CBAK Energy: Predictable Profitability Warranted By Expanding Capacity, Product Innovation and Strategic Vertical Integration

Rhea-AI Summary

CBAK Energy Technology, Inc. (Nasdaq: CBAT) reported significant financial growth for Q2 and 1H-2022, achieving a 337% year-over-year increase in net revenues from its battery business, totaling $56.4 million in Q2. Overall revenues reached $136.5 million, up 857% year-over-year, amid strong demand. Despite raw material price pressures, the operating expenses as a percentage of revenues dropped to 9.6% in Q2 from 64.9% the prior year. The company's order backlog stood at $55.35 million, with expansion plans underway to meet growing demand.

Positive

• Net revenues grew by 857% year-over-year, reaching $136.5 million in 1H-2022.
• Battery business revenues increased by 337% year-over-year in Q2.
• Order backlog as of August 5, 2022, stood at $55.35 million.
• Operating expenses as a percentage of revenues dropped significantly to 9.6% in Q2 from 64.9% a year ago.

Negative

• Gross profit margin decreased to 8%, down from 19.5% in Q1-2021 due to rising raw material prices.
• Net income attributable to shareholders fell to $1.3 million compared to $32.3 million in Q2-2021.

2Q-2022 and 1H-2022 Earnings Overview

NEW YORK, Aug. 30, 2022 /PRNewswire/ -- On August 15, 2022, CBAK Energy Technology, Inc. (Nasdaq: CBAT), a leading China-based lithium-ion battery manufacturer and electric energy solution provider released its second quarter and the first-half of 2022 earnings ended June 30.

Another remarkable quarter with continued sales momentum

Following the momentous first quarter of 2022, CBAT had once again achieved another significant milestone with sustained sales momentum in both battery products and battery materials in the second quarter of 2022. 

Specifically, net revenues from the battery business alone grew by approximately 337% year-over-year in Q2, while the overall revenues grew by 857% and 792% year-over-year, reaching $56.4 million and $136.5 million in the second quarter and the first half of 2022, respectively.

Industry demand significantly outweighs CBAT production capacity providing strong tailwind for the second-half of 2022

With great resources pouring into the new energy industry by the government on the back of robust market demand, CBAT management has been proactively expanding the Company's new energy batteries production capacity and R&D investment, which had transpired to remarkable sales performance so far this year.

Specifically on production capacity expansion, in addition to the Dalian production center currently with an annual capacity of 1GWh, there are also two planned phases for the Company's new Nanjing manufacturing center.  Phase I was only put in production at an initial capacity of 0.7GWh in late 2021, grown to 1GWh currently, and is expected to double that to 2GWh around the end of 2022 or early 2023.

However, such level of capacity remains far below the industry's elevating demand.  The initial Phase II operation is expected to start in late 2023, with a target to deliver 6GWh per year until an annual capacity of 18GWh is reached. 

In terms of end-product applications, the Nanjing plant will mainly focus on producing large cylindrical batteries catered for the EV/LEV customers, while Dalian facilities will continue to focus on the Company's matured models (e.g. 26650/26700 batteries), which are catered to the energy storage industry.

Sustained Strong Order Backlog

As expected, CBAT received additional orders in the second quarter, and more orders of larger size is believed to start in the 3rd quarter of 2022. 

Following the sample delivery of battery packs worth of $208,000 to Azapa and Daihatsu, the order backlog stood at $55.35 million as of Aug. 5, 2022. The Company is now producing more samples of battery systems, and anticipates to receive an order of 5,000 to 10,000 units of battery pack from Daihatsu next year.

Gross margin remained under pressure dragged by industry-wide raw material price increases, while operating-expenses margin dropped materially

Although the price hikes in battery raw materials remained a setback to the Company's battery production margins, CBAT management has been taking actions to mitigate its impact, such as signing long-term supply agreements with major suppliers to secure major materials supplies, expanding into the upstream raw material business and use battery material price inflation to offset the decrease in gross margins of battery plants, and renegotiating prices with downstream customers to successfully raise product prices for the Company's key customers.

Meanwhile, CBAK has also continued making investments into sales & marketing and R&D to grow orders and innovation, and into new facilities to extend production capacity catered to growing orders and economy of scale.

