CBAK Energy Technology, Inc. (NASDAQ: CBAT) reported mixed financial results for the third quarter of 2024 during its earnings conference call on November 1. CEO Zhiguang Hu announced a slight dip in net revenue to $33.5 million for Q3, but an overall year-on-year increase of 18.4% for the first nine months, totaling $114 million.
Despite a temporary production halt at the Dalian facility for upgrades, the company showed a strong gross profit margin in its battery business and reported substantial orders, including a notable one from Anker. Management remains positive about future prospects, particularly due to the demand for light electric vehicles (LEVs) in Southeast Asia and potential expansion into the U.S. market.
Key Takeaways
- Q3 net revenue declined to $33.5 million; however, the first nine months saw an 18.4% increase to $114 million.
- Gross profit margin for the battery business improved significantly to 34.3%.
- The Dalian facility's one-month production suspension for upgrades impacted Q3 revenue.
- Energy storage sector and EV battery revenue fell, while LEV revenue soared by 341%.
- Substantial orders were received, including from Anker and major production bases.
- The Nanjing factory turned profitable ahead of schedule and will expand in 2025.
- R&D advancements include the 26650 cylindrical battery with rapid charging capabilities.
- Management discussed market pressures, demand growth in Southeast Asia, and U.S. expansion plans.
Company Outlook
- Nanjing factory's profitability and planned expansion signal a strong future outlook.
- R&D efforts on new battery models like the 26650 cylindrical battery are expected to bolster the product lineup.
- Positive market demand from Southeast Asia and prospective U.S. expansion indicate potential growth opportunities.
Bearish Highlights
- A decrease in Q3 net revenue was reported, impacted by the Dalian facility's production halt.
- Revenue from the energy storage sector and EV batteries saw a year-over-year decline.
Bullish Highlights
- LEV revenue experienced a significant increase, indicating a growing market segment.
- The substantial orders from Anker and other major production bases suggest confidence in the company's future performance.
Misses
- The temporary suspension of production at the Dalian facility for upgrades resulted in a revenue shortfall for the quarter.
Q&A Highlights
- Management addressed concerns about market pressures and high energy costs.
- They discussed the strong demand for LEVs in Southeast Asia and the lack of local battery production in the region.
- Potential overseas expansion, particularly in the U.S., is being explored due to client demand.
- Ongoing discussions with potential partners for operational management and advance client orders are underway.
CBAK Energy Technology's third-quarter performance reflected a strategic transition period, with investments in facility upgrades and R&D paving the way for future growth. Despite the temporary setback in revenue, the company's robust order book and positive gross margin trajectory, along with strategic expansion plans, position it to capitalize on increasing global demand for battery technology.
InvestingPro Insights
CBAK Energy Technology's (NASDAQ: CBAT) recent financial results and strategic moves are reflected in several key metrics and insights from InvestingPro. The company's market capitalization stands at $88.14 million, which is relatively small, indicating potential for growth in line with the company's expansion plans and increasing orders.
InvestingPro data shows that CBAK's revenue for the last twelve months as of Q2 2024 was $226.24 million, with a revenue growth of 14.84% over the same period. This aligns with the company's reported 18.4% increase in revenue for the first nine months of 2024, demonstrating consistent growth despite the temporary setback in Q3.
The company's profitability is highlighted by an InvestingPro Tip stating that CBAK has been profitable over the last twelve months. This is further supported by the adjusted P/E ratio of 2.92, which suggests that the stock may be undervalued relative to its earnings. Additionally, the gross profit margin of 24.95% for the last twelve months as of Q2 2024 is consistent with the improved gross profit margin reported in the battery business for Q3.
Another InvestingPro Tip indicates that net income is expected to grow this year, which could be attributed to the Nanjing factory turning profitable ahead of schedule and the planned expansion in 2025. This positive outlook is reinforced by analysts' predictions that the company will be profitable this year.
It's worth noting that CBAK's stock has taken a big hit over the last week, with a 1-week price total return of -9.38%. However, this short-term volatility should be considered alongside the company's long-term potential and the strong return over the last five years mentioned in another InvestingPro Tip.
