Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology second quarter and first half 2022 earnings conference call. Currently, all participants are in listen only mode. Later, we will conduct a question and answer session. An instruction will follow at the time. As a reminder, we are recording today's call. If you have any objection, you may disconnect at this time. Now, I will turn the call over to Thierry Jiewei Li, Investor Relations Director of CBAK Energy. Mr. Li, please proceed.
Thank you, operator, and hello everyone. Welcome to CBAK Energy Technology second quarter and first half 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 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 Newswire 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 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 US 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.
Thank you and hello everyone. Thank you for joining our earnings conference call today.
Uh,
Thank you and hello everyone. Thank you for joining our earnings conference call today.
Uh,
Following our great success in the increase of revenues in the first quarter, which had already surpassed that in the entire 2021, we have again achieved another remarkable success in this quarter. Our revenues reached $56.4 million in the second quarter, and $136.5 million in the first half, which have respectively increased by 8.57 x and 7.92 x from the same period last year. Specifically, revenues from battery business were about $25.7 million, upped by over 3 x if compared to the same period in the last year. Such an increase was astonishing. The significant increase in revenues was attributed to the precise understanding of our management team on the new energy industry.
In the context that China views carbon neutrality as one of its basic development guidelines, and the government's put great resources into the new energy industry, it is our decision to expand our current production capacity for new energy batteries. Understanding the business of new energy vehicles is getting hotter, which leads to the shortage of battery material supply. It is again our decision to acquire Hitrans as our battery materials unit to support our development. Both of these decisions, without thorough understanding on and solid experiences in the industry, cannot be precisely made. Besides our record high revenues, I'm also happy to extend to all shareholders and investors here our efforts for development from three perspectives. From capacity expansion, from sales performance, and from research and development progress perspectives. First, please allow me to have an introduction on the entire blueprint of our capacity expansion plan.
I will introduce the capacity of our battery business. We currently have two major production centers, one of which is located in Dalian and the other is in Nanjing. Our Dalian Center was put into operation roughly a decade ago and currently has an annual capacity of 1 GWh. We plan two phases in our Nanjing manufacturing center. Phase I was put into production in late 2021, with a current capacity increased from 0.7 GWh at the very beginning to 1 GWh at this moment. We anticipate to increase the capacity of Phase I to its fully designed capacity 2 GWh at the end of this year or early next year. Besides, our total capacity is far from enough given that the market demand continuously grows. Our Phase II project in Nanjing is thus much bigger, capacity of 18 GWh.
We believe that Phase II project will gradually start operating from late next year. We will deliver 6 GWh per year until the capacity reaches 18 GWh. Going forward, our Nanjing plant will mainly produce large cylindrical batteries that are mostly power batteries for EV and LEV. Our Dalian facility will continue focusing on its mature 26650 or 26700 batteries that are mainly for energy storage.
In this quarter and first half of 2022, we continued our strong momentum in the sales of our battery and battery material products. The demand of our products is far over our current supply. As of August 5th, we have received orders worth of about $55.35 million that have not yet been delivered. We'll have a great number of orders coming in line. We believe that these orders will strongly enhance our sales performance in the second half of the year. I will also introduce the latest developments on the deals that we have announced before. We have already delivered samples of battery packs worth of about $208,000 to AZAPA and Daihatsu, and now are producing more samples. We anticipate to receive an order of 5,000-10,000 units of battery packs from Daihatsu next year.
In July, we announced a framework cooperation with Jimai, which is a LEV manufacturing unit of Jinpeng Group, one of China's biggest LEV manufacturers. We have already provided several samples for testing. Once we pass the test, we anticipate to start receiving a great number of orders from Jimai and Jinpeng Group. At this moment, we are also approaching more LEV and EV manufacturers in anticipation to bring much more valuable orders for our shareholders and investors. Going forward, we will continue developing our mature energy storage business on the basis of which we vow to further expand our revenues from the EV and LEV sectors.
We view our research and development capability as a key to rapid development. Developing new type of batteries that caters for variable market demands will make us easier in our marketing campaigns. In last quarter, we had reported that we were in the process of developing new model 42140 batteries. In this quarter, we are pleased to report that the testing on the prototype of model 42140 batteries was successful. We are currently preparing for the establishment of its production lines. Larger cylindrical batteries such as model 42140 are much more suitable for EV and LEV application. This battery will surely be used for LEV market development. More excitingly, we recently announced a joint development agreement with one of the top players that is leading in the research and development of sodium-ion batteries.
At this stage, we are moving smoothly in the development of sodium- ion batteries. The prototype was out and had passed the test. We expect to see mass production soon in the second half of the year. In these days, there are a number of top Chinese battery manufacturers that are investing in sodium -ion batteries, which will contribute to a huge potential market worth of tens of billions of RMBs. If we are able to take a lead in this area, it will be vitally and strategically important to our future growth.
