Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology's Q3 2022 Earnings Conference Call . Now, I will turn the call over to Thierry Li, Investor Relations Director of CBAK Energy Technology. Mr. Li, please proceed.
Thank you operator, and hello everyone. Welcome to CBAK Energy's Q3 2022 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer, Ms. Xiangyu Pei, our Interim Chief Financial Officer, Mr. Wenwu Wang, our Vice President, Mr. Xiujun Tian, our General Engineer, and Mrs. Yang, 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 the Newswise 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 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 US dollars. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Lee will speak in Chinese and I will translate his comments into English. Go ahead, Mr. Li.
Thank you, and hello, everyone. Thank you for joining our earnings conference call today.
In the Q3, we managed to maintain a strong momentum in the growth of revenues. In Q3, our revenues grew by over 5x to approximately $57.7 million. In the 1st nine months of this year, our revenues had reached approximately $200 million, representing an increase of about 7x compared to that in the same period of last year.
The significant increase of revenues was fairly attributed to the astonishing growth of our battery business in a booming market. In the Q3, revenues from our battery business reached about $25.8 million, up by roughly 170%. In the 1st nine months, revenues from the battery sector surprisingly increased by 167.7% to approximately $66.6 million.
In addition to our dedication to stabilizing and increasing revenues from the energy storage segment, we vow to heavily explore the EV and LEV markets. A few months earlier, we announced to enter into an agreement with Jinpeng Group, one of the biggest LEV manufacturers in China, and its EV manufacturing unit, Jimai. Such cooperation brings our cylindrical lithium batteries on an increasing number of EVs. Meanwhile, we are still actively developing larger cylindrical batteries in an attempt to increase our shares in the EV, LEV, and energy storage market. In this conference call, I will introduce our progress in both business development and product research and development to our shareholders and investors.
首先，我向各位介绍一下公司在销售及客户开发维护方面取得的进展。截至今年的九月三十日，我们分别位于大连、南京以及绍兴的三个主要生产基地已经收到但还在交付的订单金额已经累计达到了约¥6.96亿的规模。这使得公司未来一段时间的销售收入持续高位增长，也是我们市场持续火热的最佳佐证。目前公司的部分产品产线也处于供不应求的状态。
1st, I will present the progress we have made with respect to business development. As of September 30th, our three major manufacturing centers, respectively in Dalian, Nanjing and Shaoxing, had received orders worth approximately $100 million. They awaited delivery. Such orders will support rapid growth of our revenues in the coming reporting periods, and proves that our target market is extremely hot right now. As of now, the capacity of parts of our production line can no longer satisfy the increasing demand for our products.
在第三季度中，我们收到了来自欧洲的一家全球领先的欧洲制冷、供热系统制造商大约€2,820万，约合$2,930万的订单。这已经不是这家储能领域的大客户在本年度所下的第一份订单。截至本次报告为止，这家客户在今年的订单总额已经接近€6,000万的规模。我们从2018年起就开始接触这家客户，经过长时间的接触、谈判以及供应量尽职调查，双方的合作也在今年开花结果。这表明对客户开发保持充足的耐心，我们的产品会最终赢得客户的青睐。
In the Q3, we announced that we have obtained an order worth approximately $29.3 million from a leading European provider of heating, cooling, and renewable energy systems. This is not the 1st time we receive an order from this client. As of the date of this conference call, this European client had ordered about EUR 60 million of our battery products. In fact, we started approaching this client in 2018. After lengthy negotiations, several rounds of talks and completion of supply chain due diligence works, our partnership eventually brings us high value orders this year. It actually demonstrates that our product quality is trusted and testable, and that as long as we keep patience on our marketing efforts, it will eventually pay off.
