CBAK Energy Technology Q2 2023 Earnings Call Transcript

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August 9, 2023

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Seaback Energy Technologies 2nd Quarter and First Half twenty twenty three Earnings Conference Call. Currently, all participants are in a 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.

Operator

If you have any objections, you may disconnect at this time. Now, I will turn the call over to Tian Li, Investor Relations Director of Seabac Energy. Mr. Li, please proceed.

Speaker 1

Thank you, operator, and hello, everyone. Welcome to Citibank Energy's 2nd quarter and first half of twenty twenty three earnings conference call. Joining us today are Mr. Yun Fei, our Chief Executive Officer Mrs. Yuna Pei, our Chief Financial Officer Mr.

Speaker 1

Xu Juntian, our General Engineer and Jennifer, our interpreter. We released results earlier today. The press release is available on the company's IR website at ir.cweb.com.cn as well as from Newswire services. Later, a recording will also be available for the Q2 of 2019. Before we continue, please note that today's discussion will contain forward looking statements made under the Safe Harbor provisions of the U.

Speaker 1

S. Private Securities Litigation Reform Act of 1995. Forward looking statements involve the 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.

Speaker 1

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.

Speaker 1

Yun Fei Li. Mr. Li will speak in Chinese, and I will translate his comments into English. Go ahead, Mr. Li.

Speaker 1

Thank you and hello everyone. Thank you for joining our earnings conference call today. The first half of twenty twenty three witnessed considerable macro uncertainties over the upstream market for lithium batteries. Due to price fluctuations of lithium carbonate, which is an essential raw material of lithium batteries, our overall business was somewhat affected. That said, we still made meaningful progress in our primary business, the sales of lithium batteries.

Speaker 1

In the first half of twenty twenty three, our battery business generated revenues of 51 point $84,000,000 an increase of 27.2 percent year over year. Among these revenues, $46,760,000 came from batteries used in energy storage applications, up 17% year over year, while $3,120,000 came from batteries used in light electric vehicles, a surge of 309.9% year over year. Moreover, revenues from batteries used in electric vehicles reached $1,960,000 an impressive increase of 6,454 times compared to the same period last year. In the first half of twenty twenty three, the gross margin of our business, Baytree Business, reached 12.8%, up 3.4 percentage points year over year. Since a significant number of clients were expected to place orders over the second half of the year, our revenue growth in the second quarter was relatively flat.

Speaker 1

As we see it, that won't be the case going forward. And we have high expectations for our revenues over the next two quarters and the full year 2023. Our battery business will remain solid. As we gradually expanded our brand influence and continuously elevated our R and D capabilities, we have received orders from an array of leading companies worldwide. Looking ahead, we will capture our capacity and provide high quality products for new and existing clients alike, further propelling our revenue growth over the long run.

Speaker 1

First off, I would like to introduce the recent developments in our business. As of July 31, 2023, we have recorded RMB1.1 billion in the combined value of orders we have received, but have yet to fulfill across our 2 main facilities based in Dalian and Nanjing, together with HiTran's, our subsidiary that supplies medium battery materials. Regarding client initiatives already announced, as of July 31, 2023, our collaboration with Pingpeng Group, the largest LEV manufacturer around the world, has brought us orders amounting to roughly RMB54.16 million. We also made great progress in our partnership with Power OAK, the world's leading portable power station manufacturer, and BlueTTI, the brand owned by Power OAK, which has brought us orders totaling around RMB48.05 million. In addition, since we entered into the 3 year strategic partnership with ICHAM this July, we have received multiple orders from ICHAM totaling approximately RMB5.42 million.

Speaker 1

Since ICHAM is still early in its outdoor portable energy storage business, We expect orders placed by it to steadily increase over time alongside its business expansion. Also, for the cooperation with Daihust Motors, as we noted before, we have taken in orders with a total value of around RMB3 point 65,000,000 so far. Those are the latest developments in our client initiatives. Let's move on to the R and D. First, I would like to talk about our development of sodium ion batteries.

