Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technology's third quarter 2021 earnings conference call. Currently, all participants are in the 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. If you have any objections, you may disconnect at this time. Now I'd like to turn the call over to Mr. Thierry Jiewei Li, Investor Relations Director of CBAK Energy. Mr. Li, please proceed. Thank you, operator, and hello everyone. Welcome to CBAK Energy's third quarter 2021 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer, and Mrs. Xiangyu Pei, the Interim Chief Financial Officer. 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. On the call with me today are Mr. Yunfei Li, Mrs. Xiangyu Pei, Mr. Wenwu Wang, the Vice President of CBAK Energy, Mr. Xiujun Tian, our general engineer, our interpreter, Mrs. Yang. 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 involved 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 obligation 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 in English. Go ahead, Mr. Li.
Thank you, Terry, and hello everyone. Thank you for joining our earnings conference call today. I am very pleased with our rapid revenue growth from high-power lithium batteries, which saw a 51% year-over-year growth to reach $9.6 million, and is a testament to the excellent quality and performance of our battery products. I am also happy to report that the new installations in Dalian and Nanjing plants are all on track and progressing according to schedule despite the global energy shortage and the new round of commodity price hikes.
We believe our production expansion will yield positive business outcomes and amplify our ability to supply as we continue to build sales momentum in line with the global demand for clean energy-based products. In the third quarter, we also made a strategy decision to accelerate the new product line installation in Dalian, which was necessary as demand was exceeding our supply. This timely response increased the confidence our customers have in us and help us secure more orders. As is our priority to meet the vigorous and various demand for our existing battery products and our ongoing innovation, we further expanded our research and development while broadening our product offerings. Overall, we believe our operations and growth strategies are well executed and ensures our position for capturing tremendous opportunities in the battery storage market.
现在我想与您分享经过我们在研发方面的不断努力后，我们在创新和扩展产品组合方面取得的一些最新进展。
I would now like to share with you some recent advancements we have made in innovating and expanding our product portfolio following our dedicated efforts in research and development.
请裴总继续。
八月，我们专为超低温应用设计的特殊26650锂离子电池获得了世界领先的测试检验和认证公司SGS的性能认证。我们的子公司大连中比电池是世界上第一家获得对这种独特电池认证的公司。我们相信这是了不起的一步，验证了我们特殊26650电池的运行效率和我们在行业中的技术领先地位。我们的客户已经在测试我们的产品样品，我们也看到这种电池的需求在不断增长，该电池适用于中国北方地区恶劣天气及航空航天等极低温条件下。我们预计特殊26650电池可能会在我们的产品组合中产生卓越的表现和成绩。
In August, our special 26650 lithium-ion battery designs especially for ultra-low temperatures received a performance certification from the world's leading testing, inspection and certification company SGS. Our subsidiary Dalian CBAK Power Battery is the world's first company to receive certification for this unique battery. We believe this is a remarkable step forward that validates the operational efficiency of our special 26650 battery and our technological leadership in the industry. Our customers have been testing our samples and we have seen growing demand for this product that is suited for use in extremely low temperatures, such as in China's northern region, harsh weather conditions, as well as for the aviation and aerospace industries. We expect the special 26650 battery among our product portfolio to generate superior performance and results. [Foreign language]
第三季度，我们将26650电池的扩产替换为新增的26700电池生产线，对原计划的产品进行升级。截至九月底，我们完成了26700电池的调试，获得了两轮电动车生产商的积极响应。在新设备和改进的生产工艺的助力下，这种新型电池的单位容量比26650的锂电池更大，但制造成本显著降低。这种电池将在年底达到商业化生产的条件。
In the third quarter, we replaced the expansion of model 26650 batteries with the newly added production line of model 26700 batteries to upgrade original product. As of the end of September, we completed a shakedown test for the model 26700 batteries, which have garnered positive responses from two wheel electric vehicle producers. Supported by new equipment and improved production process, this new battery has a bigger unit capacity than model 26650 battery, but at a significantly lower cost. The new battery will be ready for commercial production by the end of the year. [Foreign language]
同时，我们还完成了针对LEV、EV市场的32140电池的测试调试。借助凭借我们一流的性价比和满足多样化客户需求的能力，我们希望我们的产品能够在日益增长的客户群中产生共鸣，促使我们成为顶级LEV制造商的主要电池供应商。Meanwhile, we also completed a shakedown test for the model 32140 battery that targets the LEV and EV market.