除了储能领域的高速增长，我们也在积极开发电动车和轻型电动车领域的客户。截至今年九月三十日，公司此前宣布的与中国最大的轻型电动车制造商金鹏集团以及其关联方极麦新能源的框架协议已经为公司带来了约3,100万人民币的订单金额。我们还高兴地看到我们的32140电池能够应用到金鹏集团的电动车上。未来我相信我们会从金鹏集团那里陆续收获更多的订单。另外，在去年公告过的阿塞巴及大发汽车的合作中，截至今年九月三十日，我们已经供应了约270万人民币的产品，比上个季度披露的金额多了约80%。未来在大发汽车的项目上，我们预期将会有更大金额的合作。
In addition to the rapid growth in our energy storage business, we have been dedicated to developing much more clients from the EV and LEV markets. As of September 30, our cooperation with Jinpeng Group and Jimai had already brought us orders worth about $4.3 million. We are very glad to see our 32140 batteries being applied in the electric vehicles manufactured by Jinpeng Group. We have confidence that we will be taking much more orders from them. Besides, with respect to our cooperation with Daihatsu Motor, we have supplied battery pack products worth about CNY 2.7 million in the Q3, up by 80% compared to the number disclosed in the last quarter. We expect to see the number continue growing in near future.
我们还在今年的公告，今年公告了和伟诚新能源的合作，来开拓印度市场。随着印度政府的重视和补贴政策出台，印度市场有望成为全世界最大的轻型电动车市场之一。伟诚新能源的销售网络遍布全球，其中重点在印度市场。和伟诚的合作可以使得我们的32140电池进入到这个市场。截至今年九月三十日，伟诚新能源已经从我们订购了约CNY 380,000的电池。双方签约仅三月的时间，并在一个新的市场进行开拓。订单的出现使得我们对于未来的合作充满信心。
This year we also announced a strategic partnership with Welson Power, a China-based company that has a broad global sales network to develop the Indian market. With the Indian government publishing subsidy program, the Indian market is believed to have the potential to grow into one of the biggest LEV markets. Welson Power has a huge global network with a focus on Indian market. Our partnership with them will introduce our 32140 batteries to that country. As of September 30, Welson Power had ordered batteries worth about CNY 380,000 from us. Considering that we have been entering into the partnership for only one month and that we are in a new market for business development, taking orders from them substantially grow our confidence.
总体来说，我们在客户开拓方面进展很快。除了在储能业务上稳定了我们的欧洲大客户，我们也在电动车及轻型电动车市场和大客户达成了合作。我们对于新客户的开拓从未停止，也非常希望能够在未来给各位投资人与股东带来更多令人振奋的签约和订单消息，请大家拭目以待。
Overall, we achieved satisfactory progress in business development. We managed to maintain a good partnership with our major European clients in the energy storage market and reach cooperation with big brands in the EV and LEV market. We never stop our endeavor to explore new market opportunities and expect to bring more exciting news regarding new partnerships and orders to our investors and shareholders.
在研发方面，公司将继续投入更多的研发精力，研发更大的圆柱形电池。我们也在有条不紊地推进新型号电池的研发工作。另外，我们今年早些时候公告的钠离子电池开发工作，我们已经完成了26700、32140钠离子电池的试生产，目前正在进行优化，明年将会推出更高能量密度的钠离子电池产品。正如此前发布会所说的，钠离子电池在未来将会形成数百亿人民币的市场规模，是锂电池市场的一个很好的补充。我们也希望能够抢占先机，成为首批量产钠离子电池的公司，占据更多的市场份额。
In terms of our efforts in product research and development, we have been investing resources and capital in developing larger size cylindrical batteries. Furthermore, we make significant progress in the development of sodium ion batteries. In the Q3, we completed the pilot production of 26700 and 32140 sodium ion batteries. We are now in the process of testing and optimization in an attempt to increase the energy density. As we say in previous conference calls, the sodium ion battery market has a great potential with an estimated market size worth about billions of dollars. We expect to take a lead in the market to become one of the 1st groups of companies that could mass produce sodium ion batteries. We hope that this could help us occupy more market shares.
