Chinese companies that are secretly happy in Turkey's tax hike are technologically leading but have been abandoned by the world's mainstream car companies

Anti-Short Selling Research Center

2024-06-21 23:40Posted on the official account of Guizhou Anti-Short Selling Research Center

Text/Liu Gongchang

On June 8, Turkey announced that it would impose additional import duties of 40% on gasoline and hybrid passenger cars originating in the People's Republic of China, which will be implemented 30 days after the date of publication. Prior to this, Turkey had imposed a 40% additional tariff on Chinese-made electric vehicles in the same way.

There is no doubt that Turkey's move is a major blow to Chinese car companies, and in this regard, the spokesperson of the Ministry of Commerce of China said, "China expresses strong dissatisfaction and resolute opposition to this." The Chinese side has lodged solemn representations with the Turkish side on many occasions. ”①

But in China, there is a company that is stealing fun at this time.

This company is called Funeng Technology.

So why does it steal pleasure? This is because Turkey will raise tariffs on all cars imported from China by 40% in support of the country's first domestically produced electric vehicle, TOGG. Funeng Technology is the battery supplier of TOGG.

An investor asked the company a question, may I ask the secretary of the board of directors: What is the impact of Turkey's recent announcement of a 40% tariff on Chinese electric vehicles to support local cars TOGG?

The company replied, "Dear investors, the company's cooperation with the Turkish vehicle company Togg at this stage is to supply the company with battery cells to the Turkish joint venture plant, and the joint venture plant will produce battery packs and sell them to Togg. This policy is aimed at protecting the interests of the Turkish automotive industry and is conducive to deepening the company's cooperation with Turkish customers. Please pay attention to the company's follow-up announcements for details, thank you for your attention to the company. ②

The first place in the pearl dust

Wang Yu, chairman of Funeng Technology, is a senior scientist in the field of lithium-ion power batteries, he began to engage in the research and development of power batteries as early as 1997, and the company was not established until 12 years later. Funeng Technology is a power battery company co-founded by Ganzhou Manyuan Construction in Jiangxi Province with the price of patent and proprietary technology licensing rights.

Funeng Technology built its first factory in Ganzhou, Jiangxi Province in 2010, and after several transfers and capital increases, it was changed into a joint-stock company in 2019 and landed on the Science and Technology Innovation Board in July 2020. At present, the company has three R&D centers in Ganzhou, China, Silicon Valley in the United States, and Stuttgart, Germany, two production bases in Ganzhou and Zhenjiang, and plans another three production bases in the United States, Germany and China.

Funeng Technology is a comprehensive energy solution provider and a leading soft-pack power battery in China. The company focuses on the cells, modules and battery packs of advanced large pouch laminated batteries, and is mainly engaged in the research and development, production and sales of power batteries and battery systems, providing green power and energy storage technology for domestic and foreign transportation networks.

In 2011, Funeng Technology became the exclusive supplier of the leading electric motorcycle company in the United States with 185Wh/kg battery cells, helping the latter increase the cruising range from 100km to more than 350km; In 2016, it started the research and development of solid-state batteries with an energy density of more than 400Wh/kg, and began to supply 220Wh/kg battery cells to domestic new energy vehicle companies.

The first major customer of Funeng Technology in China is BAIC New Energy. After cooperating with Funeng Technology, the range of electric vehicles of BAIC New Energy has increased from 150-200 kilometers to 300-400 kilometers, and in 2015, it became the first automobile company in the world to increase the range of A0-class vehicles to 300 kilometers.

What makes Funeng Technology even more famous is that in March 2018, the world's automobile giant Mercedes-Benz handed over the key "heart" battery of the future electrification transformation to Funeng Technology, which had only 4GWh production capacity and about 2,000 people in Ganzhou, Jiangxi Province at that time, and some media reported that Funeng Technology was the only company that met the 300Wh/Kg index and passed all the tests of Mercedes-Benz at that time.