With our stellar price to performance ratios and ability to address diversified client needs, we expect our product offerings to resonate across a growing customer group, making us become a major battery supplier for top LEV manufacturers. [Foreign language]
我们在后两种新电池的发展也反映了我们的产能扩张正在按计划进行。我们对扩产的进展感到极为欣喜，扩建是为进一步和未来的增长所做的周密的准备。一旦完成建设，其产量和我们现有的产能将更好地支持我们满足对我们创新和可靠的电池产品日益增长的需求。
Our developments in the latter two new batteries also reflect that our capacity expansion is being carried out as planned. We are extremely pleased with the progress we are making in building new production capacity. Our expansion is a strategy meticulously prepared for further growth that will extend far into the future. Once completed, its output along with our existing capacity, will better support us to cater to the increasing demand for our innovative and reliable battery products. [Foreign language].
接下来我想介绍一下我们对浙江美都海创锂电科技有限公司大部分股权收购的进展。
海创是中国领先的三元前驱体和正极材料开发商和制造商，同时也是我们的主要供应商之一。我们目前正在根据所需的法律程序进行资产转让，这个过程比预期的要长，但我们仍在努力走完所有的程序完成交易。交易完成后，我们相信这种最稳定原材料供应的战略整合不仅将在将来，不仅将在商品价格上涨的背景下使我们短期内受益，而且将为我们的业务和增长战略带来长期价值，并推动我们努力建立一种创新的关于储能和电动汽车电池解决方案的生态系统。
Next, I would like to bring updates of our progress in acquiring a majority of equity interest in Zhejiang Meidu Hitrans Lithium Battery Technology Co., which is a leading developer and manufacturer of ternary precursors and cathode materials in China and is also one of CBAK Energy's key suppliers. We are currently in the process of its asset transfer which requires court proceedings. This process is taking longer than expected, but we are still making efforts to complete all the proceedings and close the transaction. Upon the completion of this transaction, we believe this strategic consolidation for a stable supply of raw materials will not only benefit us in the short term against the backdrop of rising commodity prices, but also bring long-term value for our business growth strategies and fuel our endeavors in building an innovative ecosystem-based solution for power, storage and electric vehicles. [Foreign language].
总而言之，随着人类社会的技术进步，我们看到了不断增长的需求，推动了电池行业的蓬勃发展。凭借我们创新和不断扩大的产品组合、产能提升和战略整合，我们有能力把握广阔市场带来的增长潜力，在全球经济复苏后，势必会有更加巨大的增长规模。今年和明年是我们巩固自身技术优势并扩大产能的时候。通过这些持续的创新和准备，我们会坚持为股东创造价值，并对未来的发展充满信心。
To summarize, we see an ever increasing demand driving the battery industry with society's technological advancements by leveraging our innovative and expanding product portfolio, capacity ramp up and strategic consolidation. We are well positioned to grasp the growth potential of this vast market, which will be even greater once the global economy recovers. It's time for us to cement our technology strength and expand manufacturing capacity this year and the next. With these ongoing innovations and preparations, we remain confident for our future development while maintaining our commitment to always generate value for our shareholders. [Foreign language]
接下来请我们的CFO裴晓颖给投资者介绍一下公司的财务表现。
Now let me turn the call over to our Interim CFO, Xiangyu Pei, who will provide details on our financial performance. Go ahead, Ms. Pei.
Thank you, Mr.