Speaker 1

In the Q2 of 2023, we launched our sodium battery at our corporate open day, fully showcasing the company's sodium battery products to investors, media and clients. Our Model 32,140 large synergical sodium battery marks the first model of its kind industry wide that can be mass produced on a larger scale. We are also leading the industry worldwide by pioneering the mass production of large cylindrical sodium ion batteries. Immediately upon its launch, Model 32,140 garnered high visibility among professionals, investors and stakeholders from other industries. Our R and D capabilities and production capacity for large synergical batteries have been warmly applauded.

Speaker 1

Up until now, empowered with mass production capabilities, we have received requests from numerous clients for samples of this sodium battery. We expect orders to meaningfully increase following our production ramp up. In addition, we entered into a strategic cooperation agreement with Asia listed company Shenzhen Halotech Energy Company Limited, the parent company of Jackery, a leading global portable power supplier. Halotech will invest RMB25 1,000,000 for us to tailor the research, development and production of a more advanced sodium ion battery with an agreed target time for mass production and potentially 100 of 1,000,000 RMB worth of products to be supplied. Currently, we have delivered the prototype A of this customized product.

Speaker 1

Upon receiving Hollowtech's confirmation of the quality and performance of prototype A and subsequent approvals through the prototype B stage, the mass production will proceed as scheduled. Moreover, we make breakthroughs in the research and development of lithium batteries. We are currently in the phase of prototype B development of the Series 46 lithium batteries, which has attracted immense attention from investors and peers alike. We expect mass production of our Series 40 6 Victories to be available by the end of the year, and the models to be rolled out will be model 46,115 or 46,157. Depending on market dynamics, we will also assess the potential to mass produce the Model 46,000.

Speaker 1

Next year, we will ramp up the production of our Series 46 batteries. I also want to specifically highlight our production capacity and geographic landscape. In view of our R and D breakthroughs and the overwhelming incoming orders that have already exceeded our supply, we are actively planning for capacity expansion. First off, our Nanjing facility currently boasts a production capacity of 0.7 gigawatt hour, and we expect it to advance to 2 gigawatt hour by the end of the year. In the meantime, our Nanjing Phase II project is under construction, potentially adding a production capacity of 2 gigawatt hour for us in 2024, elevating the overall capacity of our Nanjing facilities to 4 gigawatt hour.

Speaker 1

By 2027, with our Nanjing Phase II programs gradually completed and all the production lines in place, we expect overall capacity to hit 20 gigawatt hour. Next, our Dalian plant currently has a production capacity of 1 gigawatt hour, and we expect it to move up to 1.4 gigawatt hour by the end of the year. Meanwhile, we will start building the production lines of our Series 46 batteries, potentially adding a production capacity of 5.6 gigawatt hour for Series 46 by the end of 2025 and further expanding our Series 46 capacity by 9 gigawatt hour by 2027. By then, the overall capacity of our Dalian facilities will be elevated to 16 gigawatt hour. Additionally, we have been seeking to scale up our sodium battery production lines.

Speaker 1

At present, our sodium battery production capacity is 0.5 gigawatt hour, and we have 10 gigawatt hour in the pipeline over the long run. We expect to achieve full production of sodium batteries in 2026. Next, let me talk through our marketing strategy for business development. We're in close cooperation with Viessmann Group, a leading European provider of residential energy storage, and we are the key supplier to the global leader of outdoor portable energy storage. Going forward, we will further advance both our residential and outdoor portable energy storage businesses, and these two segments will become the company's major revenue avenues.

Speaker 1

In the meantime, with our mass production and capacity ramp up of sodium ion batteries, owing to their superior performance at low temperatures, superb fast charging and discharging capabilities and excellent cost efficiency. More and more clients in the small size power battery market that currently use lead acid batteries as well as clients with demand outstanding fast charging and low temperature performance have taken great interest in our sodium battery products. We have received numerous requests for samples from clients in the small sized power battery market and the energy storage sector. At present, the demand for our sodium ion batteries have exceeded our supply. With the capacity ramp up soon afterward, we will deliver more samples for going ahead to expand our market share.

