Introduction: The core of the competition in China's new energy automobile industry is no longer the competition among automobile manufacturers, but the battle between Ningde Times and BYD, two power battery giants. Both of them account for the vast majority of profits in China's automobile industry chain.
Li Ping | Author Lishi Business Review | Production
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Increase in gross profit rate of business contraction
Not long ago, Ningde Times released the first quarterly report of 2024. Data shows that from January to March 2024, Ningde Times achieved an operating revenue of 79.77 billion yuan, a year-on-year decrease of 10.41%; The net profit attributable to shareholders of the listed company was 10.51 billion yuan, up 7% year on year; The net profit attributable to shareholders of the listed company after deducting non recurring profits and losses was 9.25 billion yuan, up 18.6% year on year.
Since 2023, the power battery industry has encountered the double challenges of price war and oversupply, and all links of the industry chain are faced with the risk of significant decline in business performance. In this context, the operating performance of Ningde Times in 2023 will decline quarter by quarter, especially in the fourth quarter of 2023, when the company's revenue and net profit will both decline, which is extremely rare in the company's history.
Since 2024, the competitive situation of power battery industry has further deteriorated. Data shows that in the first quarter of this year, the average price of lithium iron phosphate battery cell dropped to 0.38 yuan/Wh, down 52% year on year and 13.6% month on month; The average price of the ternary lithium battery cell dropped to 0.48/Wh, down 44% year on year and 4% month on month; The price of lithium carbonate, the most upstream raw material in the industrial chain, dropped to about 100000 yuan, a drop of more than 80% compared with two years ago.
With the further intensification of the power battery price war, the revenue side of Ningde Times is under constant pressure. According to the data, the revenue of Ningde Times will remain around 100 billion yuan for three consecutive quarters from Q2 to Q4 in 2023, showing sluggish growth. In the first quarter of this year, the revenue of Ningde Times dropped below 80 billion yuan, a month on month contraction of nearly 30 billion yuan, which is also the second consecutive quarter of year-on-year decline in the revenue of Ningde Times.
However, as the price of raw materials in the upstream of the industrial chain dropped more sharply, the operating costs of Ningde Times dropped significantly, and the gross profit margin rose against the trend. Data shows that in the first quarter of 2024, the gross profit rate of Ningde Times will be 26.42%, an increase of 5.15 percentage points year on year, hitting a new high in the past ten quarters.
Affected by the rise of gross profit margin against the trend, the net profit growth of Ningde Times in the first quarter exceeded the market expectations, especially its non net profit deduction growth was close to 20%, far exceeding the year-on-year growth of the previous two quarters (Q3-Q4 in 2023, the year-on-year growth of non net profit deduction of Ningde Times was 4.91% and 7.69% respectively).
In addition to the higher than expected growth in net profit, the operating cash flow performance of Ningde Times is also excellent. According to the financial report data, in the first quarter of 2024, the net cash flow generated by the operating activities of Ningde Times was 28.358 billion yuan, up 35.25% year on year, showing the strong hematopoietic capacity of "Ningwang". After the release of the financial report, the share price of Ningde Times rose by 4.15%, and the total market value increased by 33.8 billion yuan in one day.
It is worth mentioning that on the same day that Ningde Times released its financial report, Moody's, an international rating company, raised the main rating of Ningde Times to A3 and gave a stable outlook. Moody's believes that although price competition has restricted the growth of the company's revenue, the credit status of Ningde Era will remain strong. Based on the recognition of Ningde Times' industry status, leading technology, good demand prospects, diversified customer base, high barriers to entry, and prudent financial policies, Moody's upgraded the subject rating of Ningde Times and gave a stable outlook.
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Market share rose against the trend
In fact, the reason why the rating of Ningde Times can be upgraded is related to the continuous improvement of its market share. The Global Power Battery Usage Data in 2023 shows that the power battery usage of Ningde Era will reach 259.7GWh in 2023, an increase of 40.8% compared with 2022, and the market share will reach 36.8%, ranking first in the world, nearly 21 percentage points higher than the second place.
According to the statistics of SNE Research, a global information agency, from January to February 2024, the global power battery market share of Ningde Times was 38.4%, up 5 percentage points year on year, ranking first in the world; According to the data of China Power Battery Industry Innovation Alliance, from January to March 2024, the domestic power battery market share of Ningde Times was 48.9%, up 4 percentage points year on year.