Funeng Technology has already reached cooperation with internationally renowned eVTOL manufacturers and has begun to deliver products. According to public information, the battery cell and system energy density of the eVTOL equipped with Funeng Technology power battery exceed 280Wh/kg and 230Wh/kg respectively, the maximum speed can reach 320km/h, the longest cruising distance is 250km, and meet the cycle life of 10,000 voyages.

Up to now, Funeng Technology has formed a R&D and industrialization path of "mass production of 285Wh/kg, verification of 330Wh/kg, and reserve of 400Wh/kg". According to the company's plan, it will mass produce silicon carbon anode cells with an energy density of 300-400Wh/kg in 2025 and lithium metal anode cells with an energy density of 400-500Wh/kg in 2030. ③

In August 2021, the 330Wh/kg energy density cell, which was hailed as "the best battery technology proven to date" by the USCAR (Automotive Research Council) and won the Team Achievement of the Year Award, was even more convincing, and was awarded "Three Firsts, One Unique" by USCAR (4)

In February 2024, Funeng Technology's BMS/EE system obtained the ISO 26262 automotive functional safety product certification issued by DEKRA (Germany), a third-party certification body, which is another important certification after obtaining the ISO 26262 functional safety development process certification issued by TUV North Germany (Germany) in 2019.

In the field of soft-pack power batteries, its product shipments and installed capacity ranked third in the world and first in the country for two consecutive years in 2017 and 2018; In 2019, the installed capacity continued to rank first in the country.

The four-year loss exceeded the total amount raised

Recently, Funeng Technology released its 2023 annual report. In 2023, the company will achieve revenue of 16.436 billion yuan, a year-on-year increase of 41.84%; The net profit attributable to shareholders of the listed company was -1.868 billion yuan, deducting non-net profit -1.741 billion yuan, and the net cash flow from operating activities turned from negative to positive to 664 million yuan.

In fact, the loss of Funeng Technology did not start today. Since its listing in 2020, Funeng Technology's performance has continued to decline. From 2020 to 2023, Funeng Technology will achieve operating income of 1.120 billion yuan, 3.500 billion yuan, 11.588 billion yuan, and 16.436 billion yuan respectively; the net profit attributable to the parent company was -331 million yuan, -953 million yuan, -927 million yuan and -1.868 billion yuan respectively; The net profit deducted from non-attributable to the parent company was -542 million yuan, -1.263 billion yuan, -1.002 billion yuan and -1.741 billion yuan respectively.

Source: 2023 Annual Report

According to the statistics of Times Weekly, the net profit attributable to the parent company of Funeng Technology has lost 4.079 billion yuan in 4 years, and the net profit attributable to the parent company has lost 4.548 billion yuan in 4 years. The total loss has exceeded the amount of IPO funds raised (3.405 billion yuan), especially in 2023, the loss reached a staggering 1.87 billion yuan.

Funeng Technology itself summarized the five major reasons for the loss, namely: the decline in gross profit caused by high-priced inventory and the provision of asset impairment losses, the increase in R&D investment, the assumption of investment losses, the fair value change loss and the provision of product quality margin and other factors. ⑤

High-priced inventories, construction in progress weigh on cash flow

Let's first take a look at how Funeng Technology's high-priced inventory came from. Funeng Technology said in the recent results conference that in 2023, the company did not identify the risks of relevant orders in time and timely pull through the production, supply and marketing information for effective control, and formed high-priced inventory at the high price of raw materials, resulting in losses, and paid an expensive "tuition" for insufficient management ability and lack of business experience.

Specifically, it is related to multiple factors such as the rising cost of raw materials such as lithium carbonate, the decline in sales, the provision for inventory decline, asset impairment losses, and investment losses. It can be said that Funeng Technology has stepped on the "deep pit" in the changes in the lithium carbonate cycle, the changes in market competition and the development of overseas markets.