In the second quarter we have achieved comprehensive progresses in revenues, research and development, sales and capacity expansion. We are actively investing in the battery material business and the potential sodium-ion battery business in an attempt to obtain greater competitiveness. Despite the inflation of the price of raw materials has resulted in a rise in manufacturing cost and led to a slow progress in our profits growth, we believe that the inflation will eventually be effectively controlled as a result of capacity expansion from battery material producers and the introduction of new type of batteries such as sodium-ion batteries. We will definitely see our profits normally grow at that time. Plus, our Nanjing plant was put into use just at the end of 2021.
We are still ramping up its capacity and will not be surprised to see it generate greater profits once it takes reasonable time to reach its full capacity.
Strategically, our decisions by Hitrans, which is our battery material business, has been proved to be a successful investment. We are still monitoring any valuable targets alongside its supply chain and talking to experienced teams in an attempt to search for valuable and profitable investment opportunities. In the future, we not only wish to grow faster in our principal business, which is battery producing, but also anticipate to act as an industrial investor with focus on the new energy structure. With our solid experiences in the industry, we are confident to activate any acquired assets and make our book look better. Our management team has full confidence about this company's future.
Now let me turn the call over to our CFO, Xiangyu Pei, who will provide details on our financial performance.
Thank you. Thank you, Mr. Li, and thank you everyone for joining our call today. I will now go over our key financial results for the second quarter and the first half of 2022. For the full details of our financial results, please refer to our earnings press release. As the strong sales in our battery and battery material products are fully reflected in the astonishing increase of revenues, even if the raw material price hike is still a short-term setback to the battery business, which limits the growth of capacity. We have taken actions in order to mitigate this impact. As always, we've continued our investment into our new facility to enhance our capacity to cater for growing orders. We also increased significantly our investment in research and development and sales marketing efforts. Moving on to our results.
In the second quarter, our net revenue surged by 857% to $56.4 million from the same period of 2021, primarily due to growing sales in our battery products and battery materials. Specifically, our net revenues from our battery business grew by about 337% from the same period of 2021. In the first half of 2022, net revenues still demonstrate a great growth momentum, which increased by 792% to $136.5 million from the first half of 2021. Revenues in the battery sector grew in the first half of 2022 by approximately 176% from that of 2021.
Cost of revenues was $50.8 million in the second quarter and $125.7 million in the first half, up by 961% and by 916% respectively from the same period, same periods in the previous year. Gross profit was $5.5 million in the second quarter and $10.9 million in the first half, representing an increase of 404% and 270% respectively from the prior year. Gross margin was 9.5% in the second quarter and 8% in the first half, compared with 18.6% and 19% respectively 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 began renegotiation with our clients to tackle the price hike. We expect the price of raw materials to decrease while new capacity is being added by the industry. Our operating expenses rose by 41% to $4 million in the second quarter and by 105% to $12 million in the first half, primarily due to growth in headcounts in our new Nanjing facility and the acquisition of our battery material business. Within that, our research and development expenses increased by 110% to $2.3 million in the second quarter, and by 267% to $5.6 million in the first half.
Sales and marketing expenses increased by 12.9% to $0.7 million in the second quarter, and by 103% to $1.7 million in the first half. General and administrative expenses increased by 5% to $2.5 million in the second quarter and by 12.8% to $4.7 million. Even with this increase, our operating expenses were held only 9.6% relative to our revenues in the second quarter, and 8.8% in the first half, compared with 64.9% and 37.2% in the same period of 2021.
Our change in fair value of warrants was $2.1 million in the second quarter and $3.8 million in the first half, compared to $5.8 million and $34.2 million in the prior year. Thus, net income attributed to shareholders of CBAK Energy was $0.8 million during the second quarter and $1.3 million in the first half, compared to $2.7 million and $32.3 million in the same period of 2021. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Operator, please.
Ladies and gentlemen, we now begin the question and answer session. To ask a question, you will need to press star and one on your telephone. Star one and one on your telephone.
Hello. This is Wen-Haw Ting from Reuters. I just want to check whether you can hear me. Hello?
Yes, we can hear you.
Okay, great. Thank you. Sorry for the interruption.
Once again, star one and one, if you wish to ask a question. There are no questions at the moment.
Hi, operator. We have an investor saying that she pressed star one one and cannot be put on the line.
We have a question now. The question is from Laura Liu. Please go ahead.
Okay. The first question is concerning sodium-ion batteries. The company announced the plan to develop sodium-ion batteries, and as you just mentioned, it is expected to be ready for mass production soon. Will sodium-ion battery become the company's main business in the future? What is its strategic significance to the company? What are the advantages of sodium-ion battery over lithium-ion battery?
Yes. We believe that sodium-ion battery is a very good supplement for lithium-ion battery but we have to say that at present, lithium-ion battery enjoys quite a lot of advantages. For example, it has higher energy density and the performance is stable and there is a complete supply chain surrounding lithium-ion battery. It is still our main business currently. However, we also notice that since 2020, the price of lithium has been increasing and the market demand for lithium battery has been growing dramatically. All these factors will lead to a structural shortage of lithium-ion battery. As we know, for sodium-ion battery, it enjoys a large amount of storage and reserves and the price is relatively low.
