Earnings Call Transcript - CBAT Q2 2025

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to CBAK Energy Technologies Second Quarter and First Half of 2025 Earnings Conference Call. 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 Arena, IR specialist of CBAK Energy. Arena, please proceed.

Unidentified Company Representative, IR Specialist

Thank you, operator, and hello, everyone. Welcome to CBAK Energy's Earnings Conference Call for the Second Quarter and First Half of 2025. Joining us today are Mr. Zhiguang Hu, or Jason, Chief Executive Officer of CBAK Energy; Mr. Thierry Li, Chief Financial Officer and Company Secretary; and Evan, who will help with our interpretation during the Q&A section. We released our results earlier today. The press release is available on the company's IR website as well as from the 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 this and other risks and uncertainties is included in the company's public filings with the SEC. The company does not 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 second quarter and first half of 2025. As discussed last quarter, our Dalian facility is undergoing a transition from Model 26650, a small format battery that had been in use for nearly 2 decades, to Model 40135, a much larger and more advanced model that enjoys strong market popularity. This transition has led to a sharp decline in Dalian's net revenues and gross profit. Given that we operate 2 major battery production bases, any downturn in Dalian significantly impacts our consolidated results. Meanwhile, our Nanjing facility is facing supply constraints due to surging demand for our model 32140 cells. Phase 1 of our Nanjing plant, which began operation in 2021, is already running at full capacity. We reported last quarter that Phase 2 was delayed. However, its completion has been delayed by a few months to Q4, limiting our ability to fulfill additional pending orders. In short, Dalian is building a new production line for Model 40135 cells. Without existing and prospective customers currently testing samples and awaiting mass production, Nanjing is operating at full capacity and won't be able to accommodate further demand until Phase 2 comes online. Since both the Model 40135 production and Nanjing Phase 2 expansion are expected to be ready in Q3 to Q4, we anticipate a strong recovery in our consolidated results by year-end. This situation explains the slowdown in our performance over the past 2 quarters. As of June 30, 2025, we reported net revenue of $40.52 million, down 15% from $47.79 million in the same period of 2024. The primary driver of this decline was a sharp reduction in sales to customers in the residential energy storage market, who had previously purchased large volumes of Model 26650 cells. Sales in this segment fell by 44.8% year-over-year. As a result, the composition of our largest customer has shifted with significant growth in orders from leading players in the portable power supply sector and our manufacturers in India in the 2- and 3-wheeler market. Our strategy moving forward is to continue targeting high-quality European and American customers for our Model 26650, 32140, and upcoming 40135 cells while further expanding our market share in India and the portable power supply industry with our model 32140 and 40135 products. We had previously decided in partnership with our customer to relocate part of our manufacturing lines overseas in response to U.S. tariffs on Chinese products. However, we have temporarily paused our Malaysian project as a short-term solution and note that the governments of both countries are currently engaged in active negotiations to reach an agreement. We believe it is prudent to monitor the outcome of these talks before committing to any major investments. That said, establishing battery cell production capacity in the U.S. remains a core element of our long-term strategy. We continue discussions with potential partners to determine the most cost-effective approach to realizing this plan. Now let me turn the call to our CFO, Jiewei Li.

Jiewei Li, CFO

Thank you, Jason. As Jason just mentioned, our net revenues declined primarily due to our strategic transition from a small format battery model to a larger, more advanced model. Alongside this revenue decline, we reported net losses attributable to CBAK Energy shareholders of $3.07 million and total net losses of $3.36 million. Of this, the battery segment accounted for $2.07 million in net losses, while our raw materials production unit Hitrans reported net losses of $1.06 million. Despite weaker performance in our battery segment, Hitrans delivered a notably improved result. Net revenues for Hitrans reached approximately $19.43 million, up 59.36% from $12.9 million in the same period of 2024. Its net losses narrowed by 33.02% from $1.56 million in Q2 last year to $1.06 million in the same period this year. This improvement reflects Hitrans' sustained efforts to expand its market presence. In the second quarter and first half of 2025, the unit successfully secured several new customers, driving growth in raw material sales. Furthermore, a modest decline in raw material prices during the first half of 2025 stimulated customer demand and encouraged additional order placements. Looking ahead, we firmly believe that with the completion of our product portfolio upgrade and Phase 2 Nanjing project by year-end, combined with Hitrans' continued expansion into new high-quality customers and the ongoing recovery in raw material prices, the financial performance of both Hitrans and our battery segment will see a strong rebound in the near future. Thank you. We will now open the floor for the Q&A section. Operator, please go ahead.

Operator, Operator

We will take our first question from Brian Lantier from Zacks Small-Cap Research.