Yunfei Li, thank you everyone for joining our call today. I will now go over our key financial results for the third quarter of 2021. For the full details of our financial results, please refer to our earnings press release. In the third quarter, our financial performance for battery sales remained strong, reflecting robust demand for our industry-leading and dependable products. Net revenues were $9.6 million in the third quarter, and excluding revenues from raw material trades, approximately $9.6 million was from high-power lithium battery business of 51% year-over-year growth from high-power lithium battery revenues in the same period of 2020. We didn't incur new raw material transactions during this period. Before our move to buy a majority of equity interests in Hitrans, transactions such as trading raw materials for batteries were only made when suitable opportunities arose, which did not occur in the third quarter of this year. However, once we complete the acquisition of the equity interest in Hitrans and consolidated its financial accounts, we expect to see more opportunities and revenues from raw materials. Additionally, as Mr.
Li had mentioned, the new production line installation in our Dalian plant had a temporary adverse impact on existing production line, while our production in the future will be supported by both our existing and newly established production capacity. Cost of revenues fell 9% to $8.4 million as we strove to control costs to counter the increase in raw material prices. Our previous efforts to lock in the supply of certain raw materials helped us to avoid a bigger blow from commodity price hike. Meanwhile, along with our peers, we have raised the battery prices to offset the impact from growing material prices, which our customers have accepted as the increase in battery prices is within a reasonable range. Our gross profit was $1.1 million in the third quarter, down 17% from a year earlier.
Gross margin was 12%, a decrease of one percentage point from the previous year. The inflation of the price of raw materials resulted in the increase in costs. Total operating expenses rose 339% year-over-year to $4.3 million. Most of the increase in all operating expenses categorized were due to growing headcount and the research and development expenses associated with our Nanjing production facility, as well as the expiration of the Chinese government's COVID-19 relief policy that had reduced the social insurance contributions during the pandemic. Of that, research and development expenses were $1.8 million, up 307% year-over-year. Sales and marketing expenses increased 203% to $0.5 million.
General and administrative expenses rose 191% to $2.2 million. As we managed and improved the customer relationships and the quality of our customers, we recovered $0.2 million of doubtful accounts compared to a recovery of $0.4 million a year earlier. Our change in fair value of warrants was $23 million in the third quarter compared to nil in the prior year. Thus, we were able to generate net income of $20 million during the period, compared to net income of $41,715 in the same period of 2020. As of September 30, 2021, our cash and cash equivalents reached $2 million compared to $33.3 million as of June 30, 2021.
With our solid financial position, we are fully capable of enhancing and expanding our product offerings with increased production capacity, setting us on track for further growth and success into the future. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound key. Please stand by while we compile the question and answer roster. Once again, ladies and gentlemen, star one for questions. The first question comes from the line of Laura Liu from Zacks Small Cap Research. Please go ahead.
Good evening, everyone. I have a couple questions about the company strategy and also the structures. My first question is about the revenue strategy of the raw materials and like who are the customers and why was the sales suspended?
Okay, Liu.
The question is to-
Oh.
Miss Pei. Miss Wang. Mr. Xiujun Tian.
My question is to Ms. Pei and Mr. Xiujun Tian.
但是我们在前几个月已经公告了，正在收购原材料厂商海创公司，那么该公司的主营业务为三元正极材料及三元前驱体的材料的研发、生产和销售。所以未来在我们完成收购之后，那么公司在原材料端的营收会有较大的增长，那么这个增长也将会变成公司的一项经常性的收入。那么未来这部分的营收将会来自于原材料的生产和销售，而并不是过去的贸易。
The revenue related to the raw material sales reported in the same period of last year came from our raw material futures trading. At that time, based on our industry experience, we thought that some raw materials were at a low price, so we did some transactions and we did generate profits. However, this part of revenue does not belong to recurring revenue. It just came from an action that we took in response to the fluctuation of the market price. In this quarter, this year, as there was no futures trade in raw materials, so this part of revenue didn't exist.
However, a few months ago, our company announced that we are in the process of acquiring Hitrans, a raw material manufacturer committed to R&D, production and sales of ternary cathode materials and ternary precursors. Therefore, after the completion of the acquisition, our revenue from the raw material will have a substantial increase and became a recurring revenue of our company. In the future, this part of revenue will come from the production and sales of raw materials rather than the futures trade reported last year. That is for the translation.
Okay, thank you.
Any other questions?
