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(Original title: Zhengli New Energy passes the Hong Kong IPO, is the power battery latecomer "replenishing blood" to fight in the red ocean?)

Second and third line powerBatteryIn the close combat in the factory, who can stay at the table tests their wisdom.

Recently, JiangsuPositive forceNew Energy Battery Technology Co., Ltd. (hereinafter referred to as Zhengli New Energy) has submitted an application for listing on the Hong Kong Stock Exchange.IPOGo public.

Zhengli New Energy is a rising star in the field of power batteries. The company was officially established in 2019, and it has entered the top ten in the industry in just four years. On July 24, Zhengli New Energy announced the completion of its B round of financing, with a post-investment valuation of 18.2 billion yuan. However, the company has been losing money for three consecutive years, and its gross profit margin is significantly lower than the average level of major companies in the industry.

How did Zhengli New Energy buck the trend amid the fierce competition in the power battery industry? Can it gain a foothold in the industry's red ocean? Zhengli New Energy, which is trying to cross the IPO threshold, will face stricter and more multi-dimensional scrutiny from the market and investors.

A rising star in power batteries, with high revenue growth but continuous losses

my country's power battery market is highly concentrated. In 2023, the top ten manufacturers accounted for more than 90% of the total installed capacity, and the industry structure has gradually solidified into "two super and many strong". It is in such a market environment that Zhengli New Energy has entered the top ten against the trend.

According to data from the China Automotive Power Battery Industry Innovation Alliance, from January to June 2024, Zhengli New Energy's installed capacity of power batteries was 3.24GWh, with a market share of 1.61%, ranking ninth, an increase of 0.79 percentage points from the same period last year.

In the domestic power battery market, Zhengli New Energy is a rising star. The company was officially established in 2019, entering the industry several years later than most power battery players, but it took only about 4 years to enter the top ten in the industry. In the statistics of the growth rate of the top ten companies in terms of installed capacity in 2023, Zhengli New Energy ranked second, among whichIron phosphateLithium installed capacity ranks first in growth rate.

The prospectus disclosed that Zhengli New Energy is the power andEnergy StorageAs a battery manufacturer, it provides integrated solutions for battery cells, modules, battery packs, battery clusters, and battery management systems. The company's main products include lithium iron phosphate batteries and ternary lithium batteries, and it has formed a multi-path battery product portfolio that covers the entire land, sea, and air interconnection scenario.

Zhengli New Energy's main customers include FAW Hongqi, GAC Trumpchi, Leapmotor, SAIC-GM-Wuling, SAIC-GM, etc. According to the prospectus, the company's battery product supply share for core models of many global leading companies including the above companies continues to increase. As of March 31, 2024, the company's sales penetration rate of Leapmotor's core BEV models and SAIC-GM's core PHEV product GL8 Luzun PHEV penetration rate reached more than 50%.

Zhengli New Energy also stated in its prospectus that the company is one of the few companies among the top ten power battery companies in China that has the genes of auto parts. This is due to the experience of the company's chairman Cao Fang and another core founder Chen Jicheng in Fuyao Glass, which established a customer base of automobile manufacturers for Zhengli New Energy. Cao Fang is the "Glass King"Cao DewangThe company has established business relationships with leading companies in the global travel and energy storage battery fields, and has opened up channels with many well-known domestic and foreign auto companies in less than five years, which is one of the core factors that enabled the company to catch up.

However, the financial situation of Zhengli New Energy is not satisfactory.

In terms of revenue, the company's revenue scale has grown at a high rate in the past three years. The prospectus shows that from 2021 to 2023, Zhengli New Energy will achieve revenue of 1.499 billion yuan, 3.290 billion yuan and 4.162 billion yuan respectively, with an annual compound growth rate of 66.6%. In the first quarter of 2024, the company achieved operating income of 737 million yuan, a year-on-year increase of 224.2%.

However, the rapid increase in revenue scale did not bring a corresponding level of profit. On the contrary, the company continued to lose money. From 2021 to the first quarter of 2024, the company's net losses were 402 million, 1.72 billion, 590 million and 70 million yuan respectively. The cumulative loss over the past three years is 2.782 billion yuan.

The company's overall low profitability is another major concern. From 2021 to the first quarter of 2024, the company's gross profit margins were 2.00%, -8.81%, 5.00%, and 9.23%, respectively. In comparison, in 2023, CATL's (300750.SZ) gross profit margin was 22.91%, Guoxuan High-tech (002074.SZ) was 16.92%, and Sinotruk (03931.HK) was 13%.

Although Zhengli New Energy's gross profit margin has shown an improving trend, it is still significantly lower than the average level of major companies in the industry.

