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. Jiang, please go ahead.

Thank you, operator, and hello, everyone. Welcome to CBAK Energy's earning conference call for the third quarter 2024. And joining us today are Mr. Zhiguang Hu, or Jason, chief executive officer of CBAK Energy, Mr. Thierry Li, chief financial officer and the secretary of the board, Our general engineer, Mr. Xu Juntian, and Ivan, who will help with our integration, 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 ircpak.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 Security 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 expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable 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. 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 achieved year-on-year growth of 18.4%, reaching $114 million. This is quite remarkable considering the general pressure and a 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 contributes $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 year-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 gross profit margin, reaching 34.3% in the first three quarters of this year, an increase of 15.2% 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 first 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 net profit of approximately 21.6 million dollars. As usual, we will also provide an update on the announced clients. As of November 1, 2024, the total amount of orders received but not yet delivered at our major production bases in Dalian and Nanjing reached RMB 59.61 million, approximately virtually $38.38 million. As of November 1, 2024, our accumulated Order amount with PowerAuth has reached approximately RMB 80.65 million, about $11.35 million. Our orders with Wisma Group has reached up to Euro 213 million, about $233 million. As for Jinpeng 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 19th Factory also achieved profitability. The 19th Factory, which 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 19Factory would have to suffer net losses for a three-year period. Thanks to the hard work of our team, the 19Factory has successfully become profitable ahead of schedule. More importantly, the production line at our 19Factory are currently operating at a full capacity due to high demand. prompting us to accelerate our capacity expansion plan. As of now, we have signed a procurement contract with the equipment supplier and plan to add a new production line that will enable compatible production of model 32140 and 4135 battery in the second phase of manufacturing. 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 efforts, we are steadily advancing the development of new battery model. As just reported, we will soon be able to mass produce the 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 TABLIS model 26650 cylindrical battery and started the mass production in Dalian. The product has a characteristic of 25C discharge rate and performs really well in applications that require rapid energy release. Besides, the TABLIS 26650 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 that stop power supply and data center. Currently, we are one of the few companies in the market with the ability to mass produce this tablet's model 26,000 battery. Overall, we successfully maintain the strong momentum in our battery business by maintaining a high growth profit margin and sustaining net profits. Considering the current high demand for our model 32140 cells produced at our Nanjing factory and newly added capacity for our new model 4135 cells, we will accelerate the pace our 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 Dalian 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 tabless 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 sales from Nanjing, underscoring the strong demand. Looking ahead, although our gross margin has been exceptionally high, we anticipate a gradual return to more typical levels, yet still higher than industry competitors. In summary, our Darling 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 1 again. We will now take the first question. From the line of Brian Lantier from SAC 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 weakness 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?

The first question, first of all, thank you for your update, and I am very happy to see that we have had a very good success in the industry, and we have also launched some new products. The first question is that Are we currently under more pressure from our competitors or from our existing clients in Europe?

Let's let Mr. Hu answer the question about our pricing pressure.

Regarding the price pressure, we currently have two main aspects. The first is the whole process. Let me repeat. You go first.

So, first of all, as we are using the tablet design for our 36650, then we can increase the series 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 new energy vehicle and also the combustion engine vehicle as well. So from this new business, we can get a reasonable profit.

The second thing is that our energy-powered batteries have increased our capacity. We are the highest in the entire copper industry. We get higher prices and profits through our high cost performance.

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 ourselves, so which makes our product more compatible.

OK.

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

Great. 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 Dalian? Is this an annual process or every three to five years that you would do this?

The second question is, what is the frequency that will temporarily shut down Dalian's factories? Is it every year or every three to five years?

This question is mainly about Dalian's factories shutting down in September. The company is mainly concerned about the high energy consumption. Mr. Tian, please explain in detail.

So, this question is for you.

Okay. In order to update our product, we added the original 26650 capacity product, as well as the Quanjie-er backup product to upgrade the production line. In this process, we have to turn off the production line in order to upgrade it. So the shutdown from Dalian factory is mainly because we are upgrading our product.

from the energy battery cell to the high C-rate battery cell. So it's an optimization and also the upgrade of our production line. So 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. And also for this shutting down, we have already planned it in the first half of this year. So this is the normal operation as planned 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 Dalian for one month is simply because the Dalian 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?

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

下一个问题是关于我们的轻型车的视野,就是说我们是不是现有的大部分客户都来自于印度还有越南?

Right, because recently the two-wheeled car market has grown a lot. Mr. Hu, please explain.

Currently, in Southeast Asia, including India, Vietnam, and other countries like Indonesia, they are all implementing electrification. Because in Southeast Asia, there are a lot of batteries that cannot be produced by themselves. The main reason is that It was imported from China, and our product is the most stable. So now our orders are increasing faster than expected.

Yes, so the main business for the IOEV is mainly Southeast Asia area. So that includes India, Vietnam, Indonesia, etc. So for these countries, they cannot produce the battery by themselves. So they are relying 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 disclose some information, for example, where we decide to expand, similar timeframes?

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, US is under our consideration, but we have not yet decided which country that we are going to build our production lines. And 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 take 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. And as we mentioned in your 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 for 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.