For investors interested in a deeper analysis, InvestingPro offers 11 additional tips for CBAK Energy Technology, providing a more comprehensive view of the company's financial health and market position.
Full transcript - CBAK Energy Technology Inc (NASDAQ:CBAT) Q3 2024:
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the CBAK Energy Technology's Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Xiujun Tian, IR Specialist of CBAK Energy. Ms. Tian, Please go ahead.
Xiujun Tian: Thank you, operator, and hello, everyone. Welcome to CBAK Energy's earnings conference call for the third quarter 2024. And joining us today are Mr. Zhiguang Hu, or Jason, Chief Executive Officer of CBAK Energy; Mr. Jiewei Li, Chief Financial Officer and Secretary of the Board; our General Engineer, Mr. Xiujun Tian and [Yvan], who will help with our interpretation will join us for a Q&A section. We released our 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 U.S. dollars. With that, let me now turn the call over to our CEO, Mr. Zhiguang Hu. Please go ahead, Jason.
Zhiguang Hu: Hello, everyone. Thank you for joining our earnings conference call for the third quarter of 2024. I'm pleased to report on the performance of our battery business for the third quarter and the first nine months of this year. Although, the net revenue from our 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 percentage, reaching $114 million. This is quite remarkable considering the general pressure and the downturn in the entire new energy industry. The main reason for the decline in the net revenue from our battery business in the third quarter was a 1-month suspension of the production line of our Dalian facility in September. As the production line has been operating at full capacity since the beginning of the year, the continuing operating production line resulted in an exceptionally high energy cost and needed to be suspended for refurbishment. We would like to provide a closer look at the revenue breakdown in our battery business. The revenue from battery for energy storage sector reached $33.46 million, a 25 percentage decrease compared to the previous year. EV battery contributed $333,000, a decrease of 17 percentage compared to the same period last year. Battery for light electric vehicles, including 2-wheelers and 3-wheelers brought in $4.9 million, a year-on-year increase of 341 percentage. Overall, our battery business remains focused on energy storage market supplemented by our endeavor to continue exploring the light electric vehicle market with the increase in order from our Indian and Vietnamese customers. We believe that the revenue proportion of light electric vehicles will gradually increase. Our battery business has maintained a high gross profit margin, reaching 34.3 percentage in the first three quarters of this year, an increase of 15.2 percentage points compared to the same period in 2023. This gross margin figure is higher than that of most competitors, including some well-known industry gens. This year, our battery business achieved a net profit of $11.68 million in the first quarter, $7.89 million in the second quarter and once again created a net profit of $2.04 million in the third quarter. When our competitors are suffering industry-wide downturn, we managed to make three consecutive quarters of net profit of approximately monthly $21.6 million. As usual, we will also provide an update on the announced plans. As of November 1, 2024, the total amount of orders received but not yet delivered at our major production bases in Dalian and Nanjing reached RMB 59.61 million, approximately through $8.38 million as of November 1, 2024. Our accumulated order amount with PowerOAK has reached approximately RMB 80.55 million, about $11.35 million. Our orders with Viessmann Group has reached up to €213 million about $233 million. As for Jinpeng Group, our accumulated orders value has reached approximately RMB 67.01 million, about $9.42 million. In addition, our important clients, Anker has made order of RMB 321 million, approximately $45.12 million since our collaboration. This customer have a stable relationship with us, and some of them are encouraging and pushing us for the establishment of our overseas factories and are willing to place orders in advance to help facilitate our move to expand overseas. Our Dalian facility has long been profitable. In Q3, we are pleased to see our Nanjing factory also achieved profitability. The Nanjing factory, we started our operation and manufacturing the new model 32140 large cylindrical battery at the end of 2021 have only been in business for less than three years. Originally, we anticipated that Nanjing factory would have to suffer net losses for a 3-year period. Thanks to the hard work of our team, the Nanjing facility has successfully become profitable ahead of schedule. More importantly, the production line at our Nanjing factory are currently operating at full capacity due to high demand, prompting us to accelerate our capacity expansion plan. As of now, we have signed a procurement contract with equipment supplier and plan to add a new production line that will enable compatible production of model 32140 and 40135 battery in the second phase of Nanjing factory with an estimated capacity of approximately 1.5 gigawatt hour for model 32140 and 1.5 gigawatt hour for model 40135. We