The data shows that the inventory rate of Funeng Technology has been around a high level of 20%, and it has decreased from 2023 to the first quarter of 2024, but it is still far from enough. Flush iFinD shows that at the end of each period from 2021 to 2023, the inventory of Funeng Technology will be 2.855 billion yuan, 7.279 billion yuan, and 3.599 billion yuan respectively.

In particular, the inventory in 2022 will exceed 7 billion, which also hints at the reason why the loss in 2023 is so large, because the company has hoarded a large amount of inventory in 2022, and the price of raw materials such as lithium carbonate was at a high level that year, which also led to its high follow-up costs, and in 2023, a provision of 606 million yuan for inventory price decline was made.

Due to its high inventory ratio, its notes receivable and payments have remained high. At the end of 2023, notes receivable and accounts receivable were growing, and at the end of the first quarter of 2024, they were still growing.

Secondly, a large number of projects under construction occupy a lot of funds. At the end of 2023, there are eight major projects under construction, of which the "Ganzhou New Energy 30GWH Project" with a balance of up to 420 million yuan is its main component. By the end of 2023, there will be a large number of "16GWH lithium-ion power battery projects and their capacity expansion and transformation" and "8GWH lithium-ion power battery projects (phase III)" transferred to fixed assets. ⑥

At the end of the first quarter of 2024, the scale of construction in progress has increased to more than 1 billion yuan.

A large amount of inventory has led to the difficulty of cash withdrawal and the start of a large number of projects under construction, which has made the cash flow turnover problem of Funeng Technology very prominent, and its cash flow has been in an extremely tight state.

In the 2023 annual report, Funeng Technology also analyzed the reasons for the continuous losses, mainly due to "insufficient management capabilities, disjointed production, supply and marketing, etc.", and "insufficient customer orientation, missing the iron and lithium market". This has to mention that Funeng Technology is more concerned by investors, that is, the change of management caused by the change of actual controller.

Since 2022, Funeng Technology has frequently been increased by Guangzhou state-owned assets. In July 2023, Funeng Technology announced that Guangzhou Industrial Control, which had participated in the private placement of shares, and its persons acting in concert planned to spend 1.728 billion yuan to acquire 5% of the equity of Hong Kong Funeng, the controlling shareholder of the company, and its persons acting in concert.

However, in November 2023, Funeng Technology announced that Guangzhou Industrial Control Group, a subsidiary of Guangzhou State-owned Assets, will change the way to obtain control of the company, and convert the equity of the old shareholders to subscribe to the company's private placement shares by the previous proposed agreement. Guangzhou Industrial Control Group intends to subscribe for the private placement and obtain no more than 12% of the total share capital of the target company after the private placement, so as to become the controlling shareholder of Funeng Technology. ⑦

A change in shareholders brings a change in management. On the evening of July 5, 2023, Funeng Technology announced that Wang Zhigang applied for resignation as general manager, and at the same time appointed Chen Binbo as the new general manager. On June 18, 2024, Funeng Technology announced that the company's board of directors recently received a written resignation report from Mr. Chen Binbo, the general manager, who applied for resignation as the company's general manager for personal reasons. In less than a year, the two general managers have resigned, indicating that the management turmoil of Funeng Technology has not completely ended.

In addition to the management issues mentioned above, the equity transfer may be more deeply expected to be expected by the new management to make a clearer and more long-term understanding and improvement of the company's future macro planning and even strategic mistakes.

The gross profit margin is lower than that of Ningwang BYD

So what is the reason for the continuous loss of Funeng Technology? The direct cause is the low gross profit margin. In 2023, its gross profit margin will only be 6.84%, far lower than the 22.27% gross profit margin of CATL's power battery business and the 23.02% gross profit margin of BYD Auto and automobile-related products in the same period.

As can be seen from the above chart, before 2020, its overall gross profit margin was around 20%, but after that, it took a sharp turn, and even negative gross profit margin, which is currently less than 7%, which is far behind its main competitors.

