CBAK Energy Technology Inc
NASDAQ:CBAT
Earnings Call Analysis
Q4-2023 Analysis
CBAK Energy Technology Inc
The company reported a 30.9% year-over-year increase in fourth quarter revenues for its battery business, totaling $36.83 million. This included a significant surge in batteries for energy storage applications, which rose by 84.3% to $34.93 million. On the other hand, batteries for electric vehicles saw a decrease by 88.8% to $0.52 million. The energy storage sector remains a strategic focus due to declining revenues in the electric vehicle and light electric vehicles batteries sectors caused by intense competition and lower market prices. The company's gross margin for the battery business reached a historical peak of 36%, rising by 27.7 percentage points from the previous year. The net income for the battery business turned positive in the fourth quarter, recording $6.62 million compared to a net loss in the previous year. The full year revenue for the battery business was an impressive $133 million, a 40.4% increase, with a net income of $13.37 million.
The company has cultivated partnerships with renowned industry players such as Viesmann Group, Anker Innovations, Hello Tech, PowerOAK, and NSURE Energy, and is negotiating potential collaborations in Canada's electric vehicle industry, with plans for a partnership with an India-based scooter manufacturer in 2024. These collaborations are pivotal for the company's recognition in the global battery sector and its commitment to technological innovation, which is crucial for maintaining product competitiveness.
As of March 8, 2024, the company recorded approximately $107 million in unfilled orders. Partnerships with PowerOAK and Viesmann Group have resulted in orders of roughly $8.57 million and $195 million, respectively. Additionally, the company commenced mass production of large synergic sodium ion batteries in the second quarter of 2023, marking a significant R&D achievement. Looking ahead to 2024, the company plans to bolster investments in research and development, increasing production capacity to keep up with its growing client base and demand.
The fourth quarter financial performance showcased a 3.2% year-over-year increase in total net revenues to $56.2 million. The battery business contributed $36.8 million to net revenues, a 30.9% year-over-year increase. The fourth quarter's total gross profit was $12.7 million, up 235.3% year-over-year, yielding a gross margin of 22.6%. The CFO highlighted ongoing discussions with private equity investors for potential private placement financing to support business development. CFO Li mentioned that these investors valued both the battery materials unit Hitrans and the sodium ion battery business higher than current market capitalizations, suggesting that the company's market value could be underestimated.
The company is poised to continue its growth trajectory into 2024, with a full year net profit anticipated for the battery business, further details on net income guidance to be announced later. The company's executives believe the many prestigious, albeit confidential, global clients serve as a testament to its solid business fundamentals. These relationships facilitate a balance between growth and profitability and will enable the company to remain a frontrunner in the industry for years to come.
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Good day, ladies and gentlemen. Thank you for standing by. Welcome to CBAK Energy Technologies Fourth Quarter and Full Year of 2023 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'll turn the call over to Thierry Li, CFO and Secretary of the Board of CBAK Energy. Mr. Li, please proceed.
Thank you, operator, and hello, everyone. Welcome to CBAK Energy's Fourth Quarter and Full Year of 2023 Earnings Conference Call. Joining us today are Mr. Yunfei Li, Chief Executive Officer of CBAK Energy; myself, Chief Financial Officer and Secretary of the Board; and Jennifer our interpreter. [Technical Difficulty] 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 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.
[Interpreted] Hello, everyone. Thank you for joining our fourth quarter and full year 2023 earnings conference call. We are pleased to announce another quarter of solid growth, routing our fiscal year 2023 on a high note. With sustained orders from key clients, including Viesmann Group, Anker Innovations and Hello Tech. Our battery business maintained its growth momentum from the previous quarter, with fourth quarter revenues up 30.9% year-over-year to reach $36.83 million. Of these revenues, $34.93 million came from batteries used in energy storage applications, a surge of 84.3% year-over-year, while [ $0.52 ] million came from batteries used in electric vehicles, down 88.8% year-over-year. Moreover, revenues from batteries used in light electric vehicles were $1.38 million a decline of 69.5% year-over-year, primarily attributable to intense [ competition ] and relatively low pricing across the power market. Accordingly, we will strategically monitor both sectors while further expanding our sales in energy storage sector.
