Author: Zai Er

On May 5th, CATL held an investor conference call, during which the Company’s Secretary of the Board and Deputy General Manager, Jiang Li, and the Director of the Board Office, Lin Meina, gave detailed answers to questions from 120 invited investors.

Previously, the Q1 2022 financial report released by CATL showed that the Company was in a “revenue increase without profit increase” predicament, which raised public attention. During the conference call, CATL revealed that it has already completed negotiations with customers regarding pricing adjustment, and the adjustment will gradually take effect in Q2, with the gross profit margin being reasonably restored as a result.

On May 6th, CATL released a “Investor Relations Activity Record,” and Chairman Zeng Yuqun stated during an earnings briefing that CATL’s market share advantage was significant. Under the rise in raw material prices, the Company will accelerate the construction of a competitive supply network and actively layout in overseas markets. At the same time, he also revealed that CATL would launch the Kirin battery in Q2.

Price Increase in Q2

According to Q1 2022 financial report data from CATL, the net profit attributable to shareholders of the listed company during the reporting period was CNY 1.493 billion, a year-on-year decrease of 23.62%. Compared to the net profit of CNY 8.18 billion in the fourth quarter of last year, the gap was significant. In response to this, CATL responded: “The extent of the price increase of raw materials such as lithium carbonate exceeded expectations, and the price transmission on the customer side was relatively cautious. In addition, the main reason for the change in net profit attributable to shareholders of the parent company on a quarterly basis was the decline in sales due to seasonal factors in Q1.”

Faced with the unreasonable rise in raw material prices, as a leading company in the power battery field, CATL did not make any adjustment in Q1 in order to maintain the healthy and sustainable development of the industry.

During the conference call, when asked about the pricing mechanism with customers in the second quarter, CATL responded: “Each customer’s situation is not entirely the same, and the price increase is dynamically adjusted. It has been gradually implemented, and the recovery of gross profit margin is also a continuous process. The Company’s operation is considered from a long-term perspective, and it will not only consider the situation of a single quarter, but also focus on enhancing the Company’s core competitiveness.”

CATL stated that based on the supply chain and upstream situation, customers have understood their price adjustment behavior. The Company has already completed negotiations with customers regarding pricing adjustment, and the adjustment will gradually take effect in Q2. After the adjustment, the Company’s overall profit level will be reasonably restored.

“Will the price increase affect car company orders?” In response to this question, CATL replied: “Different application scenarios have different impacts. Under the backdrop of a surge in oil prices, the acceptance of a price increase in the C-end consumer market and scenarios that need to consider oil-electric balance is relatively higher for new energy vehicles, but for some scenarios such as operation and energy storage, the economic impact is relatively greater.”

Laying Out to Expand Globally; Building a Plant in North America?

Ningde era expands overseas markets and invests in local production to become major suppliers of international car companies

According to Zeng Yuqun, since 2018, Ningde era has been in fierce competition with Korean battery manufacturers in designated overseas projects. Starting in 2021, the company has mass produced and delivered power battery products in overseas markets with high customer satisfaction. Overseas customers hope that the company will increase its supply proportion and become their main supplier in the next designated cycle, which will be after 2026 and even until 2035. At the same time, due to the demand for localized production, we are negotiating with all major overseas car companies on how to implement services.

In response to rumors that Ningde era is building factories in Europe and America, investors asked whether joint ventures will become the main method in the future. Ningde era stated that both self-built factories and joint ventures are possible.

Zeng Yuqun said that the company has explored various possible supply and cooperation plans and the possibility of localized production with American customers, but specific situations need to take into account factors such as the impact of worker training, efficiency, and unions on quality and cost.

According to Reuters on May 6, Ningde era’s site selection for an American power battery factory has entered the final review stage. Ningde era’s American factory will provide products to BMW and Ford.

In fact, Ningde era already has experience in building overseas factories. On April 6 of this year, Ningde era’s first overseas factory located in Thuringia, Germany, obtained an 8GWh battery production license, and the planned capacity of the factory is 14GWh. This is not only Ningde era’s first battery factory in Germany but also the first overseas base of a Chinese battery factory put into production. Among the top ten bases of Ningde era currently, the German factory is the most expensive to build. The planned total investment of the factory reached 1.8 billion euros, and the investment per GWh will reach 129 million euros.

Ningde era’s construction of factories in Germany has a milestone significance to the company and the internationalization process of Chinese battery factories. Now it seems that the 14GWh of the German factory is only the first step taken by the “Ning king”. With the continuous improvement of Chinese battery manufacturing quality and technology, not only Ningde era but also other domestic battery manufacturers will inevitably choose to go abroad and participate in global competition.

