EVE Energy shines in power battery market growth

Among a number of high-growth power battery manufacturers, the performance of EVE Energy Co. Ltd. (300014.SZ) is particularly notable.

On August 25th after trading hours, EV battery manufacturer, Yiwei Lithium Energy, released its half-year report. The company reported revenues of 14.926 billion yuan in the first half of the year, representing a year-on-year increase of 127.54%. However, net profit attributable to shareholders declined by 9.08% to 1.359 billion yuan, and non-GAAP net profit attributable to shareholders declined by 16.22% to 1.194 billion yuan. Despite strong growth in the electric vehicle battery market, Yiwei's financial performance of "increased revenue but decreased profits" surprised investors and even led some to speculate that shares may hit their lower price limit on August 26th.

Investors voted with their feet. On August 26th, EVE Energy Co Ltd closed at 101.30 yuan per share, a drop of 3.39%. When a journalist from Time Weekly contacted the company's secretary office to inquire about the performance issues, no one answered the phone before publishing time.

Image source: EVE Energy official website

Profits Decrease: End of an Era

The main business of EVE Energy Co. Ltd is the research, development, production, and sale of consumer and power batteries.

According to the financial report, the consumer battery business achieved operating income of 4.619 billion yuan, an increase of 73.08% compared with the same period last year, while the power battery business achieved operating income of 10.261 billion yuan, an increase of 163.76% compared with the same period last year. Consumer batteries are a traditional business of EVE Energy, with a stable market share and the ability to maintain steady business performance after attracting large customers. The power battery business is EVE Energy's most important performance growth point in recent years.

According to a report from Time Weekly, in the second quarter of this year, EVE Energy saw an end to three consecutive quarters of declining net profits. In Q2 2022, the company achieved a net profit of approximately 840 million yuan, a 60% increase compared to the previous quarter. However, in Q1 of this year, EVE Energy's net profit was only 520 million yuan, down 19% year-on-year, due to a significant increase in upstream raw material prices.

The bottom line has stopped declining, which signifies that the company has essentially absorbed the impact of rising upstream raw material prices.

Compared to other companies that focus on providing power batteries to car manufacturers, YWe Lithium Energy's chosen direction for the development of its power battery business seems to lean more towards energy storage batteries.

In January 2022, the National Development and Reform Commission and the National Energy Administration jointly issued the "14th Five-Year Plan for the Development of New Energy Storage", which specifically stated that by 2025, new energy storage will enter the stage of large-scale development from the initial commercialization, and will have the conditions for large-scale commercialization applications. By 2030, new energy storage will have comprehensive market-oriented development.

According to data from EVTank, global shipments of energy storage batteries reached 66.3GWh in 2021, a year-on-year increase of 132.4%. China's enterprises shipped 42.3GWh of energy storage lithium-ion batteries in 2021, accounting for 63.8% of the global total. EVTank predicts that global shipments of energy storage lithium-ion batteries will reach 98.2GWh in 2022, 243.7GWh in 2025, and 913.7GWh in 2030.

The high growth rate of the energy storage lithium-ion battery market is expected to bring significant performance growth to companies that are strategically positioning themselves in this field.

In 2022, EVE Energy has been active in the field of power storage batteries. In May of this year, EVE Energy announced its intention to invest 3 billion yuan to build a 10GWh power storage battery project in Yuxi, Yunnan Province. In August, EVE Energy planned to raise 9 billion yuan through a private placement, with funds also earmarked for power storage battery projects.

The company strategically positioned itself as a pioneer in the energy storage market, partnering with major domestic telecommunications operators, communication infrastructure leaders, and local power grid companies to conduct business in areas such as communication energy storage and grid-side support. It has also accumulated a group of well-known domestic and foreign brand customers in the sub-sectors of home and commercial energy storage. According to the half-year report by Yiwei Lithium, "Currently, the company is one of the most significant participants in the energy storage market.

Electronic cigarettes boost "disappearance.

Despite Envision AESC's ambition to focus on energy storage, the current gross profit margin of its lithium battery business is inevitably returning to the industry average.

According to the financial report, in the first half of 2022, EVE Energy's revenue from its lithium-ion battery business reached 13.818 billion yuan, a year-on-year increase of 142.18%. Operating costs were 11.997 billion yuan, a year-on-year increase of 172.88%, resulting in a gross profit margin of 13.18%, down 9.77 percentage points year-on-year. It is reasonable for EVE Energy's gross profit margin to decline due to the increase in operating costs exceeding the increase in revenue.

In addition, the electronic cigarette investment business, which was once a bright spot in EVE Energy's performance, has failed to contribute higher revenue.

The journalist from Times Weekly Report noted that during the first half of 2022, the investment return of EVE Energy decreased by 56.87% to 392 million yuan from 909 million yuan during the same period last year. EVE Energy stated in their semi-annual report that the decrease in performance of their subsidiary, Simplo Technology International, was mainly due to four factors: declining domestic market revenue, decreasing gross profit margin, increasing research and development investments, and rising management, sales, and other expenses.

After changes to electronic cigarette policies in the domestic market, the electronic cigarette industry is shifting from unbridled growth to regulated development. During this transitional period, many electronic cigarette companies inevitably face financial downturns. As a result, the previous situation where Smoore International provided significant investment returns to leading battery manufacturer, EVE Energy, has come to an end.

This has led to a particular emphasis on the growth of the core business in Contemporary Amperex Technology Co. Ltd's half-yearly report: The net profit attributable to the shareholders of the company's core business was 921 million yuan, representing a 60.21% increase compared to the same period last year.

In addition, the subsidiary company of EVE Energy that sells various battery products also failed to contribute to the parent company's performance. According to the financial report, EVE Energy's subsidiary generated a revenue of RMB 10.184 billion in the first half of this year, with an operating loss of RMB 600 million and a net loss of RMB 404 million.

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