In terms of profitability, our battery business's gross margin rose to a historic high of 36% in the fourth quarter of 2023, up 27.7 percentage points year-over-year. Moreover, we achieved a second consecutive quarter of net income from the battery business recording a net income of $6.62 million in the fourth quarter of 2023, a notable improvement compared to a net loss in the same year -- in the same period last year. In full year 2023, our battery business generated revenues of $133 million, soaring by 40.4% year-over-year. We delivered a full year operating income of $10.44 million with a net income of $13.37 million from the battery business [ based on addition ]. In 2023, we made significant strides in our business operations on all fronts, achieving progress at various stages. Through consistent requirement of battery technologies and production ramp-up, we effectively fulfill customer orders and have nurtured a loyal, stable client base. We have fostered deep and robust partnerships with industry leaders worldwide, including Viesmann Group, a leading provider of residential energy storage application in Europe and one of the world's largest manufacturers of heating and cooling systems. Anker Innovations, the largest third-party accessory supplier for Apple Inc.'s products, Hello Tech, the largest supplier of outdoor portable energy storage globally and parent company of Jackery. PowerOAK, the world's leading portable power station manufacturer and the parent company of top-rated portable power supply brand, BlueTTI and India-based NSURE Energy, among others. We have also forged a partnership with the largest battery manufacturer in Europe. However, due to confidentiality obligations, we cannot disclose their identity for now.
In addition, we have been negotiating with key stakeholders in Canada's electric vehicle industry, exploring potential collaborations with the intention of formalizing agreements. We will keep our shareholders and investors informed of these developments after securing consent from our clients. Furthermore, we expect to establish a partnership with a leading India-based scooter manufacturers in 2024. These partnerships and potential alliances demonstrate the broad recognition of our battery technologies and product excellence by top-tier players in the global battery sector. Moving forward, we will remain committed to technological innovation to bolster our product competitiveness, delighting customers with safe and reliable products. Turning to our order demand. As of March 8, 2024, we have recorded RMB 771 million or approximately $107 million in the combined value of orders we have received but have yet to fulfill across our 2 main production facilities Dalian and Nanjing and heightens our [Technical Difficulty]. Additionally, we have made substantial strength in our previously disclosed client initiatives. As of March 8, 2024, our collaboration with PowerOAK has brought us orders amounting to roughly RMB [ 61.6 ] million or approximately [ $8.57 ] million. Our partnership with Viesmann Group has generated orders totaling EUR 213 million or approximately $195 million. Furthermore, our [Technical Difficulty] world's largest scooter and battery [Technical Difficulty] orders amounting to roughly [indiscernible] or approximately [indiscernible] . In addition to orders from Viesmann, we have progressively fewer a substantial [Technical Difficulty] amounting to RMB 73.55 million or approximately [Technical Difficulty]. Next, let me walk you through our latest R&D developments. In the second quarter of 2023, we successfully commenced mass production of large synergical sodium ion batteries, emerging as one of the few companies worldwide with the capacity to mass-produce sodium ion batteries. Our sodium ion battery production lines are currently located at our Nanjing facility, which features a 0.5 gigawatt hour capacity. Since we commenced mass production demand for our sodium ion battery has outstripped supply. As a result, we have been actively engaging with PE investors to ramp up sodium ion battery production capacity. In the meantime, we have also been developing large synergical lithium ion battery models, including model 40140 and 46120. Model 40140 is in prototype A sample stage and Model 46120 is already in prototype B sample stage. We expect Model 46120 to complete prototype B sample stage and become ready for mass production by the latter half of 2024. We will continue to fine-tune these models in response to market demand dynamics, potentially leading to modifications before the start of production. We have also strategically optimized our production capacity with a well coordinated production line layout, currently at our Dalian facility, we operate 3 production lines, primarily manufacturing model 26650 lithium iron phosphate batteries with a total annual production capacity of 1 gigawatt hour, to better address customer needs and mitigate supply shortages at our Dalian facility caused by excessive demand. In 2023, we leased a battery plant located in [Jiangsu] for producing Model 26700 batteries. Today, our [ Jiangsu ] facility is equipped with a production capacity of 0.5 gigawatt hour sufficient to fulfill part of our customer demand. This strategic move further boosted our production capacity, ensuring a more stable and reliable supply of products to clients.