Innovation is the core competitiveness to compensate for the disadvantages and expand the advantages

Based on the negative impact of the upstream raw material price increase on the company, Ningde era stated that the company has laid out some nickel resource industrial chains to ensure stable supply of raw materials and meet the needs of cost reduction. The company has previously had a lithium resource layout overseas and began investing in Yichun last year. To prevent the risk of large fluctuations in raw material prices, the company has carried out hedging business on related products, such as nickel, based on its own operating conditions and business needs.Ningde Times announced that on one hand, the company will continuously build a competitive supply network to maintain its leading position in the competition, including but not limited to long-term agreements, investments, self-manufacturing, and recycling; on the other hand, the company will still devote itself to the development of innovative technologies to make battery material costs more controllable and balanced, such as launching sodium-ion batteries.

In response to the question “How is the progress of sodium batteries and lithium-containing clay mining development?” Zeng Yuqun said that the company released a sodium-ion battery last year, with a single-cell energy density of up to 160Wh/kg, able to charge more than 80% in 15 minutes at room temperature, and has over 90% discharge retention rate at -20℃. The system integration efficiency can reach more than 80%, and the company is committed to advancing the industrialization of sodium-ion batteries by 2023. Regarding the development of lithium-containing clay mining, the company officially obtained the exploration rights of lithium-containing clay mines in Yichun in April 2022, and will actively promote the exploration and transformation procedures in the future.

At the same time, Zeng Yuqun revealed that Ningde Times will officially release Kirin batteries in the second quarter. Kirin battery is Ningde Times’ third-generation CTP (Compact Technology Package) technology, and its energy density is 13% higher than that of the large cylindrical battery under the same electrochemical system, making it extremely competitive.

At the performance briefing the day before, when responding to the question about the stock price drop, Zeng Yuqun said, “As a high-tech company that grows rapidly, the compound annual growth rate of our revenue and net profit from 2015 to 2021 is 56% and 52%, respectively. The valuation should refer to the early stage of world-class high-tech companies. As a company with a 35% global market share, industry-leading technology, and deep trust from domestic and foreign customers, we have tremendous potential for growth facing the market space more than ten times in the future. In addition to research and development, design, manufacturing, and sales, we are also increasing technology licensing, service brands, and service value (such as EVOGO and heavy-duty battery swapping), and we are also simultaneously focusing on new fields such as CTC, energy storage ultra-high voltage, battery recycling and material manufacturing, upstream mineral resource development, and new “electrification + intelligence” integrated application areas, such as electric aircraft powertrain, electric ship powertrain, and so on, which will create enormous value.”

Attached are the QA highlights of this performance briefing for reference:

Q: What is the latest progress of the Future Energy Research Institute in cooperation with Shanghai Jiao Tong University, and what is the level of R&D investment intensity this year?

A: Our cooperation with Jiao Tong University is very in-depth, nearly 200 R&D projects have started cooperation this year, and the progress is smooth. The most important thing in R&D is not just the scale of investment, but the methodology. If you master the methodology, you can continuously and efficiently produce greater results with less investment.

Q: As a long-term investor who values dividends, does your company have plans to redistribute profits after completion of the private offering?

A: We fully respect shareholders’ dividends, and after the completion of the private offering, we will consider a profit distribution plan.

Q: Since last year, CATL has filed lawsuits against Zhong Chuang Innova and CATL, accusing them of intellectual property infringement and unfair competition. It is believed that CATL is suppressing its competitors. What is Chairman Zeng’s response to this?

A: Innovation is the first driving force of development. Our company adheres to the philosophy of self-improvement and innovation and firmly supports the national innovation-driven development strategy. Protecting intellectual property rights is protecting innovation. We have also had similar lawsuits with Tapfere. We won the lawsuit, and Tapfere has since requested a technology authorization from us. This protects intellectual property while promoting industrial development.

Q: Many investors are concerned that the lithium battery industry will experience excess capacity. How does your company view the industry’s prospects?

A: The planned capacity of the lithium battery industry is too large. However, the actual investment required for a single GWh of capacity is between 300 million and 500 million yuan. For example, LG has raised 368 billion yuan through its IPO and, according to its announced capacity plan, plans to add more than 200 GWh of capacity by 2025. Currently, peers are announcing capacity plans for several hundred GWh, requiring billions of yuan of investment, so the final landing situation needs to be considered. Additionally, future products and technologies will continue to evolve, which may affect the compatibility of existing technology and equipment. We believe that high-quality and effective capacity will still be scarce in the future, while there will also be excess ineffective capacity.

Q: In the situation of increasing homogeneous competition within the lithium battery industry, where does your company’s technology advantage lie? What new technologies are currently being invested in?

A: Currently, the lithium battery industry’s technology has not yet reached a homogeneous competition era. Material innovation includes new technologies such as high nickel, high silicon, M3P, sodium batteries, metal-free batteries, and solid-state batteries. Structural innovation also includes new technologies such as CTP, AB batteries, and CTC. Manufacturing also requires ultimate manufacturing to meet the high standard requirements of battery lighthouse factories. Safety and reliability are also important, and the choice of a company’s battery for customers and the market’s safety and reliability are crucial.