Specifically, among the three major businesses, the battery pack with the largest business volume is barely maintained, the module with the second business volume has fallen into a large loss, and only the battery cells with relatively small business volume have a large surplus. This is also an important reason why Funeng Technology's gross profit margin in 2023 can remain basically stable, only down 0.7 percentage points (see the figure below).

The following is the ratio of the total operating cost to the total revenue of Funeng Technology in the past 5 years.

Overall, under the premise of a significant increase in total revenue in the five years from 2019 to 2023, the proportion of revenue expenses to revenue has dropped from more than 60% in 2020 to 12.8% in 2023, which has only taken three years, and it should be said that it is still successful. However, this is still higher than the gross profit margin of 6.8% in 2023, which naturally leads to the loss of the main business.

Of course, the R&D expenses during this period are indeed the largest items, but they are not much more than sales expenses and management expenses; Among the five major reasons for losses summarized by Funeng Technology, low gross profit margin is the core reason.

Funeng Technology is still losing money in the first quarter of 2024, although the amount of loss has narrowed year-on-year, but its revenue is the lowest in recent quarters.

Although the gross profit margin in the first quarter of 2024 is still growing year-on-year, it has begun to decline quarter-on-quarter, and the main business is still losing 6.3 percentage points, and the profitability has not improved significantly compared with 2023. This shows that the task of turning around losses in 2024 is still a long way to go.

Flowers inside the wall and fragrance outside the wall?

It is worth noting that in 2023, Funeng Technology's overseas business will develop rapidly. The annual report cites the statistics of the China Automotive Power Battery Industry Innovation Alliance, and the export sales of power batteries of Funeng Technology in 2023 rank third in the country.

Source: Funeng Technology's 2023 annual report

In terms of regions, Funeng Technology will achieve revenue of 5.556 billion yuan and 9.873 billion yuan at home and abroad in 2023, with a year-on-year increase of -11.4% and 124.7% respectively, accounting for 34% and 60% of revenue respectively. In addition, the gross profit margin of the company's export products was 12.72%, much higher than the domestic -5.91%.

Funeng Technology pointed out that the company actively expands overseas and emerging business markets and continues to maintain strategic cooperation with Mercedes-Benz. At the same time, Siro, a new overseas key customer, has been designated as a project by Mahindra Group, India's second largest automotive industry group, and has formed cooperation with international leading eVTOL manufacturers and has delivered products. ⑧

Funeng Technology also established Siro as a joint venture with Turkish electric vehicle start-up Togg, and supplies Togg through Siro.

In 2023, Funeng Technology's overseas revenue will reach a new high of 9.873 billion yuan, a year-on-year increase of 124.7%, and the proportion of overseas revenue will also increase from 11.6% in 2021 to 60.07% in 2023. Funeng Technology's revenue in foreign markets will increase by 1.25 times in 2023. However, it is worth noting that in 2023, in the context of high growth in overseas income, Funeng Technology's domestic revenue will decrease by 11.40% year-on-year, and overseas income will also exceed domestic income for the first time.

In 2020, there were rumors in the market that Funeng Technology was blacked out by the former best friend of BAIC New Energy Procurement Department, and soon, BAIC New Energy released a large-scale car recall plan, which was caused by the risk of fire in the power battery system due to consistency differences, and Funeng Technology will bear the costs related to the recall. After the two gradually drifted apart, in the disclosure of Funeng Technology's 2020 annual report, BAIC New Energy has disappeared from the top five customers.

It should be said that it is not only BAIC that domestic new energy vehicle manufacturers have abandoned Funeng Technology. One fundamental reason is that the cost of pouch batteries produced by it is high, and most domestic cars are in low-cost models, which is not cost-effective from cost considerations. The embarrassing position of Funeng Technology in China in recent years also comes mainly from this.

