CBAK Energy Technology, Inc. Q3 FY2024 earnings call

• Battery business performance: Net revenue had a Q3 decline due to Dalian facility production line suspension in September. First nine months revenue grew 18.4% y-o-y. Gross margin was strong at 34.3% in first nine months. Net profit was $11.68 million in Q1, $7.89 million in Q2, and $2.04 million in Q3.
• Order updates: As of November 1, 2024, total orders received but not yet delivered at major production bases in Dalian and Nanjing reached ~$8.38 million. Accumulated orders with PowerOAK ~$11.35 million, with Viessmann Group ~$233 million, with Jinpeng Group ~$9.42 million, and with Anker ~$45.12 million.
• Factory profitability: Dalian facility has long been profitable. Nanjing factory achieved profitability in Q3; it started operating in late 2021 and became profitable ahead of schedule. Nanjing factory's production line is operating at full capacity.
• R&D progress: Steadily advancing new battery model development. Soon to mass produce model 40135 large cylindrical battery. Successfully developed and started mass production of tablet model 26650 cylindrical battery in Dalian.

The net revenue from CBAK Energy's 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 a year-on-year growth of 18.4%, reaching $114 million. Revenue breakdown: Energy storage battery sector reached $33.46 million (a 25% decrease y-o-y), EV battery contributed $333,000 (a 17% decrease y-o-y), battery for light electric vehicles (including 2-wheelers and 3-wheelers) brought in $4.9 million (a 341% increase y-o-y). The battery business maintained a high gross profit margin of 34.3% in the first three quarters of 2024, an increase of 15.2 percentage points compared to the same period in 2023.

• Accelerating capacity expansion: Signed procurement contract with equipment supplier for Nanjing factory's second phase to add new production line for model 32140 and 40135 batteries, with estimated capacity of ~1.5 GWh for each model. Anticipates equipment installation in first half of next year and mass production in second half.

• Forward-looking statements involve inherent risks and uncertainties; actual results may materially differ from expectations. Further information regarding risks and uncertainties is in the company's public filings with the SEC.

Q: 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?

A: So first of all, as we are using the tablet design for our 26650, then we can increase the C-rate performance of the cell. So this will help us achieve, like, more easily to let our product to be used in the start-up battery business, especially the start-up 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. So secondly, for our energy product, then we gradually increased 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. To summary, that's all the answers for myself.

Q: 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?

A: So the shutdown from Dalian factory is mainly because we are upgrading our product from the energy battery cell to the high series 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 in the first half of this year. So this is the normal operation as planned from the start of the year.

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

A: Yes. So the main business for the LEV is mainly Southeast Asia area, so that includes India, Vietnam, Indonesia, et cetera. 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 dramatic increase of our demand.

Q: 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, time lines, things like that?

A: I will directly respond to your question, Brian. At this moment, the only information we can tell you 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 fits our best of interest. Certainly, U.S. 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 an early stage, but the management take this issue as one of our routine jobs. We have -- 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 remarks, our clients are very willing to place orders in advance to push us to build up this factory.