For our company, we have already finished the prototype development and the prototype production is also stable and the performance is satisfactory. We have overcome various difficulties in terms of the production technology and the performance turned out to be satisfactory. We believe that sodium-ion battery will become a very good supplement for our product portfolio, and it will also become a very good driving force for us to cover the niche markets and improve the competitiveness of our company. We believe sodium-ion battery is of great strategic significance to the company. That's it for the answer. Thank you for the question.
Mm-hmm.
The second question is concerning the revenue of the company. We can see that the company's revenue has witnessed a great increase again. Still we cannot see breakthrough in the profit growth. What is the main reason behind it? Will the company take any measures to boost profit growth?
At present, yeah, we can see that in the second quarter our profits cannot achieve a proportional increase with the revenue, and there are reasons behind it. The main reason is the price hike of raw materials and the increase of the raw material price leading to the growth of our manufacturing cost. This will also have an implication in our profit growth. We have to see that our production capacity expansion in Nanjing and Dalian has gone smoothly, and we believe that with the capacity reached its full production in the second half of the year. As the decrease of the raw material, we believe that our profits will return to a normal level soon. Okay.
We can see that the plant capacity for the second phase development of Nanjing Manufacturing Center is huge, with nearly 18 x the capacity of the existing plant in Dalian. How does the company plan to allocate this capacity? Will other types of batteries, such as sodium-ion batteries, be developed in this plant in the future? I'm going to answer this question. For the second phase development plan, yes. As you can see, the plant capacity is very big. However, we are going to tap this potential year by year gradually. In August this year, we are going to kick off the establishment of the production line, and the first phase will only finish one-third of our total capacity, exact capacity.
Then for the rest of them, we are going to finish them in the coming 3-5 years. We will gradually finish our construction and then we will put into operation step by step. For the expansion of new energy markets, we can see it enjoys very good momentum. Our capacity expansion is well matched with our own capacity and also the market demand. At present, we can see that the supply in this area falls short of demand, and we can also see a tendency for the major economies. Most of them have already set the goal to stop the production of fossil fueled car by the year 2030. We believe that in the future, new energy vehicle will occupy a huge proportion of the market.
Secondly, not only our company going to expand our production dramatically. Actually, for other leading companies, they also have their plan to roll out and ramp up their production.
For some of them, they even have the plan to build factory with over 100 or even thousands of gigawatt-hours. This is a huge market, this will be a huge market. Thirdly, let's have a look at the market of energy storage. It is also a huge market as well. For the global market, it has been developed, it has been witnessing great development, especially the grid-side energy storage.
The market need is almost as big as the need of new energy vehicle. If you ask me how are we going to allocate our capacity, I can say that for 50% of our capacity, it will be allocated to new energy vehicle, and then 30% for energy storage, and another 20% for new power products or other related products. What I can be sure is that sodium-ion battery will take up some proportion in our production. That's it for the answer. Thank you for the question.
Yes, we are delighted to see that the company has reached an agreement for cooperation with Jimai and Jinpeng Group. Can you give us some brief introduction about these companies? And could you make an estimate of the possible order volume to be brought by this cooperation? And is the company still talking to other large group customers about other cooperation?
Mm-hmm.
Oh.
Okay, I'm going to give you a brief introduction about Jimai. For our cooperation with Jimai, we have already passed the testing of the battery pack, and then it is expected that we are going to receive small lot order in September. After the delivery of these orders, we expect the volume of the orders to further expand. What about Jinpeng Group? Well, Jinpeng Group is a powerful company in China. Jimai is a subsidiary under it, responsible for assembly and packing. For Jinpeng Group, its main products is electric three-wheelers and traditional three-wheelers. It is the largest manufacturer in electric three-wheelers and traditional three-wheelers in the world.
Every year, the shipments of this company is 1.50 million, and the sales also rank number one in the world. For Jimai, it has the production quality for complete vehicles, and it has its own plant to make the production. It also have the channels of production and sales for four-wheelers. In the future, the possible cooperation between us and Jinpeng Group is high-speed A00 grade EV and low-speed four-wheelers. It is estimated to reach 5,000 vehicles per month under our cooperation, and the value of the order will reach CNY 100 million. When you ask me whether we are talking to other large groups, well, the answer is positive. Yes, for sure. We are approaching more customers, our clients at the present.
Due to the current stage, it is not convenient for us to tell you exactly who they are. What I can tell you is that some of the clients that we approach is even bigger than Jinpeng Group, and we will tell you more information when it is appropriate. Okay. I don't have any further questions. Thank you very much for your answers.
Thank you for your question. As a reminder, star one and one if you wish to ask a question. There are no further questions at the moment. I will hand the conference back to Mr. Yunfei Li for closing remarks.
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. You may disconnect from the call. Let's conclude the conference for today. Thank you for participating.