CBAK Energy Technology, Inc.

Good day, ladies and gentlemen. Thank you for standing by and welcome to the CBAK Energy Technologies Third Quarter 2024 earnings conference call. Currently, all participants are in 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. Now, I will turn the call over to Yixian Tian. I am a specialist of CBAK Energy. Ms. Tian, please go ahead.

Thank you, operator. And hello, everyone. Welcome to CBAK Energy's earnings conference call for the Third Quarter 2024. Joining us today are Mr. Zhiguang Hu, or Jason, Chief Executive Officer of CBAK Energy, Mr. Diri Li, Chief Financial Officer and the Secretary of the Board, our General Engineer, Mr. Xiu Jun Tian, and Yven, who will help with our interpretation, will join us for a Q&A session. We released our results earlier today. The press release is available on the company's IR website at .com.cn, as well as from the Newswell 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 will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Education 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 expectation expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filing with the SEC. The company does not assume any obligation 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 US dollars. With that, let me now turn the call over to our CEO, Mr. Zhiguang Hu. Please go ahead, Jason.

Hello, everyone. Thank you for joining our earnings conference call for the third quarter of 2024. I'm pleased to report on the performance of our battery business for the third quarter and the first nine months of this year. Although the net revenue from our battery business slightly declined to $33.5 million in the third quarter, the overall revenue of the battery business in the first three quarters to achieve -on-year growth of .4% reaching $114 million. This is quite remarkable considering the general pressure and the downturn in the entire new energy industry. The main reason for the decline in the net revenue from our battery business in the third quarter was a one-month suspension of the production line of our Dalian facility in September. As the production line has been operating at a full capacity since the beginning of the year, the continuing operating production line resulted in an exceptionally high energy cost and needed to be suspended for refurbishment. We would like to provide a closer look at the revenue breakdown in our battery business. The revenue from battery for energy storage sector reached $33.46 million, a 25% decrease compared to the previous year. EV battery contribute $333,000, a decrease of 17% compared to the same period last year. Battery for light electric vehicles including two-wheelers and three-wheelers brought in $4.9 million, a -on-year increase of 341%. Overall, our battery business remains focused on energy storage market supplemented by our endeavor to continue exploring the light electric vehicle market with the increase in order from our Indian and Vietnamese customers. We believe that the revenue proportion of light electric vehicles will gradually increase. Our battery business has maintained a high growth profit margin, reaching .3% in the first three quarters of this year, an increase of .2% point compared to the same period in 2023. This growth margin figure is higher than that of most competitors, including some well-known. This year, our battery business achieved a net profit $11.68 million in the fourth quarter, $7.89 million in the second quarter, and once again, created a net profit of $2.04 million in the third quarter. When our competitors are suffering industry-wide downturn, we managed to make three consecutive quarters of a net profit of approximately $21.6 million. As euro, we will also provide an update on the announced plans. As of November 1, 2024, the total amount of orders received by Noliet delivered at our major production bases in Dalian and Nanjing, reached RMB 59.61 million, approximately $38.38 million. As of November 1, 2024, our accumulated order amount with Power Ork has reached approximately RMB 80.65 million, about $11.35 million.

