Earnings Call Transcript - CBAT Q1 2025

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by and welcome to CBAK Energy Technology’s First Quarter of 2025 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, we're recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Yixian Tian, IR Specialist of CBAK Energy. Ms. Tian, please proceed.

Unidentified Company Representative, IR Specialist

Thank you, operator, and hello, everyone. Welcome to CBAK Energy’s earnings conference call for the first quarter of 2025. Joining us today are Mr. Zhiguang Hu, Chief Executive Officer of CBAK Energy; Mr. Thierry Li, Chief Financial Officer and Company Secretary, and even who will help with our interpretation will join us for the Q&A session. We released our results earlier today. The press release is available on the company's IR website 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, CEO

Hello, everyone. Thank you for joining our earnings conference call for the first quarter of 2025. As expected, we were unable to sustain our previous growth momentum this quarter, reporting a year-over-year decline of 41% in net revenues to $34.9 million compared to the same period last year. Our battery business recorded net revenue of $20.36 million, representing a 54.6% decrease from $44.84 million in the prior year period. Our electric vehicle business achieved an 11.9% increase, while our light electric vehicle segment experienced significant growth of 88.4%. However, these gains were offset by a decline in our storage business. As we have previously emphasized, this outcome was fully anticipated. Our Dalian facility is currently undergoing a strategic product portfolio upgrade, transitioning from the older Model 26650, originally developed around 2006 and now considered somewhat outdated, to the Model 40135, a highly promising product with strong market potential. We are in the process of establishing the manufacturing line for Model 40135, with construction expected to be completed in the second half of this year. As announced last quarter, in the meantime, our existing and prospective customers are actively testing and validating samples of Model 40135. Early feedback has been very encouraging, reinforcing our confidence that we are well positioned to regain growth momentum with the upcoming launch of these products. While our Dalian facilities are currently upgrading their manufacturing lines, our Nanjing operations continue to maintain strong growth momentum in contrast to Dalian, where Model 26650 has become outdated. The Nanjing facility focuses on producing a large cylindrical cell of Model 32140, which remains highly competitive and has emerged as our flagship product. To meet robust market demand, the Model 32140 production line in Nanjing is running at full capacity. Looking ahead, once the production of Model 40135 is underway, the combined strength of these two product lines, Model 40135 and Model 32140, is expected to drive a significant boost in our overall business performance. Regarding the current tariff challenge, as previously announced, we are actively evaluating the establishment of an overseas manufacturing facility in one of the Southeast Asian countries as an initial step. In parallel, we are also exploring the feasibility of expanding our production capacity to the United States if the manufacturing costs are justified. As disclosed last quarter, our decision to expand into Southeast Asia is entirely customer-driven. We have now reached an agreement in principle with the customer on key commercial terms. Specifically, they have committed to a full-year high-volume purchase agreement that includes substantial prepayments. We expect to finalize and sign the formal agreement in the near future and we will share further details once we have customer consent. Should all agreements be accrued and we proceed with the Southeast Asia project, we anticipate the new facility will begin mass production by mid-next year. The production line there will be designed for flexible manufacturing capable of producing both Model 32140 and Model 40135 cells. Now let me turn the call to our CFO, Jiewei Li.

Thierry Jiewei Li, CFO

Thank you, Jason. As highlighted in our recent published earnings release, following the decline in net revenues due to the ongoing upgrade of our manufacturing lines from Model 26650 to Model 40135, we also reported a net loss of $1.64 million compared to net income of $9.8 million in the same period last year. Specifically, within our battery segment, the income declined significantly from $11.68 million to $0.34 million. Despite the strong performance of our Nanjing facilities, which produce Model 32140, our current flagship product prior to the launch of Model 40135, we do not anticipate a full recovery until the Dalian facilities complete the upgrade and enable our sales team to begin delivering Model 40135 to the market. As Jason mentioned, we are close to finalizing an agreement with a major customer for a large-scale full-year order that could generate substantial revenues and profits. The order is expected to initially focus on Model 32140 with a transition to Model 40135. A dedicated manufacturing line in Southeast Asia is planned to support this order, and the facility could start construction and begin full-scale operations once the agreement is executed. If everything proceeds as planned, we expect to see a significant recovery beginning next year. We will formally announce this development once the agreement is finalized. Even with this high-volume order, we remain committed to maintaining a healthy gross margin to support the recovery of our net income. Upon completion of this strategic expansion, our global production footprint will include Model 26650 and 40135 at our Dalian facilities, Model 32140 at our Nanjing facilities, and both Model 32140 and 40135 at our Southeast Asian operations. We appreciate your continued support and encourage you to stay tuned for further updates. Thank you. We will now open the floor for the Q&A section. Operator, please go ahead.

