CBAK Energy's Q2 revenue drops to $40.52M due to strategic transition, but expects a strong recovery by year-end with new product launches.

OPERATOR - (00:02:14)

Good day ladies and gentlemen. Thank you for standing by and welcome to CBAK Energy Tech second quarter and first half of 2025 earnings conference call. Currently, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. 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 Arina, IR Specialist of CBAK Energy Tech. Arina, please proceed.

Arina - IR Specialist - (00:02:56)

Thank you. Operator and hello everyone. Welcome to CBAK Energy's earnings conference call for the SECond quarter and the first half of 2025. Joining us today are Mr. Zhi Guang Hu or Jason, Chief Executive Officer of CBAK Energy, Mr. Thierry Lee, Chief Financial Officer and company Secretary and Yvonne who will help with our interpretation run. Join us for the Q and A SECtion. We released our results earlier today. The press release is available on the company's IR website and at ir.cbak.com.cn as well as from the News Wealth 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 Security 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 US Dollars. With that, let me now turn the call over to our CEO, Mr. Zhi Guanhu. Please go ahead, Jason.

Zhi Guang Hu (Jason) - (00:04:45)

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 26,650, a small format battery that had been in use for nearly two decades, to model 4135, 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 to major battery production base, any downturn in Dalian significantly impact our consolidated results. Meanwhile, our Nanjing facility is facing supply constraint due to surging demand for our model 32140 cells. Phase one of our Nanjing plant which began operation in 2021 is already running at full capacity. We reported last quarter that Phase two, however, is 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 1435 cells with all existing and prospective customers currently testing samples and awaiting mass production. Nanjing is operating at full capacity and is able to accommodate further demand until phase two comes online. Since both the Model 4135 production and Nanjing phase two expansion are expected to be ready in Q3 to Q4, we anticipate a strong recovery in our consolidated result 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 percentage from $47.79 million in the same period of 2024. The primary driver of the decline was a sharp reduction in sales to customers in the residential energy storage market who had previously purchased large volume of model 26,500 cells. Sales in this segment fell by 44.8 percentage year over year. As a result, the composition of our largest customers has shifted with significant growth in order from leading player in the possible power supply sector and 12 manufacturers in Indian two and three wheelers market. Our strategy moving forward is to continue targeting high quality European and American customers for our model 26,532 140 and upcoming four 135 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 US tariffs on Chinese products. However, we have temporarily paused our manufacturing product as a short term solution and know that government of both countries are currently engaged in active negotiation to reach an agreement. We believe it is prudent to monitor the outcome of these talks before committing to any major investment. That said, establishing battery cell production capacity in the US remains a element of our long term strategy. We continuing discussion with potential partners to determine the most cost effective approach to realizing this plan. Now let me turn the call to our CFO Xia Wei Li.

Xia Wei Li - Chief Financial Officer - (00:10:24)

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 Tech shareholders of 3.07 million and total net losses of 3.36 million. Of these, 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, Hytrans delivered a notably improved result. Net revenues for Hytrans reached approximately 19.43 million, up 59.36% from 12.19 million in the same period of 2024. Its net losses narrowed by 32.02% from 1.56 million in Q2 last year to 1.06 million in the same period this year. This improvement reflects Hytrans' 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 materials 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 219 project by year end, combined with Hytrans continue expansion into new high quality customers and the ongoing recovery in the raw material prices, the financial performance of both Hytrans and our battery segment will see a strong rebound in near future. Thank you. We will now open the floor for the Q and A section. Operator, please go ahead.

OPERATOR - (00:12:35)

Thank you. If you wish to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star one one. Again, we will take our first question. And the question comes from the line of Brian Lantier from SACS Small Cap Research. Please go ahead. Your line is open.

Brian Lantier - Analyst - (00:13:07)

Great. Good evening gentlemen. 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.

Zhi Guang Hu (Jason) - (00:13:53)

Okay. I think the price for first issue is the price. As you know now the battery technology develop very quick and every year the performance such as capacity increased. Why the battery cell capacity increase? Because the high capacity can reduce the cost and the market right now is very sensitive for the cost. So CBAK transfers small battery to a larger battery cell to reduce the cost to meet the market requirement. And the volume actually now the market volume is increased very quick too because now for digital market now need battery such as consumer market and two-wheeler, three-wheeler, two-wheeler, three-wheeler market and electric vehicles. So the volume increase is very big.