Regarding our Nanjing facility, the Nanjing Phase 1 project consists of 2 production lines, 1 dedicated to production product model 32140 synergical lithium ion batteries then the other outfit should produce either synergical lithium batteries or synergical sodium ion batteries. The project's capacity is up to 2 gigawatt hours when both lines are producing lithium ion batteries or up to 1.5 gigawatt hours when one production line is dedicated to sodium ion battery production. Furthermore, construction of our Nanjing Phase 2 project is in full swing with 3 large factories in the pipeline. Once all 3 are completed and operational, the total capacity of Nanjing Phase 2 project is expected to be up to 18 gigawatt hours. Thus far, the first factory has been [ looped ] and interior decoration is underway. We will determine whether to [ outstrip ] this factory with production lines for sodium ion or lithium-ion batteries based on customer demand. Moving forward, we will further optimize our production line layout to enhance production efficiency, ensuring that we can respond swiftly to market shifts and order fluctuations. In summary, despite the tepid macro economy environment and downward pressures across the battery sector, our battery business consistently demonstrated robust growth momentum and resilience in the full year 2023. The vitality was reflected both in our strong financial metrics and in the stability of our client base and the wealth of orders in our pipeline. More importantly, the company's industry leadership and technological age have been fully acknowledged by across the industry evidenced by the adoption of our products by the most advanced battery facility in Europe. As a pioneer in the sodium ion battery production, we possessed immense potential and competitive advantages in the renewable energy field. Looking ahead to 2024, we will further increase our investments in research, development and production capacity. Also, by fostering more and deeper collaborations with globally renowned clients, we will further augment our market share and elevate the company's global influence and visibility. We are confident that these synchronized endeavors will segment our position as a frontrunner in the competitive industry for years to come. Now let me turn the call over to our CFO, Mr. Li, who will provide details on our financial performance.
Thank you, everyone, for making the time to join our earnings conference call today. As our CEO mentioned earlier, we concluded the year with a robust fourth quarter financial performance from our battery business, where we achieved a double-digit increase in net revenues and positive income for the second consecutive quarter. We are pleased to see continued growth momentum in our battery business. Building on our solid fundamentals, we remain confident in our growth transitory through 2024 and anticipate a full year net profit for our battery business. We will provide more details on our net income guidance at the appropriate time. Turning now to Hitrans, our current battery material unit, which we strategically acquired in 2021. At the time of the acquisition Hitrans boosted a strong client base and a higher level of revenue. Following the acquisition, we maintain Hitrans's core management team and refrain from interfering in its day-to-day operations. We have no addition, no financial obligations to Hitrans and its financial health will not materially affect the financial standing of our battery -- that is only reflected in our consolidated financial statements. That's why we have focused on reporting financial results solely from our battery business in our earnings release and earnings conference call to provide investors and shareholders with a clear understanding of our performance. We are currently talking with private equity investors for Hitrans and sodium ion battery business, and we hope to complete a private placement financing to support the development of our business. These investors, whether they are interested in Hitrans or the sodium ion battery business are consistently valuing the individual businesses, materials, and sodium ion batteries and more than the current market capitalization of our entire public company. Notably, their valuations do not take into account our core lithium battery business, indicating that our market value is currently significantly underestimated. I will now provide an overview of our 2023 fourth quarter financial results. In the interest of time, I will be presenting abbreviated highlights only. We encourage you to refer to our press release issued earlier today for complete details.
In the fourth quarter, our total net revenues increased 3.2% year-over-year to $56.2 million. Net revenues from sales of batteries reached $36.8 million, a year-over-year increase of 30.9%. Our total gross profit grew 235.3% year-over-year to $12.7 million resulting in a gross margin of 22.6% compared to 7% in the prior year period. Gross profit for the battery business increased by 470.8% year-over-year to $13.2 million, with gross margin climbing to 36% from 8.3% in the prior year period.