Operator, Operator

Thank you so much. We're now going to take our first question. The question comes from Brian Lantier from Zach Small-Cap Research. Your line is open. Please ask a question.

Brian Lantier, Analyst

Good afternoon, gentlemen. I was wondering if you could just confirm the expansion goals. I think the last time we talked about it, we were looking at 2.3 gigawatts at Dalian and 3 gigawatts at Nanjing. Is that still the target? And then I'll have some other follow-ups after that.

Thierry Jiewei Li, CFO

Brian, let me respond to your question directly in English. So our plan for Dalian facilities didn't change. The newly deployed manufacturing line for 40135 still has a capacity of 2.3 gigawatt hours, and we have just completed the construction of the manufacturing plant. So everything is going well as planned. We anticipate the total construction project to be completed by the end of June, and then we can start trial production in the second half of the year. For Nanjing, we have already made all the prepayments for the 3 gigawatt hour equipment, but now we have a new project in Southeast Asia. We are not going to invest in new equipment at this moment because we don't know how the tariffs will go. So we plan to relocate one of the assembly lines from the newly deployed equipment in Nanjing to the Southeast Asian country. That means the capacity for the new Nanjing project will become 1.5 gigawatt hours and another 1.5 gigawatt hours for the Southeast Asian country.

Brian Lantier, Analyst

Okay, great. That's helpful. I appreciate that. As your customers are testing the 40135 cells, are you confident that they're going to stick with cylindrical cells for storage, or is there any concern that they might look at prismatic or other types of cells?

Zhiguang Hu, CEO

Let me explain. Now our main market is home energy storage. Some applications have high voltage, such as 100 volts. So if the customer chooses prismatic, I think the space may not be sufficient, but if they choose cylindrical or large cylindrical cells, that will be easier to design for high voltage. So in this market, I think it depends on the application requirement, such as voltage and size. I think cylindrical and large cylindrical cells have a half share in this market. For the e-scooter market, as you know, 48 volts is a common model. But if you choose prismatic or any other type of cells, it may not be easy for the design. Cylindrical cells have a stable structure to protect against drops or other challenging conditions. So this is my opinion. Thank you.

Brian Lantier, Analyst

Okay, great. I guess the last question would be, have you heard from some of your portable energy customers? Are they looking to pull forward any demand and try to get orders fulfilled in this window as the tariffs have been paused during this 90-day period? I'm thinking of a company like Jackery that sells primarily into the US market.

Thierry Jiewei Li, CFO

So, Brian, to answer your question, yes, they are all seeking solutions, and one of the solutions is to get their suppliers, like us, to relocate their manufacturing lines overseas. As we always say in our remarks, our decision to move to a Southeast Asian country is simply and purely client-driven. So they are asking us and making a lot of favorable terms for us so that we can make a decision to go outside of China. And luckily, we have already closed the deal with them today, and we have certain minor issues that we're going to talk about. Hopefully, we can bring some good news to the market sooner or later, probably in this month or next month. So players in this industry, like Jackery and Anchor, are all doing the same thing.

Brian Lantier, Analyst

Okay. I appreciate it. You're operating in a difficult environment, so good luck. Thank you.

Operator, Operator

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to Jason Hu for any closing remarks.

Zhiguang Hu, CEO

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, Operator

Thank you all again. This concludes the call. You may now disconnect.