Brian Lantier, Analyst

I wonder if you could talk a little bit about the competitive landscape right now. And if you're experiencing any pricing pressures or if customers are really focusing on the products and the availability of your products?

Unidentified Company Representative, Translator

Zhiguang Hu, CEO

Okay. I think the first issue is the price. As you know, battery technology is developing very quickly. Each year, the performance, such as capacity, increases. The battery cell capacity increases because high capacity can reduce the cost. The market right now is very sensitive to cost. So CBAK is transitioning from small batteries to larger battery cells to reduce costs to meet market requirements. Also, the market volume is increasing very quickly as demand rises, particularly in the consumer market, the 2-wheeler and 3-wheeler markets, and electric vehicles. So the volume increase is substantial.

Brian Lantier, Analyst

Okay.

Jiewei Li, CFO

Sorry, Brian, let me add some points. Following what Jason just commented, most of the leading battery players in China are producing prismatic cells, which have much lower cost advantages over our technical route. However, right now, all the manufacturers of cylindrical cells are trying their best to upgrade their products to a much larger battery model. The larger the battery, the better cost-effectiveness it will provide. Therefore, our strategy is to continue investing in R&D programs to produce larger batteries. The 40135 project is the one we are currently investing in. It's a major upgrade from 26650, which means its cost will be effectively lower than our current product. In the future, we are also investing in the R&D of the Series 46, which will be much larger than all current products we have. We believe that as time goes on and with all our R&D programs progressing well, we will eventually have very cost-effective products in the market. These products would target all major customer markets that value cost, including the 2-wheeler and 3-wheeler markets that Jason just mentioned.

Brian Lantier, Analyst

Great. My next question was going to be on the 46 series cells. Where do you stand in that development? And when do you think, best case scenario, you could actually be producing something like a 46950 or something along those lines?

Unidentified Company Representative, Translator

R&D programs are progressing well, and we will eventually have very cost-effective products in the market. These products will target all major customer markets that prioritize cost, including the 2-wheeler and 3-wheeler markets that Jason just mentioned. Brian Lantier, as an analyst, asked about the status of the 46 series cells and inquired when, under the best-case scenario, we might begin producing something like a 46950 or similar products.

Zhiguang Hu, CEO

Actually, we have been conducting research and development for the 46 series for more than 2 years. Our target is to achieve mass production of the 46 series cell by the end of next year. Yes.

Jiewei Li, CFO

Yes. Let me add some points. As Jason just mentioned, we have already spent enough time on the R&D of Series 46, and we have a few actual models to choose from, such as 46120 or 46950. The choice depends on our major customers' preferences. The key element determining when we can mass-produce the Series 46 is the capital. Right now, the equipment and production line for Series 46 are extremely expensive. Unless we secure significant orders from our customers, we will be cautious about investing in this costly production line, especially considering we have two expansion projects underway: one for 40135 and another for 32140. If we have a choice, we would like to complete fundraising first and then proceed with the construction of the production line for 46. Otherwise, we prefer to complete the current two projects first.

Brian Lantier, Analyst

Okay. Great. That's helpful. Were there specific factors that caused the delay in the Nanjing expansion? Was it tied to uncertainty around possibly expanding in Malaysia first? Or was it just difficulty securing equipment? If you have any color around what caused that delay, I'd appreciate it.

Unidentified Company Representative, Translator

We would like to complete fundraising first and then proceed with the construction of the production line for 46. Otherwise, we prefer to complete the current two projects first. Brian Lantier, as an analyst, asked if there were specific factors that caused the delay in the Nanjing expansion. He wondered if it was related to uncertainty about possibly expanding in Malaysia first or if it was simply the difficulty in securing equipment. Any insight on what caused the delay would be appreciated.

Jiewei Li, CFO

Let me respond to this question. The major issue causing the delay of our Nanjing project actually comes down to our equipment supplier. Some of our major equipment suppliers have encountered issues sending over their equipment. As a result, we are experiencing a couple of months of delay. We don’t anticipate entering any legal disputes with the suppliers as that would cause much longer delays. We are going to resolve these problems very soon. We expect to complete expansion for this phase by the end of this year.

Brian Lantier, Analyst

Okay. Great. And just a housekeeping question. Have you disclosed if you've been active under the $20 million buyback? If so, how much capacity is still available under that buyback?

Jiewei Li, CFO

Well, yes, up until we announced the stock buyback program, we did spend some cash buying our stock back. I think we have so far spent about roughly between $1.3 million to $1.5 million at this moment, and the stock price was pushed up above $1. I think it's still strongly underestimated, our company, but we will see how the market goes and determine when we're going to buy the stock back again because the program is a year-long program.

Operator, Operator

Seeing no more questions in the queue, let me turn the call back to Jason for closing remarks.

Jiewei Li, CFO

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.