在过去的这一季度中，公司在研发销售上都取得了令人满意的进步。同时，公司还积极布局钠离子电池业务，推动大圆柱电池的开发工作，以取得全方位领先的竞争优势。虽然原材料价格依然很高，以及公司产品供不应求所导致的必要扩产投资，导致了公司的利润依旧较低。但我们相信，随着明年很多锂电池材料厂商的产能逐渐释放，材料价格可能会有所回落。同时，随着我们扩大的产能的逐步实现，公司利润水平也会取得合理的提升。公司未来的工作重点依旧是继续在市场上积极开拓客户，扩产，以解决供不应求的问题，以及研发推动大圆柱形锂电池和钠离子电池的落地。
To sum up, we successfully made satisfactory progress in both business development and product research and development. We invested to develop sodium-ion batteries and larger size cylindrical batteries in hope to increase our competitiveness. The fact that raw materials prices still inflated and that we need continuous capital investments to expand our capacity caused by increasing demand has actually resulted in a small net loss. However, we still firmly believe that our profits will be significantly increased as raw materials price drops to a reasonable level caused by increasing capacities from raw materials producers. Also, our capacity expansion will gradually generate more profits. Our focus in near future will still be on ramping up our marketing efforts, continuing our capacity expansion plan, and promoting the research and development of sodium-ion batteries and larger size cylindrical batteries.
Now let me turn the call over to our Interim CFO, Xiangyu Pei, who will provide details on our financial performance.
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 Q3 of 2022. For the full details of our financial results, please refer to our earnings press release. We managed to maintain a strong momentum in the increase of sales of our battery and battery material products. The high cost of raw materials and the need to invest in and expand our capacity, however, reduced our profits. As Mr. Yunfei Li mentioned, we remain confident in the future growth of our profits as long as more raw material producers obtain bigger capacity and our capacity expansion plan is completed. We also increased significantly our investment in research and development and sales and marketing efforts to develop new larger cylindrical lithium-ion battery products and to develop clients in the market.
Moving on to our results. In the Q3, our net revenues surged by 500% to $57.7 million from the same period of 2021, primarily due to growing sales in our battery products and battery materials. Specifically, net revenues from our battery business grew by about 170% from the same period of 2021. Cost of revenues was $54.3 million in the Q3, up by 534% from the same period in the previous year. Gross profit was $3.5 million in the Q3, representing an increase of 206% from the prior year.
Gross margin was 6% compared with 12% in the same period of 2021 as raw material costs rose. As noted earlier, we signed long-term contracts with certain suppliers, expanded into raw material business, and begun negotiations with our clients to tackle the price hike. We expected the price of raw materials to decrease while new capacity is being added by the industry. Our operating expenses rose by 14.8% to $4.9 million, primarily due to growing headcount in our new Nanjing facility and the acquisition of our battery material business. Within that, our research and development expenses increased by 31% to $2.4 million. Sales and marketing expenses increased by 64% to $0.8 million.
General and administrative expenses decreased by 14% to $1.9 million. Even with these increases, our operating expenses were held to only 8.6% relative to our revenues in the Q3 compared with 45% in the same period of 2021. Our change in fair value of warrants was $0.9 million compared to $23 million in the prior year. Thus, we recorded a net loss attributable to shareholders of CBAK Energy of $290 during the Q3 compared to net income attributable to shareholders of $12 million in the same period of 2021.
However, if we deducted the item of change in fair value, we had a net loss attributable to shareholders of CBAK Energy of $0.9 million, reduced by 68.6% from $3 million last year. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
Thank you. Ladies and gentlemen, we now begin the question-and-answer session. We have one question. Please go ahead.
I have the 1st question. I am glad to hear that the company has received orders worth nearly EUR 60 million from a major European client in the past nine months, but the specific name of this company was not disclosed. Could you tell me the reason behind it? Will the scale of cooperation with this company be further expanded in the future?
好的，这家客户呢，首先他是欧洲一家非常知名的公司，也是近几年进入这个储能领域，发展很快。那我们作为他的一个核心的电池的主要供应商，他也是为了对他的这个供应链保持一定的保密，保持他供应链的优势。那对于我们来讲呢，就是说我们也需要对我们的客户进行保密，然后也保证我们跟客户的这个深度合作，也一直相对于我们其他竞争对手来说具有领先的优势。那就是说，未来的和这家公司的合作规模呢，会持续地扩大。我们已经跟客户沟通未来几年的订单的预期情况，就是会逐年地大幅度地增长。
1st of all, this is a client, this client is a famous company in Europe that witness rapid growth in the past few years. We as the major supplier for battery products, in order to help the clients to maintain a stability in their supply chain, we need to ensure that this cooperation is a confidentiality. This is also a very good way for us to ensure our competitive edge in the whole market. Please understand that we cannot disclose the name of this company. Talking about the future cooperation potential with this company, I can tell you that we have reached an agreement and we are going to continuously expand our future cooperation in the coming years. We believe that the orders that they place at our company will see a big increase.