anticipate equipment installation in the first half of next year, followed by mass production in the second half. Furthermore, with respect to our R&D efforts, we are steadily advancing the development of new battery model. As just reported, we will soon be able to mass produce the model 40135 large cylindrical battery. The model 40135 large cylindrical battery have a strong market demand in applications such as light electric vehicles and energy storage. Additionally, we successfully developed the tablet model 26650 cylindrical battery and started the mass production in Dalian. The product has a characteristic of 25C discharge rate and performed really well in applications that require rapid energy release. Besides, the tablet 26650 cell can be charged from zero to 100 percentage in just 15 minutes, which is a great practical significance for applications that require fast charging and discharging such as drones, desktop power supply and data center. Currently, we are one of the few companies in the market with the ability to produce this tablet model 26650 battery. Overall, we successfully maintained the strong momentum in our battery business by maintaining a high gross profit margin and sustaining net profit. Considering the current high demand for our model 32140 cells, produced at our Nanjing factory and the newly added capacity for our new model 40135 cells, we will accelerate the pace of capacity expansion to drive continued revenue growth. Now let me turn the call to our CFO, Jiewei Li.
Jiewei Li: Thank you, Jason, and thanks, everyone, for making time to join our earnings conference call today. Since Jason has introduced our key financial metrics, in the interest of time, I will not be duplicating the presentation of the numbers. We encourage you to refer to our press release issued earlier today for complete details. In the third quarter, our battery business experienced a slowdown. As Jason mentioned in his remarks, this was primarily due to a 1-month suspension of production at our Dalian factory. For the first eight months of the year, the factory operated at full capacity without any breaks, which led to a significant increase in energy costs. To mitigate these costs and enable upgrades, we paused operations for a month. During this period, we optimized energy usage and upgraded one production line to support the production of our new tablet model to 26650 cells. As for our Nanjing factory, now in its third year, it has successfully transitioned into a profitable production center with a steady flow of orders fully booking its capacity. Currently, we face a supply shortage of approximately 5 million cells from Nanjing, underscoring the strong demand. Looking ahead, although our gross margin has been exceptionally high, we anticipate a gradual return to more typical levels, yet still higher than industry competitors. In summary, our Dalian factory has long been a key contributor to our net profits, while our Nanjing facility initially incurred losses due to construction, setup of new production lines and the promotion of new battery models. Now that Nanjing has turned profitable, we expect that both factories will drive our financial growth in the future. With the expanded capacity in Nanjing next year, we remain optimistic about the company's performance. Thank you, and we will now open the floor for the Q&A section. Operator, please go ahead.
Operator: [Operator Instructions] We will now take the first question from the line of Brian Lantier from Zacks Small-Cap Research. Please go ahead.
Brian Lantier: Good morning, everyone. I appreciate all the updates. That you're navigating a difficult environment and having success is good to see with some of the new products. I guess, the first question is 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?
Zhiguang Hu: 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.
Brian Lantier: I'll jump back in with another question, if that's okay. 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?
Xiujun Tian: 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.
Jiewei Li: Yes. And also, as we just mentioned in our remarks, the other reason for the suspension of production at Dalian for one month is simply because the Dalian factory has been operated since the very beginning of the year until September without any breaks. So the energy cost was so high at the moment that we decided that we can suspend the production to reduce energy cost. On the same time, we have time to upgrade our production lines.
Brian Lantier: The LEVs are obviously a bright spot right now. Is that principally coming from Vietnam and India?
Xiujun Tian: Sorry, can you repeat your question?
Brian Lantier: Sorry, the LEV business, the light electric vehicles, is that demand principally coming from customers in India and Vietnam?
Zhiguang Hu: 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.
Brian Lantier: 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?
Jiewei Li: 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.
Brian Lantier: Okay. Great. Thank you very much.
Operator: Thank you. [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Jason for closing remarks.
Zhiguang Hu: 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.
Operator: Thank you all again. This concludes the call. You may now disconnect
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