The next question is about the EV companies like manufacturing plants. Because some companies they have very aggressive plans. What do you think of the market opportunity over there and like who are the major customers in the new market?
好，那下面一个问题是关于，我们发现现在市场上有很多EV相关的这个电池的企业，他们都有一些宏伟的大规模的扩产的这样的一个计划，那我们公司是怎么样看待这个市场机会的？还有目前哪些公司会是我们公司想要触及的目标客户呢？
这个问题的话，请王总跟田总互相补充一下。
好的，那我先来回答，王总帮我来补充。我们是这样看待的，现在这个EV市场的话，是真真正正地进入到了自我造血的一个阶段。所以说现在这个EV市场是越来越火爆，然后认知度也越来越高。所以说EV市场上迎来良性的一个增长。后面的话呢，也就是再有这样的一个多个领头企业予以这个增大投入，这也是可以理解的。那么我们就是也是在这个市场上，也在早期二零二零年的话呢，也开始布局这个市场。我们的话呢，是更看重A00级、A0级这种小乘用车这个市场，那么这个市场的话呢，在近两年的增长势头都是很猛的，尤其是在近期蝉联这个销售榜冠军的迷你车型，月销量都在三万台以上。所以说我们也是将此类车型作为我们的这个目标市场。在近期的话呢，我们也与多家此类车型的这个企业进行过这个项目的对接，而且对我们的电池的话呢都很有感兴趣，而且我们也有供货。那么我们现在这个对于这个市场的目标是先以走量的这个迷你车型将作为我们的这个产能拉升，后续的话呢，我们也会进一步去布局高端车型，像后面的我们大圆柱的话呢，都会与这样的一个高端车型的话呢，做一些这个更深入的一个合作。
We believe that the EV market has really entered the market-oriented self-sufficient stage. We can see that EV has become more and more popular among the consumers. As a result, the EV market will usher in a robust growth era. That is why many battery companies have dedicated more inputs to stepping up production capacity. We were fully aware of this opportunity. As a matter of fact, we began to formulate our strategy as early as the second half of 2020. We pay more attention to the A00 and A0 small passenger car market, which has a strong growth momentum in the past two years. Recently, the monthly sales amount of many models have ranked the first in sales with a monthly sales amount of over 30,000.
We also see producers of such models as our target customers. Lately, we organized some meetings for business cooperation with quite a few manufacturers of this kind, and they also expressed their interest in cooperation with us. Our goal is to ramp up our production capacity for mini models as a start, and then we're going to scale up and extend to more high-end models. For our large cylindrical batteries, we will target at this kind of high-end market. That's it for the translation.
Thank you. My last question is about the structure and also the risk. Is the company operating under the VIE structure? And how about the auditor's side? Like, is the auditor PCAOB certified? And if there's any delisting risks.
好，那第三个问题是关于架构的问题。我们公司是不是这个VIE的这个架构的？那这个我们公司的审计是不是在PCAOB注册过的？那有没有什么被摘牌的风险呢？
这个问题请我们CFO裴总来回答。
我们公司不是VIE架构的，我们是直接在美国的上市主体，直接控股香港的公司，进而间接地控股，香港公司直接控股境内运营的子公司。我们这种架构和传统的这种互联网企业通过运营协议间接控股运营主体的这种VIE架构有着本质的区别。那么我们目前的架构对于投资人来说风险是更小的。那么关于我们的审计事务所，中正达，他们是在PCAOB以及香港的会计师公会，HKICPA都是注册登记的，是非常正规的会计师事务所。那么公司因为合规方面的原因，面临摘牌的可能性很小，希望投资人更多关注股价波动所造成的风险。谢谢。
CBAT is not adopting VIE. Our listed entities in the United States directly control the entities in Hong Kong, and the Hong Kong company directly hold subsidiaries operating in China. It is essentially different from the structure of the traditional internet companies who indirectly control the operation subjects through operation agreements. The risk with us is much smaller than those for the investors. Our auditor CZD is registered in PCAOB and HKICPA, and it is a legal accounting firm. There is little possibility that our company will be delisted due to non-compliance issues. What the investors should pay more attention to is the risk posed by stock price fluctuations. That's it for the translation.