Specifically, since the cells of pouch batteries are mainly packaged with aluminum-plastic film, compared with hard-shell batteries such as square and cylindrical, due to the soft physical properties of aluminum-plastic film, it is easy to bulge during liquid injection. However, when the battery cells are connected in series and parallel to become a battery module, additional metal parts need to be added to play a supporting role, which leads to problems such as poor consistency and low group efficiency of pouch cells. As a result, pouch cells require a more complex manufacturing process than prismatic and cylindrical batteries. ⑨

Specifically, compared with prismatic cylindrical batteries, the extra metal parts of pouch cells and the aluminum-plastic film used to encapsulate the battery cells are still mainly imported, which greatly increases the raw material and manufacturing costs of pouch cells.

At present, the main sales force of the domestic new energy market is still dominated by models below 200,000 yuan, and the involution is serious, and they are fighting a price war. This eventually led to the downturn of pouch batteries in China.

According to the official account of Gaogong Industry and Research Institute, the total installed capacity of domestic power batteries in 2023 will be 359.7GWh, of which 338.5GWh will be installed in prismatic batteries, 11.0GWh in cylindrical batteries, and 10.2GWh in pouch batteries, the least of the three, accounting for only 2.8%.

It has been abandoned by mainstream domestic and foreign car companies

As a supplier of power batteries and battery systems, Funeng Technology has become one of the world's leading companies in ternary soft-pack power batteries. According to relevant statistics, the current global shipment of power batteries of Funeng Technology has exceeded 16GWh, ranking among the top ten in the global installed capacity of power batteries for three consecutive years. The way and technical path of soft package packaging that it adheres to has also become the key to creating differentiated competition and standing out in the industry.

Pouch power batteries have many advantages such as high energy density, light weight, design freedom and safety, while the most concerned development direction of pouch packaging in the field of power batteries is mainly in solid-state battery applications. Some researchers in the field pointed out that with the advent of the era of autonomous driving, the development of all-solid-state batteries is inseparable from fundamentally improving the safety performance of batteries.

As an important direction of the next generation of lithium batteries, solid-state batteries will greatly change the current battery market pattern if they can be mass-produced and used from the perspective of the market; From an application point of view, solid-state batteries have incomparable advantages such as high density and high safety because there are no gases or liquids in the structure. ⑩

According to the annual report, the R&D expenses of Funeng Technology in 2023 have reached 749 million yuan, a year-on-year increase of 25.21%. Since 2024, Funeng Technology has obtained 48 new patents, an increase of 84.62% over the same period in 2023. Combined with the financial data of the company's 2023 annual report, the company invested 749 million yuan in research and development in 2023, an increase of 25.21% year-on-year.

With continuous technological innovation, Funeng Technology has built a flexible manufacturing platform with high versatility and strong compatibility, with the delivery capacity of ternary, iron-lithium, sodium-ion and other types of batteries, and has the ability of solid-state battery research and development and semi-solid-state battery mass production. In addition, it is worth mentioning that in the past year, the company has also successfully completed the development of NoTP for many products, some of which have been carried out and passed the 100% SOC needlepunch test, and their safety performance has been further optimized. At the same time, the core technology of Funeng Technology, "large soft-pack power battery solution", has successfully moved towards industrialization, and the related supporting production capacity is rapidly landing, injecting new impetus into the company's future development.

According to the research report released by Caixin Securities, it is expected that by 2030, the global shipment of solid-state batteries will reach 614.1GWh, and the penetration rate in the overall lithium battery is expected to be about 10%, and its market size will exceed 250 billion yuan. With the continuous expansion of solid-state battery applications, Funeng Technology is expected to usher in more business opportunities and profit growth points by virtue of its technical advantages in the field. Especially in high-end application scenarios such as autonomous vehicles and low-altitude economy, the company's soft-pack power batteries may show great potential and market prospects, laying a solid foundation for their long-term development. ⑪

However, at least until now, solid-state batteries are still not mainstream in the market, and the most optimistic estimates will have to wait until a few years before large-scale adoption in the market. However, during this period, no one can say whether the development direction of the battery technology route will be suddenly rewritten.