好的，非常感谢。那我的第二个问题呢，就是，我们注意到从营收上来看的话，公司的大部分的收入仍然来自于储能领域，像EV和LEV部分的收入虽然说增长速度很快，但是它的总量依然很小。请问未来贵公司预计大部分收入仍然会来自于储能领域吗？还是可以看到EV和LEV的部分的占比会有一个更大的增长，甚至有一天可能会超过储能领域呢？谢谢。
I notice that most of the company's revenue still comes from energy storage. In comparison, although the revenue of EV and LEV is growing rapidly, the total amount is still relatively small. How do you see the future revenue composition of the company? Do you think the energy storage segment will still occupy a vast majority of the income? Or do you expect the proportion of LEV and EV to growth and even one day possibly surpass that of the energy storage?
这个问题让王总来回答一下。
好的。关于EV的收入增长和占比的问题，刚才李总在报告发言里面已经讲了，就是我们已经收到了主流的轻型电动车，它的乘用车、高速车的比较大的量的订单。就是说未来我们合作的客户、已经量产的客户，他的订单会持续地增长。然后我们也会持续地开发其他客户，目前已经也都有了一定的进展。预计到明年的话，在汽车上面的订单会继续增加，它的占比也会持续地上升。当然我们的储能业务也在持续地增长。那未来我们会看到我们的两块业务都会有比较明显的增长。同时我们的EV和LEV的销售增长和占比也会持续地上升，在我们的总的销售结构里面。
This question is concerning the revenue and the proportion of EV and LEV. Well, as Mr. Lee just mentioned, we already obtained big orders from EV and LEV manufacturers, and this is a very good signal. We believe that the orders that we receive from them will continuously grow in the future. At the same time, we are also making unremitting efforts to develop new customers. We believe we are going to see big progress next year. Then for next year, we have confidence that we will see the increase of the amount of orders that we get from the car manufacturers and the proportion of EV and LEV. The proportion of revenue from EV and LEV will also see big growth.
Yeah, of course, the business of our energy storage will also be on the rise in the future too. We believe that the prospects for both energy storage and for EV and LEV will be both promising. At the same time, we will see the growth of the proportion of LEV and EV in the future steadily.
好的，非常感谢您的回答。不好意思，我的第三个问题呢，是我们了解到贵公司正在研发钠离子电池，但是我们认为呢，这个钠离子电池的目标市场可能会和这个磷酸铁锂电池的现有目标市场会有所重叠。那么请问公司未来是打算如何利用钠离子电池呢？具体有什么样的布局呢？谢谢。
Okay, thank you for your answer. I still have a 3rd question. The company is developing sodium-ion batteries. We believe that the target market of sodium-ion battery kind of overlaps with the existing target market of lithium iron phosphate. How does the company plan to tap the potential of sodium-ion battery in the future? What is your strategic plan? Can you share with us? Thank you.
这问题请田总来回答一下。
那好的，这个问题我来回答一下。正如您关注到的一样，就是钠离子电池的话呢，会跟磷酸铁锂电池在某些应用领域上会是重叠的。但是是这样子的，就是一个新的电池体系的这个诞生，不会把一个老的体系电池的这个所有应用领域全部都可以挤占掉。就像这个锂电池诞生在镍氢之后，但是并没有把镍氢的所有的领域全部这个吃掉。我们对于钠离子电池的布局的话呢，是这样子的。钠离子电池它的特点是，这个低温的性能特别好，倍率的性能特别好。当然这里头还包括就是钠离子的这个钠元素的获取会更——分布会更广，它的这个成本会更低。所以说我们对于钠离子电池是布局在储能，以及这个大型储能这一个领域。还有就是在这个乘用车或者是这个低速车这个领域的话呢，会是在短途的这个车，甚至于在这个偏北方，低温的环境在车型上的话呢，会主推钠离子电池。它将是我们锂离子电池这个产品的一个很好的一个补充，扩容到我们就是在倍率以及低温这个领域上的一个有利的一个这样的一个新的产品。我们并不会说选择钠离子而放弃锂离子，也不会说是这个因为锂离子的某些方面还会比钠离子更优而放弃对钠离子的这个深入研究。所以说我们这个属于是我们的一个扩容的产品，增加我们这个产品的一个覆盖面。谢谢。
Mhm. Okay. Mr. Tian will answer this question. Yeah, it is true that the application of sodium-ion batteries and the lithium iron phosphate are similar in some cases. However, according to our experience, the generation of a new product or a new system will not fully replace the old one, that is the lithium iron phosphate in our case. Let me share with you our strategic plan for sodium-ion batteries. As we know, it enjoys some strengths that is incomparable by other similar products. For example, it can have very good effects in the low temperature condition, and it is more easier to access the sodium elements. Then the cost for sodium is also lower.