Second- and third-tier battery factories try to "stay at the table"

The predicament of Zhengli New Energy is also the predicament of second- and third-tier battery manufacturers. The fierce competition among peers is nothing new.

On the one hand, the continuous decline in power battery prices has weakened the profitability of enterprises. According to ICC data, the price of square power cells (lithium iron phosphate) in my country fell from 0.82 yuan/Wh in January 2023 to 0.43 yuan/Wh in December 2023, a decrease of more than 47%; the price of square power cells (ternary) fell from 0.92 yuan/Wh in January 2023 to 0.52 yuan/Wh in December 2023, a decrease of more than 43%.

The price drop is mainly affected by the imbalance between supply and demand. Cui Dongshu, secretary general of the China Passenger Car Association, said in a statement in July this year that the proportion of power battery production in vehicle installation is decreasing. In 2021, the production battery installation rate of power battery installation reached 70%, 54% in 2022, 50% in 2023, and 47% in January-June 2024. The capacity utilization rate is less than half.

On the other hand, after a period of rapid development, the power battery industry has begun to solidify and become increasingly unfriendly to second- and third-tier players. According to data from the China Automotive Power Battery Industry Innovation Alliance, in 2023, there will be 52 power battery companies in my country's new energy vehicle market that will achieve vehicle installation and matching, 5 fewer than the previous year. Among them, the top 3, top 5, and top 10 power battery companies accounted for 78.8%, 87.4%, and 96.8% of the installed capacity, respectively, while in 2022 they accounted for 78.2%, 85.3%, and 95%, respectively.

It can be seen that the concentration of the power battery market is still rising. CATL and BYD, as the first echelon, occupy 70% of the market share, the second and third echelons account for 20% to 30%, and more than 40 companies outside the top ten are competing for the remaining 3%.

Against this backdrop, more and more second- and third-tier battery manufacturers are pinning their hopes on capital market financing in the hope of obtaining “blood transfusions” so they can continue to fight in the red ocean.

Honeycomb Energy is one of the typical cases. The company applied for an IPO on the Science and Technology Innovation Board in November 2022, but only completed one round of inquiries and withdrew its IPO application in December 2023, failing to complete the listing. In response, Honeycomb Energy said that after comprehensive consideration of various factors, it decided to withdraw the application in the best interests of the company and its shareholders.A sharesApply and consider starting other financing options.

However, before the IPO, the company's problems such as continued losses, low gross profit margins, and low capacity utilization had already been exposed to the market.

From 2019 to 2022, the operating income of Honeycomb Energy was RMB 929 million, RMB 1.737 billion, RMB 4.474 billion and RMB 9.970 billion, respectively; the gross profit margin of the main business was 6.64%, 0.89%, 3.23% and 4.57%, respectively; the net profit attributable to the parent company's owners was RMB -326 million, RMB -701 million, RMB -1.154 billion and RMB -2.256 billion, respectively, with a cumulative loss of RMB 4.437 billion in four years.

Another power battery companyXinwandaPower's IPO road is also quite difficult.

In July last year, Xinwanda (300207.SZ) announced that it planned to spin off Xinwanda Power to the Shenzhen Stock Exchange.gemOne year later, there is news that Sunwoda Power will be spun off and listed on the Hong Kong Stock Exchange.

Industry analysts believe that another reason for Xinwanda Power's split and listing in Hong Kong may be due to operating pressure. The company has not yet made a profit. From 2020 to 2023, Xinwanda Power lost 710 million yuan, 1.06 billion yuan, 1.09 billion yuan and 1.56 billion yuan respectively.

Xinwanda previously disclosed that Xinwanda Power will strengthen the investment and development of core technologies, accelerate the ramp-up of production capacity, maintain the innovative vitality in the field of lithium-ion power battery manufacturing for new energy vehicles, and enhance the core technology strength. Similarly, Zhengli New Energy also stated in its prospectus that the funds raised from the IPO will be used for capacity expansion and the construction of intelligent manufacturing facilities and flexible production lines, as well as research and development, and replenishment of operating funds.

The failure of Honeycomb Energy in the Science and Technology Innovation Board and the change of Xinwanda Power to Hong Kong stocks make Zhengli New Energy's road to listing somewhat obscure. Some industry insiders pointed out that at a time when the power battery production-to-car ratio has fallen below 50%, overcapacity has become the "elephant in the room", and continuing to raise funds to expand production is nothing but a waste of resources and ineffective internal circulation. But in the eyes of power battery companies, this cruel elimination competition has entered a critical stage, and the rankings of second- and third-tier battery factories may change at any time. Whoever can get financing is more likely to stay at the table. Under heavy pressure, only by surviving can one be qualified to talk about profitability. Perhaps this is the core reason why Honeycomb Energy, Zhengli New Energy, and Xinwanda Power have successively impacted IPOs.