Qingyan Huake New Energy Research Institute said that once a car company determines what kind of packaging, it will not be easily changed unless the packaging process pattern changes drastically. From the perspective of market share, pouch batteries have been in a situation of "survival in the cracks".

As a core customer of Funeng Technology, Mercedes-Benz has slowed down the pace of electrification, saying in its annual report that considering the low consumer acceptance of electric vehicles and the slower than expected popularity, it is readjusting the pace of electric vehicle transformation, and it is expected that the number of electric models sold in the market will be halved by 2030. According to the financial report, in the first quarter of 2024, Mercedes-Benz pure electric vehicle sales will be 47,521, a year-on-year decrease of 8%.

At present, Funeng Technology's SPS pouch battery has been installed in Geely radar pickup, and has been designated by Dongfeng, and other customers are in the verification and testing stage.

Wang Yu, chairman of Funeng Technology, said in an interview with the media why he chose the soft-pack route, that SPS products are compatible with ternary, lithium iron phosphate and sodium-ion batteries, taking into account the conversion of liquid batteries to solid-state batteries. "Our technical roadmap is to take the lead in putting the next generation of products into production in 5 to 10 years along the above direction, which is also the original intention of establishing the technical roadmap of pouch cells." ⑫

Compared with its chairman's insistence on the soft-pack route, the capital market no longer seems to be optimistic about China's most loss-making power battery company. When it landed on the Science and Technology Innovation Board in July 2020, the issue price of Funeng Technology was 15.9 yuan per share, and after falling to a low of 10.06 yuan in February this year, it is currently hovering around 11 yuan, which has completely fallen below the issue price.

Funeng Technology wants to bet overseas, but Tesla, the largest electric car manufacturer, is not its customer, and the country has not been accepted by mainstream car companies, which makes its loss situation slow to improve, if it continues to lose money, whether it can survive will also be a problem, although in its field, its technology is still leading. But the market never recognizes these.

[Quote]

(1) (Turkey imposes an additional tariff of 40% on Chinese automobiles, the Ministry of Commerce responds CCTV News 2024-06-14 CCTV reporter Gao Yuan)

(2) (Funeng Technology: Turkey announced a 40% tariff on China's electric vehicles to protect the interests of the Turkish auto industry, which is conducive to the deepening of cooperation between the company and Turkish customers 2024-06-13 15: Source: Flush iNews)

(3) (Independent research and development "blossoming and fruiting" Funeng Technology has been re-certified by the authority 2024-02-19 Source: Shanghai Securities News)

(4) (120GWh+24GWh, Funeng Technology is on the "big project" CBEA battery network 2021-08-30)

  (5) (Funeng Technology's revenue and loss in 2023 have hit a new high, what is the real reason for the loss?) 2024-04-30)

(6) (Funeng Technology's revenue and loss in 2023 have hit a new high, what is the real reason for the loss?) Soil Fish2024-04-30 )

(7) (When will the new actual controller enter the market?) After losing the IPO raised amount in 4 years, Funeng Technology may rely on solid-state batteries to turn over Times Weekly2024-05-17 Author: He Mingjun)

(8) (Funeng Technology's continuous losses admit that "insufficient management ability" When the change of control will be completed is concerned Sina Finance2024-05-07 Source: Oriental Wealth)

(9) (Zhikrypton丨Consecutive losses, two recalls, the domestic predicament of the pouch battery leader 36Krypton2022-12-16 |Fan Liang)

(10) (The next generation of battery technology is coming?) Solid-state pioneer Funeng Technology Comprehensive Layout Automotive Business Review 2021-07-05 )

(11) (Funeng Technology: Solid-state battery drives pouch packaging demand, capacity expansion to stabilize market leading position Bosera refers to Huijia 2024-06-13 Shanghai returns to Funeng Technology Bar >)

(12) (With a loss of 4.1 billion yuan in 4 years, this power battery company admits that it lacks business experience and pays an expensive "tuition" China Times2024-05-14 )

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