Q: Can Chairman Zeng please provide an update on the progress of the company’s research into perovskite solar cells? When will mass production begin?

A: The research progress is very smooth, and a pilot production line is currently being established.

Q: Can you please explain the difference between perovskite solar cells and ordinary energy storage batteries (commonly seen lithium iron phosphate energy storage batteries)? If perovskite solar cells are available, are energy storage batteries no longer necessary? Thank you!

A: Perovskite solar cells are energy conversion devices similar to monocrystalline silicon and polycrystalline silicon solar cells. Energy storage batteries are energy storage devices, and the functions of the two are different.Q: What are the company’s future plans for energy storage and what are its current domestic and international cooperation clients?

A: The company actively expands its customer base and has reached strategic cooperation with top energy enterprises in China such as the State Energy Group, China Guodian, China Huadian, Three Gorges Group, and China Energy Construction. Overseas, the company has conducted in-depth business cooperation with the top ten international energy storage demand customers, including Nextera, Fluence, Wartsila, Tesla, and Powin.

Q: How does the company view the development of the global new energy industry, as well as competition from rivals such as LG and automakers producing their own batteries? What are Ningde Times’ advantages in the competition and how will it face fiercer competition in the future?

A: The new energy industry is currently in its early stages of development, with a market size growth potential of over ten times. From the trend of market share changes, Ningde Times’ comprehensive competitive advantages are already very obvious. We will seize market opportunities, continue to innovate in products, technology, production, manufacturing, business models, and services, and consistently expand our leading advantages. Any small-scale battery production without disruptive technology cannot change the current competitive landscape.

Q: Is your company planning to launch the large cylindrical battery project?

A: Our company’s Kirin battery has a 13% higher energy density than large cylindrical batteries in the same electrochemical system, so we believe that Kirin battery has great competitiveness as a mainstream product. At the same time, we have cooperated with some customers who require large cylindrical batteries due to special automotive design reasons.

Q: In 2021, Ningde Times’ greenhouse gas emissions per unit product decreased by 10.33% compared to the previous year, with a carbon dioxide emission of 12.43 kilograms per kilowatt-hour of battery core product. What is the company’s goal for reducing product carbon emissions this year? What measures are planned to achieve this?

A: The company actively assumes ESG responsibilities, committed to reducing carbon dioxide emissions and becoming a benchmark for innovation technology companies through technological and process innovation, increasing green energy use, promoting zero-carbon factories, and other methods.

Q: Recently, due to the effects of the pandemic, We Xiaoli’s car sales in April all showed a month-on-month decline. Has this affected the company’s current shipping pace? Will the company adjust its annual shipping target?

A: The company’s 2022 production capacity is expected to be gradually released to ensure steady production to meet customer delivery demand. The company maintains close communication with customers, promptly confirming customer order status, and reasonably planning production capacity and construction pace based on customer needs.

Q: What is the expected shipment volume and proportion of ternary batteries this year? What will be the strategic position in the next 1-2 years, and what is the trend of the proportion of lithium-ion battery shipments?

A: It is expected that the shipment volume of ternary and lithium iron phosphate batteries will be 40% and 60%, respectively, with both having a significant YoY increase in absolute volume.Q: What is the approximate financing cost rate of the company for 2021 as the country is strongly supporting financing environment for manufacturing enterprises?

A: The range of long-term loan interest rates for the company in 2021 is between 1.35% and 4.9%. Please refer to the company’s 2021 annual report for details.

Q: What are the main businesses included in the company’s other businesses? Why is the gross margin so high?

A: The company’s other business income mainly includes R&D services, material sales, and waste sales. With the continuous maturity of the power battery market in recent years, consumers’ recognition of new energy vehicles has been enhanced. At the same time, differentiated demands have also increased synchronously. The company has received more orders for customer customized R&D services, resulting in an increase in R&D fees charged to customers.

Q: The company has announced several plans to expand upstream lithium and nickel mining in the past year and the first quarter. What impact will these expansion projects have on the company’s development? How is the current construction progressing?

A: In response to the short-term supply chain tension, the company has built a competitive supply network, including but not limited to long-term contracts, investments, self-supply, and recycling. Landing the Jiangxi lithium carbonate base and promoting overseas key resource projects such as Indonesian nickel will enable the company to reserve resources on the resource end.

Q: Does CATL prefer to develop in the field of battery swapping or charging?

A: Hello, investor. Our battery swapping model is not an ordinary one. We have EVOGO chocolate battery-swapping model that is very suitable for popular electric vehicle models. Therefore, we attach great importance to both charging and battery swapping and provide customers with a rich selection.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.