(Original title: Operation Review of the Board of Directors of Zhenhua New Materials in 2022)
The operating comments of the Board of Directors of Zhenhua New Materials in 2022 are as follows:
I. Discussion and analysis of business conditions
In 2022, China’s new energy vehicles continued to grow explosively. According to the data released by China Automobile Industry Association, in 2022, China’s new energy vehicles sold 6.887 million vehicles, with a year-on-year increase of 93.4%, accounting for 25.6% of domestic automobile sales in the same period (i.e. penetration rate). According to the statistics of EV-Voumes, the global sales of electric vehicles (BEV and PHEV) will be about 10.5 million in 2022, up 61% year-on-year. China has led the growth of global automotive electrification. The development of new energy vehicles is of great significance to enhance the competitiveness of the automotive industry, ensure energy security, improve air quality and cope with climate change. Therefore, the new energy industry still has broad development space in the future.
In 2022, the company’s sales revenue from ternary cathode materials was 13.5 billion yuan, accounting for 97% of the total revenue. Thanks to the growth of demand side of new energy vehicles, the company’s sales of ternary cathode materials increased by 34% year-on-year; The sales volume increased, the product structure was optimized, and the price of superimposed raw materials rose. The revenue of ternary cathode materials increased by 158% year-on-year.
In terms of product structure, based on the deep technical precipitation in the field of single crystals, during the reporting period, the company:
(1) High-nickel 8-series ternary cathode materials were continuously and steadily released, achieving a revenue of 5.075 billion yuan, up 143.3% year-on-year;
(2) Ultra-high nickel 9-series ternary cathode materials began to send samples to some customers in 2021, and delivered more than 10 tons in 2022;
(3) Medium-high nickel 6 series products have great cost-effective advantages in high-voltage scenarios, and the proportion of their main business income increased from 2.31% in 2021 to 15.85% during the reporting period;
(4) The medium nickel 5 series products have been continuously and stably exported for many years, and have been widely recognized by the downstream market by virtue of their stable and reliable technical performance. They are not only used in foreign high-end models, but also used in domestic mainstream models in batches.
While the new energy industry is booming, the price of some raw materials for lithium-ion batteries has risen sharply due to the imbalance between supply and demand, which has adversely affected the sustainable and healthy development of the industry. In order to alleviate this situation, from the perspective of battery raw materials, the company is committed to making breakthroughs through technological innovation. Sodium ion batteries have significantly better low-temperature performance than lithium ion batteries, which is very suitable for all-weather and all-regional electric vehicle market demand. The most important thing is that the supply chain of raw materials for sodium ion batteries is stable, which has important strategic significance for the future development of the new energy industry. 2022 is the early stage of sodium electricity industry. During the reporting period, the company’s sodium ion battery cathode materials have reached a comprehensive and in-depth cooperative relationship with domestic head battery customers by virtue of excellent performance and excellent cost performance advantages, with a cumulative shipment of dozens of tons. At the same time, the company has laid out corresponding patents, and the core technology is self-controllable, laying a solid foundation for business development in the next year.
II. Description of the company’s main business, business model, industry and R&D during the reporting period.
(a) the main business, main products or services.
Since its establishment, the company has focused on the research, development, production and sales of cathode materials for lithium-ion batteries, mainly providing cathode materials for lithium-ion batteries used in new energy vehicles and consumer electronics products.
During the reporting period, the company made a breakthrough in the research and development and industrialization of cathode materials for sodium ion batteries. During the reporting period, it shipped dozens of tons, and the market application and promotion progressed smoothly, reaching a comprehensive and in-depth cooperative relationship with domestic head battery customers.
(II) Main business models
1. Purchasing mode
The main raw materials purchased by the company include ternary precursors, cobaltosic oxide, lithium carbonate and lithium hydroxide. The company has a materials department, which is responsible for supplier selection and material procurement.
2. Production mode
The company mainly produces according to orders. If it is judged according to the customer’s annual purchasing plan and market trend that the customer is expected to have a large order demand in the future, in order to reduce the future production pressure and effectively utilize the production capacity, the company will also carry out stocking production.
3. Sales model
The company mainly adopts the direct selling mode, and the downstream customers are mostly domestic large-scale well-known power battery and energy storage battery manufacturers. After long-term cooperation, a stable cooperative relationship has been formed.
The sales process mainly includes obtaining sample demand, technical exchange, sample certification at various stages, signing contracts, delivery, payment back and other links; Sample certification at each stage includes the production, delivery, evaluation, customer certification, improvement, specification/drawing signing and other processes of samples at different levels, such as laboratory level and production line level, so as to ensure that the whole process of products from performance to batch quality stability can meet customer needs. After the certification stage, the company signed a supply contract with customers for mass production, and tracked the delivery of goods and the recovery of payment. If the customer puts forward further requirements for the certified products, the company will directly sign a supply contract with the customer for mass production.