That is why we plan to use the sodium-ion battery or these products in energy storage markets as well as the passenger vehicles, especially those LEVs for short distance trip or in the northern area where the temperature is really relatively low. We're going to develop this sodium-ion battery as a good supplement to lithium-ion battery. It will become a new product line for our company. It doesn't mean we are going to replace the lithium-ion battery by the sodium-ion battery, or in the other case, we are not going to give up on the research of sodium-ion battery just because lithium-ion battery has its own advantages. That is to say, we are going to give importance to both kind of batteries, and we are going to develop sodium-ion battery to expand our product portfolio and also to increase the product coverage.
好的，非常感谢您的回答。我的最后一个问题，我们非常高兴了解到贵公司的营收增长速度仍然非常迅猛，也注意到经调整后的归母净利润虽然依然亏损，但是亏损的幅度也已经大幅缩减。我们理解近段时间的原材料价格可能会比较昂贵，但是按照贵公司的判断来说，明年原材料的价格有没有可能回落呢？对于贵公司的盈利水平会有什么样的影响？然后公司经调整后的归母净利润和净亏损会有怎样的变化？有没有可能进一步缩小，甚至于转亏为盈呢？谢谢。
I have the last question. The final question. Well, I am very glad to hear that the company's revenue has increased tremendously. Although the adjusted net profit attributable to the parent company is still in a loss, but the size of loss has been greatly reduced. We understand that the price of the raw materials this year is still high, but according to your judgment, do you think the price of raw materials will fall down next year? And what kind of impact will it bring to the profitability of your company? And is the company's adjusted net loss attributable to the parent company expected to decline further or even turn loss into profit?
这个问题请裴总来回答。
好的，谢谢。正如我们三季度业绩、经营结果展示的，大家可以看到，我们现在经营的利润正在努力地提升。那么今年也是受原材料价格的影响比较大，那么目前材料的行情是，普遍的主要材料价格都有所回落，但是正极所用的碳酸锂的价格，正极的价格还是居高不下，并且仍在有继续上涨的一个趋势。但是我们今年也陆续调高了我们主要产品的销售价格，目的是来平衡我们原材料价格的上涨。那么到目前来看，我们今年已经接到的订单，准备在今年和明年出货的，这些主要的客户订单的价格，也都较今年有所上调。所以这些都有助于我们明年公司利润的增长。谢谢。
Okay. As you can see from the financial performance of this Q3 of this year, the profitability is on the rise. However, as we know, this year, we are still greatly impacted, affected, I mean, by the increase of the raw material. Although some of the raw materials have witnessed decline in the price, however, the main raw material for us, that is the lithium carbonate for the cathode, hasn't declined and in contrast, it even increased a little bit. That is why we have increased the sales price of our products with an aim to offset the increase of the price of the raw material.
For those orders that is going to be shipped in the future, I mean, in the rest of this year and in the next year, we'll see an increase in terms of its price. It will be higher than the price that we offer to the customers in the past several months. We believe that for next year, the profits of our company will have increased.
好的，非常感谢各位的回答。这是我全部的问题，也期待贵公司进一步的发展。谢谢。
Okay. That's it for all my questions. I'd like to thank all the speakers for answering my questions, and I am looking forward to the further development and progress of the company.
Thank you for your question. There are no further question in the queue. Let me turn call back to Mr. Yunfei Li for closing remarks.
云飞总，您可以说结束语。
感谢各位参加今天的电话会议。我们期待下一季度再和各位汇报新的进展。
Thank you, operator. 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.