Obviously, although the revenue of Ningde Times declined to a certain extent in the first quarter, the market share of its battery products still maintained an upward trend. In this regard, Ningde Times also said in the first quarter performance exchange meeting that the company's battery sales increased by more than 25% year on year, and the decline in revenue was mainly due to the decline in the cost of raw materials, the corresponding decline in battery prices, and little change in product structure.
From the perspective of sales regions, the overseas market has become the key to promote the revenue growth of Ningde Times. According to the company's annual report data, in 2023, the overseas market of Ningde Times achieved sales revenue of 130.992 billion yuan, a year-on-year increase of 70.29%, accounting for 32.67% of the total revenue, a year-on-year increase of 9.16 percentage points, and a gross profit margin of 25.19%. By comparison, the company's domestic market sales revenue was 269.925 billion yuan, up 7.25% year on year, and the gross profit margin was 21.8%.
It is not difficult to see that the growth rate of the overseas market in the Ningde era is far higher than that of the domestic market, and the gross profit rate of the overseas market is also higher than that of the domestic market. Therefore, whether Ningde Times can continue to ride the wind and waves in the overseas market and whether the market share can be further improved will be the key to the recovery of revenue growth and the continued improvement of profit quality.
According to the annual report, in 2023, Ningde Times will continue to make a rapid breakthrough in the European market, and has successively won the new designation of many overseas mainstream car companies such as BMW, Daimler, Stellantis, and Volkswagen, and signed a strategic memorandum of understanding with Stellantis to supply them with lithium iron phosphate batteries in the European market. In North America, Ningde Times mainly expanded its business through the innovative cooperation model LRS (technology licensing). Under this mode, the income scale of Ningde Times will be reduced, but the capital expenditure will also be greatly reduced, and a relatively higher gross profit rate can be obtained.
Thanks to the continuous delivery of overseas customers at fixed points in the early stage, the overseas shipment volume of Ningde Times continued to increase and its market share continued to increase. According to SNE Research, in 2023, the use of overseas power batteries in Ningde Times reached 87.8GWh, a year-on-year increase of 72.5%. The growth rate was far higher than that of Japanese and Korean competitors such as LG, Samsung SDI and Panasonic, with a market share of 27.5%, 4.7 percentage points higher than that of the same period last year.
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How successful is the To C strategy?
Compared with the overseas market with rapid growth, the performance of the domestic market of Ningde Times is slightly inferior, and the year-on-year growth rate in 2023 is only 7.2%. On the one hand, it is because the market share of the domestic market in the Ningde era has already reached a high level of 50%, on the other hand, it is due to the competitive pressure brought by peers with BYD as the core.
Data shows that as early as 2021, the domestic market share of Ningde Era has reached 52.1%. Since then, with the continuous rise of competitors such as BYD, Guoxuan High tech, Yiwei Lithium Energy, etc., the domestic market share of Ningde Times has begun to decline. In 2022, the domestic market share of Ningde Times will drop to 48.2%, falling below the important threshold of 50%.
Especially, with the rapid growth of BYD's automobile sales, the market share of BYD's Verdi battery in the field of automotive power battery is rising. In 2023, the domestic market share of Ningde Times will again decline to 42.7%, down 5.5 percentage points year on year. By contrast, the market share of Verdi battery reached 30.1%, up 3.1 percentage points year on year. Zeng Yuqun, the founder of the Ningde era known for "stronger gambling", is recognized as an excellent entrepreneur in the industry, and Wang Chuanfu, the founder of BYD, who is praised by Charlie Munger as "the combination of Edison and Jack Welch", is no inferior, which makes BYD the most important long-term competitor in the Ningde era, Therefore, the industry often sighs that "Zeng Yuqun was born, and Wang Chuanfu was born".
In fact, in addition to the competitive pressure brought by the sales of BYD's own cars, the downstream vehicle enterprises themselves are unwilling to see Ningde Times become the dominant power battery company. Therefore, in order to guarantee the supply and reduce the excessive dependence on the Ningde era and other needs, domestic automobile enterprises have established a decentralized procurement system. Second tier battery manufacturers such as AVIC Innovation have thus become the second and third tier vehicle manufacturers, and their market share has increased accordingly.
For a long time, Ningde Times has been in an absolute leading position in the value chain of new energy vehicles, which has also attracted the public complaints of GAC Group and other vehicle enterprises. In the past two years, in the face of many car enterprises "unwilling to work for the Ningde Times", "Ningwang" has also begun to put down its posture and actively respond to customer needs. On the one hand, Ningde Times realized the price reduction of power batteries through the "lithium ore rebate" plan. However, as the price of battery grade lithium carbonate plummeted, the plan of Ningde Times to form a group of car enterprises through "lithium ore rebate" did not achieve the expected effect.