(3) the industry situation
1. The development stage, basic characteristics and main technical threshold of the industry.
(1) Industry development stage
The market demand for new energy vehicles continues to grow rapidly, and the power battery industry is booming, which drives the scale of the cathode material industry to increase rapidly. According to the statistics of China Automotive Power Battery Industry Innovation Alliance, the cumulative output of power batteries in China was 545.9GWh in 2022, up 148.5% year-on-year. According to the data of GGII, in 2022, the market shipment of cathode materials for lithium batteries in China was 1.9 million tons, up 68% year-on-year, of which the shipment of ternary materials was 640,000 tons, up 47% year-on-year. Market growth is mainly driven by domestic ternary power battery growth and overseas export demand. From 2017 to 2022, China’s ternary cathode material shipments continued to grow, with a compound growth rate of 43.28%.
(2) the basic characteristics of the industry
At present, the cathode material industry has the following basic characteristics:
① At present, Ferrous lithium phosphate and ternary cathode materials are the main technical routes of power batteries.
According to the statistics of China Automotive Power Battery Industry Innovation Alliance, the cumulative loading capacity of power batteries in China reached 294.6GWh in 2022, with a cumulative year-on-year increase of 90.7%. Among them, the cumulative loading capacity of ternary batteries is 110.4GWh, accounting for 37.5% of the total assembly vehicle, with a cumulative year-on-year increase of 48.6%; The cumulative loading capacity of lithium iron phosphate battery was 183.8GWh, accounting for 62.4% of the total vehicle, with a cumulative year-on-year increase of 130.2%.
Ternary cathode materials and Ferrous lithium phosphate, as the mainstream technical routes of power batteries at present, will develop vigorously in 2022 in terms of output, sales volume and loading capacity.
② The supply chain of raw materials is fragile and the price of raw materials fluctuates greatly.
The raw materials of cathode materials for lithium ion batteries are mainly lithium salts and precursors. While the new energy market is booming, the prices of raw materials such as lithium salt fluctuate greatly due to the imbalance between supply and demand. Take the battery-grade lithium carbonate quoted by Shanghai Nonferrous Metals Co., Ltd. as an example, the price including tax was less than 300,000 at the beginning of 2022, and the highest price including tax was close to 600,000 in November 2022. The sharp fluctuation of raw material prices has brought adverse effects to the sustained and healthy development of the whole industry.
③ The competition is fierce, and there is little difference in the share of head enterprises.
According to the statistical data of Hi-Tech Lithium Battery and Xinyi Lithium Battery, the market share of domestic ternary cathode material industry in 2018-2022 was 48%/50%/52%/55%/61% respectively, with an average annual increase of about 2-3 percentage points. Compared with other lithium battery materials, the competition in ternary cathode material industry is fierce, and the market share of head enterprises is small, which has not opened a big gap. The main reasons are as follows: First, the entry threshold of ternary cathode material industry is high, and there are few new entrants; Second, the head ternary materials enterprises have their own advantages and the market competition is fierce.
④ cathode material manufacturers have expanded their production, so they should be alert to the risk of overcapacity.
The vigorous development of new energy industry has attracted the attention of all forces and funds to the cathode material industry, and cathode material manufacturers have expanded their production. For the sub-sectors with serious homogenization of products, due to the lower technical threshold, they will face more intense competition.
(3) Main technical thresholds
(1) industry standard barriers
On December 10, 2021, the Ministry of Industry and Information Technology officially issued the Specification Conditions for Lithium-ion Battery Industry (2021 Edition) and the Management Measures for Announcement of Lithium-ion Battery Industry Specification (2021 Edition), which came into effect on December 20, 2021, and set strict requirements on the R&D capability, advanced technology, quality inspection and intelligent manufacturing capability of production enterprises. At the same time, it strengthened corporate social responsibility. Usually, it is difficult for industrial enterprises to meet the requirements of relevant industry norms in a short time through investment.
② Barriers to quality certification
Because the cathode material is one of the most important raw materials in power batteries, it has a great influence on the core performance and safety performance of power batteries. Considering the stability and safety of products, the certification and testing procedures of cathode materials for car companies and power battery companies are more complicated, which requires not only long-term product performance testing, but also detailed evaluation of the comprehensive supply capacity of manufacturers. The overall certification cycle time is generally about 1-2 years. At present, the domestic power battery market is highly concentrated. Power battery manufacturers have established long-term cooperative relations with cathode material manufacturers, and the cooperation is sticky. Once cathode material manufacturers enter the customer’s supplier system, they will not be easily replaced.
③ Technological barriers
The technology of ternary cathode materials is complex, the production process is strictly controlled, the research and development is difficult, the cycle is long, and the technology experience is important. All domestic manufacturers have formed their own technology, such as the selection of raw materials, the proportion of various materials, the application of auxiliary materials and the production process, which requires years of technology and experience accumulation. Technological barriers not only refer to higher R&D technical threshold, but also include finer production management and lower cost mass production level.