Speaker 1

In general, we are a top player on multiple fronts, including the mass production, geographic landscape of capacity and sample delivery of sodium ion batteries, as well as regarding the significant efforts we have actively taken to advance the Series 46,000,000 batteries. Looking ahead, we will make strides in the residential and outdoor portable energy storage segments and firmly build upon our edges in the Series 46,000,000 batteries and sodium ion batteries, further preparing business growth in the power market. We remain positive about our expectations for the second half of this year and the years ahead. Now let me turn the call over to our Interim CFO, Yuna Pei, who will provide details on our financial performance.

Speaker 2

Thank you, Mr. Li, and thank you, everyone, for joining our call today. I will now go over our key financial results for the Q2 and first half of twenty twenty three. For the full details of our financial results, please refer to our earnings press release. We are pleased to report strong half year results marketed by sustainable growth and increased profitability.

Speaker 2

Thanks to our product strength and optimized operating efficiency, our gross margin for that rate business grew to 15.4% compared with 11% for the same period last year. As we progress through the year, our top priorities are to accelerate sales growth and improve by

Speaker 1

accelerating

Speaker 2

our research and development by accelerating our research and development across product lines as well as expanding our technology and business initiatives to create value for both our users and our shareholders. Turning to our financial performance. Our net revenues were US42.4 million dollars in the 2nd quarter and US84.8 million dollars in the first half, representing a decrease of 24.7% and 37.8% respectively from the same period in 2022. This decline was primarily attributable to decrease in sales of the battery business and hedges. And direct majority owned subsidiary engaged in the production and business our battery business have strong revenue growth of 97% in the first quarter.

Speaker 2

However, during the Q2, we began to experience a temporary slowdown in sales. Our 2nd quarter bathroom sales declined by 13.5% year over year to US22.2 million dollars. The decline was primarily driven by the press volatility of lithium carbonate, leading clients to hold off place in new orders during the quarter. Despite this short term challenge, we remain confident that we will achieve strong full year 2023 revenue growth as many of our clients will place new orders in the second half of the year as prices stabilize. Cost of revenues was US38.5 million dollars in the second quarter and $78,000,000 in the first half, representing a decrease of 24% and 37.9%, respectively, from the same period in 2022.

Speaker 2

This decrease was primarily due to the decline in net revenues. Gross profit was US3.9 million dollars in the 2nd quarter and US6.8 million dollars in the first half, representing a decrease of 29.8% and the 37.4% respectively from the same period of 2022. Our operating expense rose by 42% to US7.7 million dollars in the 2nd quarter and 11.4 percent to US13.4 million dollars in the first half. Within that, our research and development expenses increased by 29.6 percent to US3 $1,000,000 in the second quarter and decreased by 3.1 percent to US5.4 million dollars in the first half. Sales and marketing expenses increased by 38% to US1 $1,000,000 in the 2nd quarter and 10.3 percent to US1.7 million dollars in the first half.

Speaker 2

General and other manufacturing expenses increased by 46% to RMB 3,600,000 in the 2nd quarter and 29 0.2 percent to US6.1 million dollars in the first half. Our operating loss amounted to $3,800,000 in the second quarter compared to an operating income of $100,000 in the same period of 2022. Operating loss was US6.7 million dollars in the first half compared to US1.2 million dollars in the same period of 2022. Our challenge our change in fair value of Lawrence was US0.04000000 in the same quarter and $0.12 in the first half compared with US2.1 dollars remaining and US3.76 million dollars respectively in the same period of the prior year. As a result, our non cash loss of trade suitable to shareholders of Payback Energy was US2.6 million dollars in the second quarter and $4,000,000 in the first half compared to a net income attributable to shareholders of 3 vast tonnage of $0.8 million and $1,200,000 respectively in the same period of 2022.