Brian Lantier - Analyst - (00:15:19)

Okay, thank you for that.

UNKNOWN - (00:15:21)

Sorry Brian. Let me add some points. I think following what Jason just commented right now because.

Thierry Lee - Chief Financial Officer and Company Secretary - (00:15:31)

Most of the leading battery players in China are producing prismatic cells which has a much lower cost advantages over our technical route. However, right now, as you may know that all the manufacturers for cylindrical cells are actually trying their best to upgrade their product to a much larger battery model. So actually the larger your battery will be, actually the lower, the better cost effective your battery is going to be. So our strategy is just to keep investing in the R and D programs to try to produce a larger size of our batteries. The project of 4135 is the one that we are currently investing. It's a major upgrade from 26650. The size will be much much larger, which means that cost would be effectively lower than our current product in the future. As we always say, we are also investing in the R and D of the Series 46 which will be much larger than all the current products we have. We believe that with the time being and with all our R and D programs going very well, we will eventually have a very cost effective products in the market. And that product would target that other major customer market that values the value that will just pay great attention to the cost including the two wheeler and three wheeler markets that Jason just mentioned.

Brian Lantier - Analyst - (00:17:20)

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?

Zhi Guang Hu (Jason) - (00:18:04)

Actually now we, yeah, we make the research and development for 46 series from already more than two years. And our target, we will achieve the mass production of 46 series cell at the end of next year. And yeah, yeah, let me add some points.

Thierry Lee - Chief Financial Officer and Company Secretary - (00:18:33)

Point as Jason just say we have already spent enough time on the R and D of series 46. We have probably a couple of actual models to choose. 46120 or 46950. A lot of the models you choose actually depend on our major customers preference. I think the key elements determining when we are going to mass produce the series 46 is actually the capital. Because right now the equipment and production line for Series 46 is extremely expensive at this moment. Unless we have securing significant orders from our customers. Otherwise we will be very cautious about investing into this expensive production line. Especially considering we have already two expansion projects at hand. A project for 4135 and a project for 32140. If we have a choice, we would like to complete a fundraising and then Proceed with the construction of production level 46. Otherwise we prefer the conviction of the current two project first.

Brian Lantier - Analyst - (00:19:55)

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 just. Or was it difficulty securing equipment? If you have any color around what caused that delay, I'd appreciate it.

Thierry Lee - Chief Financial Officer and Company Secretary - (00:20:30)

Man. Let me respond to this question. I think the major issues causing the delay of our Nanjing project actually comes down to our equipment supplier. Some of our major equipment suppliers face problems sending over their equipment. So as a result, we have probably a couple months of delay. We don't think we're going into any legal tussles with these suppliers because that would cause much longer delays. We are going to resolve these problems very soon. So expectedly we are going to. I think we're going to complete the expansion for this phase by the end of this year.

Brian Lantier - Analyst - (00:21:42)

Okay, great. And just the housekeeping. Have you been active, have you disclosed yet if you've been active under the $20 million buyback and if you have how much capacity is still available under that buyback?

Thierry Lee - Chief Financial Officer and Company Secretary - (00:21:59)

Well, yes, up until we announced the stock buyback program, we do, we did spend certain cash buying our stock back. I think we have so far spent about roughly, we need to check the number, but roughly between 1.3 to, you know, $1.5 million at this moment and the stock price was pushed up above $1. I think it 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 one year long program.

Brian Lantier - Analyst - (00:22:48)

Okay, great. Thank you for the update. I appreciate it.

Thierry Lee - Chief Financial Officer and Company Secretary - (00:22:52)

Thank you.

OPERATOR - (00:22:54)

Thank you once again. If you wish to ask a question, please press star one one on your telephone. Thank you. Seeing no more questions in the queue, let me turn the call back to Jason for closing remarks.

Zhi Guang Hu (Jason) - (00:23:19)

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 - (00:23:37)

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