models. For the 3-2-1-4-0, the energy capacity is 5 n per hour. But for the new one, it is 20. So you can see the capacity is different. And also for 32140, it is the capacity. We also have the 15, 30, 45, and 60. But for the new model, 40135, we will offer 20 and 40. So as you can see, it is a very good supplement to our existing product line. And besides that, the new model can also be applicable for the scooters. And we believe that this will also help us to address the market gap. So this is the answer to the first question. We are going to come up with the second one.

Do you have a question? This is about the fast charging system of our company. And the fast charging system is also a highlight of this system for heat dissipation. In the case of 32140, we have already announced the fast charging and its high heat dissipation products in early time. We are also working with some well-known international brands. This product is mainly used in UPS applications, but this is through our partner, our domestic partner, to supply to our mid-range customers. But this one, it is a ratio and heat dissipation. What we are creating now is a product with a ratio that is higher than this one.

Sorry, what kind of heat dissipation? Ratio?

It is a high-ratio fast charge. performance, and quick cooling features. Okay. We are still working on another product, 26650 Quanjil. We didn't announce our product at this meeting, but in the second half of this year, we will launch it. The performance of that product will be better than that of 31140's 10A. It will have better rate, quick charge capacity, and better cooling capacity.

Okay, so for the, I'd like to answer the second question about the fast charging product line. Well, I have to say that the very robust heat dissipation is the technical highlight of our new product model for 32140. It is already outstanding in terms of its fast charging with 10M and also the high dissipation rate. And with these projects, we are joining hands with one of our very well-known business and a player market player called Eaton and our products is mainly for the UPS and then through our Chinese partner we are supplying these products to the end clients and for the so the the product highlight is the high the high dissipation rate and as well as its capacity and besides that for the 650 we have a new product that is with 3N and it is also very we can say it is a three ampere hour fast charging product with full set

Let me add that we are right now in our Dalian facilities in the process of development, research and development of our new 26650 battery. That battery is designed with a capless or full tap design. And that design would allow this battery to have a very good heat dissipation characteristics.

Great. Thank you all very much. I appreciate that.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

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

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. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.