Okay, these are great. Yeah, these are all my questions. Thank you very much.
好，那么刘女士的问题问完了，非常感谢各位的回答。
Thank you. Our next question comes from the line of Ranbir Makh from MSBM Wealth. Please go ahead.
I want to know, a lot of people have taken control and supplying the EV market, but there's no news of what CBAT is doing itself. There's a lot of talk, but there's nothing on your website or what your plans are going forward. From the last update, it seemed as if there was going to be quite a few bits going forward, but nothing announced. Could you state why?
好，那么关于来自马先生的这个问题，那么关于我们进军EV市场的话，我们网站上面曾经有过一些相关的报道，但是近期来讲并没有宣布具体的一些操作或落地的政策，那能不能解释一下为什么最近没有这方面的更新呢？
这问题请王总回答或田总回答。
不好意思，请再重复一下这个问题。
重复一下对吧？就是那个，我们有这个进军EV市场的这一个计划，但是我们从公司比如说网站上面发布的信息来看，之前有过这样的信息，但是近期没有对于这个进军的政策怎么样具体地落地，没有一个更新，也没有宣布其他一些具体的措施。那能不能解释一下为什么没有做这方面的更新呢？
因为我们布局，目前我们在南京基地开始布局那个大圆柱，像特斯拉类似工艺的这种中小大圆柱。我们前期的初衷是，作为这个LEV以及我们的这个
A00级的轻用车及低速车市场，当时我们的重心是在LEV市场，但是因为随着今年这个市场的爆发，各种车厂也非常缺这个电池产品，那我们现在及时地调整我们的方向，而且我们的产品非常适合这个市场，所以我们今年就是目前我们的方向就是往这个EV市场去转，包括我们未来的布局。
好的。
首先，我是在这边负责技术方面的，是技术的负责人。那从技术角度来说，这个问题的话，就是，任何一个整车厂的产品开发，它的开发周期都是非常长的，在早期的话，都有三年之久。那么在近两年，因为工业化的发展，所以说整车厂的开发周期会大大地缩短了。但即便如此的话，也会有一年多的预研和产品设计这样的一个过程。那么我们在跟整车厂对接的时候，我们是在产品预研阶段就已经参与到电池的设计中了，所以说我们的产品是属于正向的设计。这样的话，就是在我们参与这个设计阶段和最后的量产阶段，这个过程会是一个相对来说漫长的过程。你先翻译。
嗯。
我们与我们的合作伙伴，包括国内的整车厂，包括江淮、奇瑞这样的整车厂，我们的实质性的合作已经建立，而且选型的工作已经做好，我们的前期研发产品都已经在测试阶段。当然这个具体型号在这里不公布，选择的是大圆柱，46系列这样的一个产品。除了国内的整车厂以外，国外的整车厂对我们这个大圆柱的产品是非常感兴趣的，包括一些德系的奔驰、保时捷这样的德系车企，对我们这个产品也是非常感兴趣的。
In China, we have already developed some substantial partners, such as the JAC Automotive and the Chery Automotive. When I talk about substantial cooperation, it means the selection of the product models and then the R&D of the products. I can tell you that the production and our partnership is already in the phase of pilot production. I cannot release the exact model here in front of you, but I can tell you that it is in the 46 series of our products. If we have a look at the overseas markets, some foreign car manufacturers also show their interest in our products, such as some German companies. They are also very interested in these products.
基于以上的话呢，我们前段时间的这个成绩，技术成绩，在接下来一个不是很久的一个时间的话呢，我们在这个EV市场上的这个业绩应该会有一个比较不错的一个业绩表现。
Based on the achievements that we made in the previous period, we can say we are really confident in our future performance. We believe that we can have a remarkable performance in the EV market in the future.
You've had interest, but is there any significance of signing up any of these deals with?
We are at the stage of technical discussion. As for informal agreements, you need to refer to the announcement that we will probably publish on our website or some official channels.
Okay. Thank you.
All right. Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Yunfei Li for closing remarks.
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.