Speaker 2

That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Thank you.

Operator

Thank And our first question comes from the line of Brian Lanier with Zacks Small Cap Research.

Speaker 3

Good evening. I was wondering if I could ask a couple of follow-up questions. First on the Shangqiu lease, I was wondering if you could provide any additional details on that facility. Basically, was it operational? Do you still expect it to be operational by the end of 2023?

Speaker 3

And what type of batteries may have been produced there in the past? And then I'll follow-up with additional questions. Thank you.

Speaker 4

So your question is the first question is about the sodium and battery, right. Okay. Okay. So, yes, Shangqiu battery plant, I would like to give you more detail about this. As you know, the production capacity of our dallium plant is significantly insufficient.

Speaker 4

We cannot meet the demand of our customers. That is why we decided to rent this Shaanxiu battery manufacturing plant. It is a state owned battery plant and we share the same products and the equipment devices in these plants is also similar to our Dalian plant. Currently, the production capacity of this plant is 100,000 per day, and we are doing some renovation and in this and improvement in this plant and it is expected that it will be in fully, totally normal production by the end of this year.

Speaker 3

Great. Thank you very much. And I appreciate all the translation. That's very helpful.

Speaker 1

If I

Speaker 3

could ask one follow-up question on the battery gross margins. They appear as though they've gone from 11% last year to 15.4% this year. Was that due to a shift in mix for some of your newer products like the 32,140 and away from some of the older products like the 20 1700?

Speaker 4

Okay. There were several reasons behind the increase of gross margin. One of the most important reason is that since this year, the production capacity of our Dalian and Nanjing production facilities have been increased, and we can achieve a very high utilization rate of these plants. For our Dalian plant, it has almost reached full production capacity. And for Nanjing, since the construction of the 1st phase of the plant in 2021 and the completion of the 1st phase of at the end of 2022, now our production capacity can be released to a large extent.

Speaker 4

And this production capacity growth also become a very important driving force for the reduction of the cost. And secondly, as we know, in the second half of last year, we underwent obvious fluctuation in the raw material price. And the increase of the raw material price also has a negative impact in our cost. So the cost occupied quite a big margin in our profit margin. However, since the Q2 of this year, we have seen the decline of raw material price and that also lead led to the reduction of the cost, which also contributes to the improve of the gross margin.

Operator

Thank you. And I'm seeing no further questions. With that, I would like to turn the call back to Mr. Yunfei Li for closing remarks. I apologize.

Operator

One moment please. I do see we have a question that just came in the queue. And we have a question from the line of Feko Wu with TPG.

Speaker 2

Hi, operator. This is Kaiko from for the company.

Speaker 4

Okay. So you mentioned just now, the company have already have the capacity produce 40 6 series lithium battery. And I'd like to know for what reason that you decided to give priority to 46,115 and 46,157 instead of 46,800? And in the future, how big is the chance for you to mass produce 46,800? Okay.

Speaker 4

Actually, we make this decision based on our overall layout of our business portfolio. And for example, we can take into consideration the business of our energy storage market. For 46,110, the height is about 31 and the energy storage height is as well as the model is more standard in the markets. And for 46,157, it is a bit higher than 46,115, and we can do 30 to 35 end hour and the cycling could be 8,000 to 10,000, which we believe will well meet the market of the U. S.

Speaker 4

And Europe. And we mainly use the material of lithium iron. And as we know, this is a very important material and it has a superior energy capacity intensity, sorry, energy intensity. And currently, we are not thinking about a true mass produced 46,800. It is with even high taller height, bigger height, but it doesn't mean that we will not produce this at all.

Speaker 4

When the time is appropriate, we will also take into consideration the development and production of 46,800.

Operator

Thank you. And I'm showing no further questions. So with that, I'll turn the call back over to Mr. Yunfei Li for closing remarks.

Speaker 1

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.

Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.

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Earnings Conference Call
CBAK Energy Technology Q2 2023
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