Our

orders with Visma Group has reached up to euro 213 million, about $233 million. As for Jinping Group, our accumulated orders value has reached approximately RMB 67.01 million. About $9.42 million. In addition, our important clients, Anker has made order of RMB 321 million, approximately $45.12 million since our collaboration. These customers have a stable relationship with us, and some of them are encouraging and pushing us for the establishment of our overseas factories, and are willing to place orders in advance to help facilitate our move to expand overseas. Our Dalian facility has long been profitable. In Q3, we are pleased to see our Nanjing factory also achieved profitability. The Nanjing factory, we started operation and manufacturing the new model 32140, large cylindrical battery. At the end of 2021, have only been in business for less than three years. Originally, we anticipated that Nanjing factory would have to suffer another losses for a three years period. Thanks to the hard work of our team, the Nanjing facility has successfully become profitable ahead of schedule. More importantly, the production line at our Nanjing factory are currently operating at full capacity due to high demand, prompting us to accelerate our capacity expansion plan. As of now, we have signed a procurement contract with equipment supplier, and are planning to add a new production line that will enable compatible production of model 32140 and 4135 battery in the second phase of Nanjing factory, with an estimated capacity of approximately 1.5 GWh for model 32140 and 1.5 GWh for model 4135. We anticipate equipment installation in the fourth half of next year, followed by mass production in the second half. Furthermore, with respect to our R&D effort, we are steadily advancing the development of new battery model. As just reported, we will soon be able to mass produce a model 4135 large cylindrical battery. The model 4135 large cylindrical battery have a strong market demand in applications such as large electric vehicles and energy storage. Additionally, we successfully developed the tablet model 2650 cylindrical battery and started the mass production in Dalian. The product has a characteristic of 25C discharge rate and performed really well in application that requires rapid energy release. Besides, the tablet 2650 cell can be charged from 0 to 100% in just 15 minutes, which is a great practical significance for applications that require fast charging and discharging, such as drones, the power supply, and the data center. Currently, we are one of the few companies in the market with the ability to mass produce this tablet model 2650 battery. Overall, we successfully maintain the strong momentum in our battery business by maintaining a high growth profit margin and sustaining net profit. Considering the current high demand for our model 32140 cells produced at our Nanjing factory and the newly added capacity for our new model 4135 cells, we will accelerate the pace of capacity expansion to drive continued revenue growth. Now let me turn the call to our CFO, Jiewei Li.

Thank you, Jason, and thanks, everyone, for making time to join our earnings conference call today. Since Jason has introduced our key financial metrics, in the interest of time, I will not be duplicating the presentation of the numbers. We encourage you to refer to our press release issue earlier today for complete details. In the third quarter, our battery business experience has slowed down. As Jason mentioned in his remarks, this was primarily due to a one-month suspension of production at our Daliang factory. For the first eight months of the year, the factory operated at full capacity without any breaks, which led to a significant increase in energy costs. To mitigate these costs and enable upgrades, we paused operations for a month. During this period, we optimized energy usage and upgraded one production line to support the production of our new tablet model 26650 cells. As for our Nanjing factory, now in its third year, it has successfully transitioned into a profitable production center with a steady flow of orders fully booking its capacity. Currently, we face a supply shortage of approximately 5 million cells from Nanjing, underscoring the strong demand. Looking ahead, although our growth margin has been exceptionally high, we anticipate a gradual return to more typical levels, yet still higher than industry competitors. In summary, our Daliang factory has long been a key contributor to our net profits, while our Nanjing facility initially incurred losses due to construction, setup of new production lines, and the promotion of new battery models. Now that Nanjing has turned profitable, we expect that both factories will drive our financial growth in the future. With the expanded capacity in Nanjing next year, we remain optimistic about the company's performance. Thank you, and we will now open the floor for the Q&A section. Operator, please go ahead.

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

We

will now take

the

first question. From the line of Brian Lanthier from SACS Small Cup Research, please go ahead.

Good morning, everyone. I appreciate all the updates. You're navigating a difficult environment, and having success is good to see with some of the new products. I guess the first question is just around some of the weaknesses and the problems that you're seeing in the battery business. Is it principally derived from pricing pressures from competitors, or is it more on the demand side from some of your clients in Europe?

First question. First, thank you for your update. I am very happy to see that we have some very good success in the industry, and we have also launched some new products. The first question is, is the current pressure from our competitors or from our current European clients?

Let's have Mr. Hu answer the question about pricing pressures.