Our total operating loss amounted to $5.9 million compared to an operating loss of $8.8 million in the prior year period. Net loss attributable to shareholders of CBAK Energy after deducting the change in the fair value of warrants was $4.8 million compared to a net loss of $11.7 million in the prior year period. Net income from the battery business was $6.6 million compared to a net loss of $6.4 million in the same period of 2022. As we mentioned earlier, we have a large number of prestigious clients around the world. However, due to confidentiality agreements, we cannot disclose their names without their consent. Going forward, we will actively communicate with them as part of our customer disclosure. We hope to be able to disclose more client names to our shareholders in 2024. In conclusion, our solid fundamentals will continue to provide a solid foundation for our business going forward, enabling us to strike a healthy balance between growth and profitability. That concludes our prepared remarks. Let's now open the call for questions.
[Operator Instructions] First question comes from Brian Lantier from Zacks Small-Cap Research.
I just wanted to hone in a little bit on the gross margin. Do you feel like the gross margin in the fourth quarter was -- is that going to be a sustainable gross margin going forward? And was it principally driven by pricing on your products and some of the new contracts or was it more on the input side as costs have come down for some of your inputs?
Let me respond to your question, Brian. I think as you may be aware that the current competition in the battery market is very intense and key players in this industry keep lowering down their price to gain much more orders and customers. We are completely different. Our batteries boosted a feature of highly stable and high safe characteristics and our biggest clients up to 3 years testing completely satisfied by the performance of our battery products. That's why they're willing to keep us a high price at this market condition. Coming back to your question, we believe that being affected by the current market condition, the price will also go down in the long term, but we are still confident that the gross margin that we will present to you in the coming reporting period will still be higher than the market average.
Great. And I know we've talked in the past about long-term capacity goals, and I know that's a little bit influx right now because it will be based upon whether you're producing lithium batteries or sodium batteries. But do you have any long-term capacity goals for 2024, 2025 that you can share with us at this point?
[Interpreted]
Well, so in terms of capacity growth, well, we have steadily increased our capacity based on our cooperation with our clients and also we increase it according to the needs of our clients. So that is why in the past years, we have steadily ramped up our capacity in different production facilities. And as you can see from our 2024 to 2025 reports, we have introduced a lot of big customers in the past year and the introduction of the big customers will also boost our -- will require us to boost our production capacity so that we can well meet their demand. So in the future, we are going to continue to increase our production capacity. And when it comes to the sodium battery, well, I have to say this is a battery that enjoys a great future. For sodium ion battery, it has some good features that lithium ion battery cannot compete. For example, it is suitable to be used in low temperature condition especially. So in the future, we believe that we will also substantially increase and expand the production capacity of sodium ion battery, and we have a good expectation for that.
Let me add one point. As we mentioned in our report that we have 3 major factories under construction for Nanjing Phase 2 and the first factory has been [ blueprinted ]. So we are doing interior construction at this moment. If everything goes well, we will have one production line for this factory in 2024. But if it's -- we cannot determine if it will be producing a sodium ion batteries or lithium ion batteries. This is up to client demand. And also, we are also talking to private equity investors about financing on the sodium ion project. So that would also affect our decision-making. So it's a decision that we will make in this year and a lot of the factors affect this decision-making.
Great. I appreciate that. The last question I have is, I guess, on outside investment. If you could give us some sort of idea as to how advanced these negotiations are? Do you think this is a -- we could hear something in the first half of 2024 or the back half of 2024, either regarding high trends or a sodium investment?
Well, let me respond to this question. We hope that we can announce something really positive in the first half of 2024, but it's really depending on the private equity investors. I can -- the information I can share is that a lot of the investors from China are very interested in our sodium ion batteries because we are almost the only one that can mass produce the largest synergical sodium ion batteries. But we're also doing a lot of the math with them right now because investing in a new battery plant is very expensive and we need to discuss with them about how much financing we need from them and what structure, which should best meet from ours and also doable for them. [indiscernible] negotiation, but everyone is very interested.
[Operator Instructions] Seeing no more questions in the queue. Let me turn the call back to Mr. Yunfei Li for closing remarks.
[Interpreted]
Thank you. 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 your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]