CBAK Energy Technology, Inc. (CBAT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the CBAK Energy Technology's First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at any time. Now I'll turn the call over to Li Thierry Li, Investor Relations Director of CBAK Energy. Mr. Li, please proceed.

Thank you, operator, and hello, everyone. Welcome to CBAK Energy's first quarter 2023 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer; Ms. Xiangyu Pei, our Interim Chief Financial Officer; Mr. Xiujun Tian, 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.cbak.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 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 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.

[Foreign Language]

[Interpreted] Thank you, and hello, everyone. Thank you for joining our earnings conference call today. [Foreign Language].

[Foreign Language]

[Interpreted] We have just released our financial results for the first quarter of 2023. Regrettably, our total revenues have declined as a result of reduced revenues from our materials division, stemming from a significant fall in the price of raw materials. Despite the current market conditions, we have achieved satisfactory results in our primary business, which involves selling lithium batteries. In particular, our battery business generated revenues of $29.6 million, representing a 97.1% increase from the same period last year. Among these revenues, $25.82 million came from batteries used in energy storage applications, which is a 72.9% increase while $1.97 million came from batteries used in light electric vehicles, reflecting an impressive growth of 2,117.2%. Moreover, revenues from batteries used in electric vehicles reached $1.82 million, marking a remarkable increase of 5,889.8x compared to the same period last year. In addition to achieving significant revenue growth, we have also witnessed a significant improvement in our gross profit margin. For our battery business, the gross profit margin in the first quarter reached 10.85%, representing an increase of 4.31 percentage points from the previous year. We are confident that our gross profit margin will continue to improve in the future as our capacity gradually releases and production efficiency continuously gets improved. [Foreign Language]

[Foreign Language]

[Interpreted] As usual, I would like to begin by providing an update on the total value of orders that we have received but are yet to fulfill. As of April 30, 2023, the combined value of pending orders across our 3 main production facilities situated in Dalian, Nanjing and Shaoxing has reached roughly $187 million. This figure has risen since our previous earnings call, suggesting a favorable development in our efforts to acquire new customers and secure new orders from existing ones. We maintain a high level of optimism regarding our market revenue prospects for 2023, particularly with respect to the revenue generated from our primary business operations, which is the sales of lithium batteries. [Foreign Language].

[Foreign Language]

[Interpreted] Our revenues from the LEV and EV sectors have continued to grow as a result of further collaboration with JinPeng Group and its affiliate Jemmell. As of April 30, 2023, JinPeng Group and its affiliates have placed orders with RMB 20.31 million since 2023. As the result, we had consecutively ranked among the top 15 LFP leading battery suppliers in China in terms of install capacity for EV and LEV applications in January and February, according to publicly available data. After consolidating our existing foundation in the energy storage field, our aim is to continue our efforts towards the LEV and EV markets. As of April 30, we have also received orders totaling approximately RMB 3.58 million this year from our cooperation with AZAPA and Daihatsu Motors, and we expect to further promote the cooperation with Daihatsu Motors in the future. [Foreign Language]

[Foreign Language]

[Interpreted] We have had in-depth discussions with our major European clients as we previously disclosed to further our collaboration for this year. Both parties have expressed a strong willingness to continue working together, and we expect to announce details of the agreed view soon. As our cooperative relationship deepens and becomes more stable, we anticipate receiving large orders from this European client than we have in the past. [Foreign Language].

[Foreign Language]

[Interpreted]. Additionally, we announced in April, our collaboration with PowerOak, a company that ranks among the top 3 global players in the portable power supply market through a subsidiary brand, BlueTTI. Our partnership with PowerOak and BlueTTI started in March 2022, and we have received orders with approximately $5.35 million so far. PowerOak is expected to place orders on a monthly basis, indicating that all the volume of our collaboration with PowerOak is expected to continue increasing. [Foreign Language].

[Foreign Language]

[Interpreted] We have been able to enter and expand in the global market for portable power supplies mostly through our collaboration with PowerOak, which is also one of the key markets that the company is paying close attention to. At present, we are actively reaching out to the top clients in this market and are hopeful to present our investors and shareholders with better cooperation projects and order information. [Foreign Language].

[Foreign Language]

[Interpreted] We have received inquiries from several institutional investors and potential clients about the status of our sodium-ion batteries. In the near future, we plan to hold a product launch event for our sodium-ion batteries and hope that our investors and shareholders will stay attentive for our announcement. As we mentioned in our previous earnings call, sodium-ion batteries are currently a major focus for many battery companies. Once produced on a large scale, sodium-ion batteries are expected to replace lead acid batteries that are widely used in light electric vehicles, which have a negative environmental impact. Our development of sodium-ion batteries not only positions us to enter the market worth about tens of billions of dollars, but also reflects our commitment to environmental responsibility, [Foreign Language]

[Foreign Language]

[Interpreted] In terms of the progress of our Nanjing Phase II project, we have completed the roof ceiling of some of our factories and expect them to be operational by the end of this year at the earliest. We are also making active preparations for an Investor Day and will invite all investors and shareholders to fit our company at an appropriate time to walk through our Nanjing project. Once we are ready, we will release relevant information about the Investor Day. [Foreign Language]

[Foreign Language]

[Interpreted] Now let me turn the call over to our interim CFO, Xiangyu Pei, who will provide details on our financial performance.