Regarding the price pressures, we have two main aspects. The first is to use the whole-gauge technology to improve our backup products and to enter the battery market, including the new-generation cars and the current fuel-powered cars. By entering this market, we should be able to

get very good profit points. So first of all,

as we are using the tablet design for our 26650, then we can increase the serial performance of the cell. So this will help us to, like, more easily to let our product to be used in the startup battery business, especially the startup battery for the mobile phone. The new energy vehicle and also the combustion engine vehicle as well. So from this new business, we can get a reasonable profit.

So secondly, for our energy product, then

we gradually increase the capacity of our product. So in terms of the industry, then compared to our competitor, we have more energy density from our cells, so which makes our product more compatible.

Okay, that's my answer.

To summary, that's all. All the answers for myself.

All right, great. I'll, sorry, I'll jump back in with another question if that's okay. How frequently do you anticipate doing maintenance shutdowns like you did at Dalyan? Is this an annual process or every three to five years that you would do this?

The second question is, what kind of frequency do you think our Dalyan factory will temporarily shut down? Will it be every year or every three to five years?

This question is mostly about our Dalyan factory shutting down in September. The company is mostly concerned with the question of Let's have Mr. Tian explain this in detail.

So this question is for you.

Okay. So we came up with. We've done on one more different production of Absendmechanical

materials. What are we going to do to protect from that shutdown and why? It's actually a solution we had yolk and fat battery cell. So, it's an optimization and also the upgrade of our production line. So, this is – in order to carry on this optimization, then we need to shut down the cell to do this. And the reason why we are doing that is also decided by the market trend. So – and also for this shutting down, we have already planned it in the first half of this year. So, this is the normal operation at planning from the start of the year.

Yes. And also, as we just mentioned in our remarks, the other reason for the suspension of production at Dahlia for one month is simply because the Dahlia factory has been operated since the very beginning of the year until September without any breaks. So, the energy cost was so high at the moment that we decided that we can suspend the production to reduce the energy cost. At the same time, we have time to upgrade our production lines. Okay. Great.

The LEDs are obviously a bright spot right now. Is that principally coming from Vietnam and India?

Sorry, can you repeat your question?

Yeah. Sorry, the LED business, the light electric vehicles, is that demand principally coming from customers in India and Vietnam?

Yes,

because the market of light electric vehicles has been growing recently. Mr. Hu, please explain.

Currently, the main demand is from the Southeast Asia, including India, Vietnam, and other countries like India and Vietnam. So, the demand is very high. So, the demand is very high. Yes.

So, the main business for

the IEEE is mainly solar energy. So, the main demand is from the Southeast Asia area. So, that includes India, Vietnam, Indonesia, etc. So, for these countries, they cannot produce the battery by themselves. So, they rely on to import the battery from China. So, in terms of all of the cell manufacturers in China, our products are the most stable. So, that's why you can see a dramatically increase of our demand.

Great. The last one for me is I think I heard you mention the prospect of overseas expansion. If I heard that correctly, any details on that, where you're looking, timelines, things like that.

Thank you. The next question is about our overseas expansion. Can we tell you some information, like where we decide to expand, and similar timelines?

I will directly respond to your question, Brian. At this moment, the only information we can tell is that this is simply client-driven. We have certain big clients coming to us saying that we need to accelerate the setup of overseas factory. So, with that demand, we're actually looking for some places that fit our best of interest. Certainly, the US is under our consideration, but we have not yet decided which country that we are going to build our production lines. Also, we will not do it solely by ourselves. We are actually looking for domestic partners that can help us manage the daily operations, and also some government issues, applications, management, something like that. So, it's still in the early stage, but the management takes this issue as one of our routine jobs. Right now, we're having very serious discussions with a lot of parties. This is the only thing we can review. As we mentioned in our remarks, our clients are very willing to place orders in advance to push us to build up this factory.

Okay, great. Thank you very much.

Thank you. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone. That's star 1 and 1 if you wish to ask a

question. Thank you. Seeing no more questions in the queue, let me turn the call back to Jason 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.

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