On the other hand, Ningde Times has increased the development and investment of new products, hoping to use differentiated competitive advantages to improve market share. In August 2023, Ningde Times released the Shenxing 4C overcharged battery with lithium iron phosphate battery cells as the main part, which greatly improved the charging efficiency while reducing the price to meet the needs of more car enterprises. So far, Avita, Nezha, Chery, BAIC BJEV, Dongfeng Landu, GAC and many other auto companies have officially announced that they will be equipped with Shenxing batteries.
According to the annual report, in addition to the super fast charging Shenxing battery, Ningde Times also released the condensed battery with high specific energy and high safety, the first generation sodium ion battery, and the M3P battery with the advantages of ternary and lithium iron phosphate to achieve mass production on Chery models, and the peak 5C fast charging Kirin battery to achieve mass production in cooperation with Ideal.
According to the minutes of the company's first quarter 2024 financial report telephone conference, Ningde Times Shenxing batteries and Kirin batteries have achieved large-scale delivery in the first quarter of this year. The first launch of Shenxing all-around series batteries is Xiaomi SU7 Pro, and Kirin batteries are ideal MEGA, Xiaomi SU7 Max, and Krypton 009.
Benefiting from the continuous increase in the shipment of Shenxing batteries and other products, the domestic market share of Ningde Times has reversed after two consecutive years of decline. According to the data of China Power Battery Industry Innovation Alliance, from January to March 2024, the domestic power battery market share of Ningde Times was 48.9%, up 4 percentage points year on year.
It is worth mentioning that, in addition to strengthening the cooperation with vehicle enterprises, Ningde Times also intends to use the To C strategy to enhance its brand image in the minds of consumers, thereby seizing consumers' minds on the quality of power batteries. According to public reports, Ningde Times plans to open its first offline brand exhibition store in Chengdu in August this year to comprehensively display the "CATL Inside" model; At the same time, a "new energy living square" will be built, covering an area of about 15000 square meters, which is expected to cover more than 20 car enterprises, more than 50 models, and more than 150 display vehicles.
In fact, as early as August 2023, after the release of Shenxing battery by Ningde Times, the advertising signs of "charging for 10 minutes, Shenxing 400 km" began to appear frequently in airports in Beijing, Shanghai, Hangzhou and other cities. In January this year, Mengshi Technology announced that the body of its subsequent electric off-road vehicle 917 will be printed with the logo of "Ningde Times" CATL Inside ", which is the first time for" CATL Inside "to get on board.
Like the "Intel inside" of that year, Ningde Times began to emphasize its brand presence in the cooperation with automobile enterprises, but whether its "CATL Inside" strategy can succeed is still very uncertain. First of all, unlike Intel's monopoly processor market in the PC era, the current automotive industry is still dominated by vehicle enterprises in research, development and innovation. The power battery is more like an accessory product with less technical differences, although its value chain share is still high.
Secondly, it is also uncertain whether the vehicle manufacturers, especially the main engine manufacturers that have developed their own batteries, will agree to print the "CATL Inside" logo on the vehicle body. Obviously, this will only make car companies more dependent on the Ningde era and lose the bargaining power.
Finally, Ningde Times has been engaged in B-end business for a long time and lacks experience in C-end market trading. The construction of C-end channels will be a long-term complex process. How to control the input-output ratio and other issues will be the practical challenges it has to face.
Obviously, in addition to all kinds of pressures and challenges, the To C strategy of the Ningde era is difficult to achieve in one move, and will even start a new round of game with downstream car companies. Especially with the existence of such a powerful competitor as BYD, it is difficult for one company to dominate in the Ningde era.
It is worth mentioning that currently, in addition to the rapid increase in sales of its own brand cars, BYD is also becoming a battery supplier for more and more other car brand manufacturers. Take the recent hot Xiaomi car as an example. The standard version with the largest sales volume uses the power battery of BYD, while the high-end version with the smaller sales volume uses the battery of the Ningde era. With the penetration of BYD's power battery business into the core customers of Ningde Times, the competition between the two will likely become fiercer in the future. This makes the core of the competition in China's new energy automobile industry no longer the competition of various automobile manufacturers, but essentially the battle between the two giants, Ningde Times and BYD.