Okay. Thank you, Mr. Yunfei Li. And thank you, everyone, for joining our call today. I will now go over our key financial results for the first quarter 2023. For the full details of our financial results, please refer to our earnings press release. We have maintained the strong momentum in the sales of our battery products, we are optimistic for this year, given that we have reached an agreement with our major European client and made progress in developing clients in the global portable power supply market. Our gross margin from our primary business lithium battery sales has also recovered to 10.85% as our new capacity released [indiscernible] our production efficiency gap improved. We are confident that the gross margin for our battery business will continue to grow. Moving on to our financial performance. We experienced a 47% decrease in nice revenues in the first quarter, dropping to $42 million from the same period in 2022. The main cause of this decline is the drop in our materials business, which has been negatively impacted by the fluctuating price of materials. On the other hand, we had a strong performance in our business of lithium battery sales, achieving revenues of $29 million, which represents a substantial increase of 97%. Among these revenues, $25.8 million were from batteries used in energy storage applications, representing a growth of 72.9%. $1.97 million came from batteries used in light electric vehicles, showing an impressive increase of 2,117%. Additionally, revenues from batteries used in electric vehicles were $1.8 million, which is exceptional growth of 5,889x compared to the same period last year. This significant improvement in our primary business are very encouraging. We expect the positive momentum to continue, and we are confident that we will achieve better results this year. The cost of revenues in the first quarter was [ $39.5 million ], which represents a decrease of 47% from the same period in the prior year. The reduction in cost of revenues was consistent with the decline in net revenue. In the first quarter, our gross profit decreased by 45% year-on-year to $2.9 million, while the gross margin slightly increased to 6.8% from 6.6% in the same period last year. This was largely due to the significant increase in gross profit margin of our battery business. The gross margin for our battery business was 10.8%, up by 4.3 percentage points compared to the last year. We are optimistic and [indiscernible] During the first quarter, our operating expenses declined by [indiscernible] a reduction in [indiscernible]. Sales and marketing expenses [indiscernible]. In the following quarters, we reported an operating [indiscernible]. As a result, our backlog attributable to [indiscernible]

[Operator Instructions] Our first question comes from [ Hoex San ] from TPG.

[Foreign Language]

Okay. So first of all, I would like to thank you for taking my question and also want to congratulate you for your strong performance in the first quarter of the year. I have 2 questions. The first one is that it seems that sodium battery is about to recruit in production, can you tell us what benefit sodium ion batteries as a replacement of lead acid batteries can bring to the environmental protection? And my second question is that you just mentioned the company has the plan to launch an Investor Day at an appropriate time. Are investors are welcome to visit the company on this Investor Day? What's the progress of the construction and equipment installation in the Nanjing Phase II project? If we pay a visit to the production facility on the Investors Day, what can we see on site?

[Foreign Language]

[Foreign Language]

[Interpreted] Okay. So Mr. Tian is going to address the first question. Well, if let's have a look at the difference between lead acid battery and sodium-ion battery. For lead acid batteries, they are liquid state battery compared with sodium-ion battery, liquid battery is easier to spread. And it is as a heavy metal, it can cause pollution through soil and water. And if lead entered into human body, it may cause poisoners. It can also lead to some diseases in human beings. And if a human being intake a large amount of lead, it may even pose a threat to the life to the safety of this person. However, if we have a look at sodium-ion battery, there was a lot storage of sodium in our nature. And actually, it is also a very common ingredient or a very common element in our food. It is even be regarded as an indispensable element to human being. So we can say sodium ion battery is or we can say, sodium is very friendly to human being and sodium-ion battery is very friendly to the nature. And if we can use sodium-ion battery, then we can really embark on the journey towards green development. And we believe that it is a very good supplement to the lead acid battery. It is not only environmental friendly, but also it is economically competitive in the industry.

[Foreign Language]

[Interpreted] Okay. So with regard to the second question, concerning Investors Day, well, we do have the plan to organize an Investors Day event in the near future, and we extend a sincere welcome to all the shareholders and investors to pay a visit through our production facility and to join us on the Investors Day. And on that day, we'll also invite the media to do the publicity and to do a media content for us. And if you would like to know the progress for the construction of Nanjing second phase project. I will be very happy to give you more updates. So for there will be a building that is designated to be earned 8 kilowatt battery production facility, and the construction will be finished by June this year. And by then, the 18 gigawatt hour supporting factories will also be completed at the time. And we already sent specification of our equipment to the suppliers, and we are about to send them the bidding documents very soon. So if you pay a visit to our production facilities, on the Investors Day, we believe that you will see our factories are already for the installation of equipment by then. And once again, we would like to extend an invitation to all the shareholders and investors, you are more than welcome to visit us.

We have a question from [ Feko Wu ] from TPG.

[Foreign Language]

[Interpreted] Okay. We noticed that the battery business of the company has grown very rapidly in recent years, especially the energy storage segment, how do you see the composition of revenue from the battery business in the future? To what extent can the share of revenue from LEV and EV business increase?

[Foreign Language]

[Foreign Language]

[Interpreted] So yes, you're right. From the sales revenue of the first quarter, we can see that our energy storage business segment does occupy a big proportion of our sales revenue and the revenue from the EV and LEV occupies a secondary prediction. And if we have a look at the revenue composition, we can see that the revenue from energy storage takes up about more than 80% of our total revenue. So based on the orders that we have in hand and as well as the production capacity, it is estimated that this year, we are still going to maintain similar revenue composition, just similar to the first quarter. But if we have a deeper dig or if we dive deeper into the figure of the first quarter, we are also very happy to see that the sales revenue from the LEV and EV also witnessed a substantial growth, if we compare with the previous year, we achieved $3.7 million sales value in EV and LEV. And we believe that with the increase of the production capacity in our Nanjing production facility next year as well as the continuous efforts that we're going to put in the EV and LEV markets. We predict that next year, we're going to see an explosive growth in our LEV and EV revenue.

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

[Foreign Language]

[Foreign Language]

[Interpreted] 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 all again. This concludes the call. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]