Notably, despite that gross margins remained under pressure, the Company's operating expenses as percentage of revenues were lowered to 9.6% and 8.8% in Q2 and the first half of 2022, a significant drop from 64.9% and 37.2% in the same period of 2021, respectively.

Positioned as an industry investor alongside growing core business

CBAT management's decision to acquire battery material supplier Hitrans has proved to be a strategic move and a successful investment. Nevertheless, the management team remains vigilant in the search of other investment opportunities and/or valuable acquisition targets along the line of battery production supply chain for vertical integration.

Recent Business Development:

Anticipating new orders from JP Group in 2H of 2022

Following the announcement of the strategic corporation framework with Jemmell, a LEV manufacturing unit of JP Group which is one of China's biggest LEV manufacturers in July, several samples provided by CBAT are currently under testing. Once the sample testing passes the requirement, the Company anticipates to start receiving numerous orders from Jemmell and JP Group down the road. Meanwhile, the management is also approaching more LEV and EV manufacturers.

Together, these efforts should lead to more valuable new orders, setting stage for strong EV/LEV sales performance in the second half of 2022.

Establishing production capacity for larger cylindrical battery model catered to EV applications

Larger cylindrical batteries such as Model 42140 are much better suited for EV/LEV market applications.  While as the testing on this new model had proved successful in Q2, the Company is now gearing up to establish its production lines to support strong market demand.

Joint R&D in Sodium-ion batteries with a leading player

Though still at its early stage, the market for sodium-ion batteries is expected worth of billions of dollars. CBAT's prototype was already out and has passed the test, prompting the management to see the potential for its mass production in the second half of this year.

Second Quarter of 2022 Financial Highlights 

Net revenues were $56.4 million, representing a year-over-year increase of 857%, mainly driven by strong sales of high-power lithium batteries and materials for use in manufacturing lithium battery.

Among which, net revenues from batteries used in LEV grew by 597% YoY in the quarter.

Q2-2022 gross profit margin was 8%, a decrease of 11% from 2021. down from 19.5% in 1Q-2021, primarily due to the increase in raw material prices, which are expected to abate when new capacity is being added by the overall industry.

Total operating expenses increased 112% YoY, primarily due to growing headcount, the acquisition of battery material business Hitran, and a growing number of employees for the new facility in Nanjing. Among which, R&D expense in particular increased 267% YoY, coupled with 103% YoY increase in Sales & Marketing expenses.  Despite the increases, operating expenses as percentage of revenues was limited to 9.6% in the quarter, down significantly from 64.9% from a year ago.

Net income attributable to CBAT shareholders was $1.3 million, compared to $32.3 million in Q2-2021, mainly attributed to higher warrants liability. Change in CBAT warrant's fair value was $3.8 million in Q2-2022, compared to $34.2 million in the same period of 2021. Basic and fully-diluted income per share were both $0.01 in the quarter, compared to a net loss per share of $0.37 in Q2-2021. 

Cash and cash equivalents were $4.38 million as of June 30, 2022, compared to $7.36 million as of December 31, 2021.

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RISK FACTORS:  Earnings targets and opinions concerning the composition of market sectors included in this report reflect analyst judgments as of this date and are subject to change without notice. A risk to our earnings targets is that the analyst's estimates or forecasts may not be met. This report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed in the "Risk Factors" section in the issuer's SEC filings available in electronic format through SEC Edgar filings at www.sec.gov.

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SOURCE CBAK Energy

FAQ

What are CBAK Energy's Q2 2022 revenue figures?

CBAK Energy reported net revenues of $56.4 million for Q2 2022, an increase of 857% year-over-year.

How much did CBAK Energy's order backlog grow by?

The order backlog stood at $55.35 million as of August 5, 2022.

What were CBAK Energy's gross profit margins in Q2 2022?

The gross profit margin for Q2 2022 was 8%, a decrease from 19.5% in Q1 2021.

What is CBAK Energy's stock symbol?

CBAK Energy is traded on Nasdaq under the stock symbol CBAT.

What are the projections for CBAK Energy's production capacity?

CBAK Energy plans to expand its production capacity significantly, aiming to reach 18GWh annually.