From the technical point of view, ternary cathode materials are mainly divided into primary particle large single crystal technology system and secondary particle aggregate technology system. Manufacturers with different technical routes have differences in sintering times, sintering furnace design, temperature control, doping coating elements and other production processes, and have formed their own technological barriers through long-term experience accumulation.
From the perspective of industry development, low-cobalt/cobalt-free NCM ternary materials with cost performance and high-nickel NCM ternary materials with energy density are the development trends of ternary cathode materials industry. In view of the scarcity of cobalt resources, high price and large fluctuation, decarbonization is the current mainstream trend. The development of low-cobalt/cobalt-free materials, including the selection of precursors, sintering process, doping and coating technology, determines the difference in cost performance and comprehensive competitiveness of materials. Compared with conventional ternary materials, the technical barriers to produce high-nickel ternary cathode materials are higher. The production of high-nickel ternary cathode materials not only needs technical modification such as doping and coating, but also needs calcination in oxygen atmosphere, which puts forward more stringent requirements for humidity control of production environment, corrosion resistance of equipment and automation level.
(4) production scale and capital barriers
Large-scale ternary material production enterprises have scale advantages in raw material procurement and production operation. At the same time, the market concentration of the power battery industry is high, and mainstream power battery manufacturers have higher requirements for the quality, quantity and timeliness of cathode material suppliers, so it is difficult for small enterprises to enter the qualified supplier system of lithium battery enterprises.
Ternary materials are capital-intensive industries. Ternary materials have high requirements for production environment and production equipment, and large capital investment is needed to build new production lines. In addition, the cost of purchasing raw materials accounts for a relatively high proportion in the production cost of ternary materials, and a large amount of liquidity is needed for daily business activities. New entrants to the industry face certain scale and financial barriers.
2. Analysis of the industry position of the company and its changes.
In 2009, the company completed the research, development and production of ternary cathode materials with large primary particles and single crystal of lithium nickel cobalt manganate at home and abroad earlier. After years of research, development and cultivation, the company has realized the industrial production and sales of ternary cathode materials of large single-crystal nickel cobalt lithium manganate covering a full range of medium nickel, medium high nickel, high nickel and ultra-high nickel, and is also a producer of lithium cobalt manganate, composite ternary and other varieties of cathode materials for lithium ion batteries. At present, the company has mastered the synthesis technology of one-step large single crystal Ni-Co-Mn ternary material, one-step large single crystal Ni-Mn binary material with cobalt-free layered structure, one-step high-voltage lithium cobaltate material, one-step polycrystalline Ni-Co-Mn ternary cathode material, one-step spinel composite modified material, one-step anode material doping technology, one-step large single crystal material with medium high nickel and low cobalt content, one-step large single crystal material with high nickel content, and one-step sodium ion battery cathode material.
According to the statistics of Xinyi Information, in 2022, the company’s ternary material output ranked seventh in the domestic market, with a market share of 7%; In 2022, the company’s output of large single crystal ternary materials ranked third in the domestic market, accounting for 17% of the corresponding output. In 2022, the company’s market application and promotion of sodium ion battery cathode materials progressed smoothly, and reached a comprehensive and in-depth cooperative relationship with domestic head battery customers, with a cumulative shipment of dozens of tons. With the continuous improvement of the company’s new product development and application in the field of high nickel and ultra-high nickel primary particle large single crystal ternary cathode materials and sodium ion battery cathode materials, the company will maintain strong competitiveness in the industry for a long time.
3. Development and future development trend of new technologies, new industries (300832), new formats and new models during the reporting period.
1. With policy support, consumer confidence will gradually recover, and the demand for new energy vehicles will be effectively boosted.
New energy vehicles are an important driving force for the automobile market and a key industry to stabilize the national industry. Therefore, in order to further expand the promotion scale of new energy vehicles, a series of policies have been issued at the national level to implement the project of strengthening the foundation by leading new energy vehicles. At the same time, the Party’s Report to the 20th CPC National Congress emphasized that it advocates green consumption and promotes the formation of green and low-carbon production methods and lifestyles. The Central Economic Work Conference held at the end of 2022 proposed to support consumption such as housing improvement, new energy vehicles and old-age services. With the effectiveness of various policies and measures, automobile consumption will continue to stabilize and recover, and the power battery market will also usher in a new round of development.
2. Determination of high nickel trend of ternary cathode materials
Under the background of mileage anxiety and charging anxiety of new energy vehicles, the improvement of battery energy density mainly starts from the upgrading of electrochemical performance and the innovation of physical system structure. According to the data of GGII, in 2022, in the shipping structure of ternary materials in China, the proportion of ternary materials with high nickel content of 8 series and above rose to the first place, accounting for over 40%. In addition, overseas markets mainly use high-nickel materials, and some domestic enterprises increase overseas supply and export, which also drives the shipment of high-nickel materials to increase. The properties of 8-series and above high-nickel ternary materials are fully improved, and at the same time, their preparation technology threshold is high, and the market access threshold is high. In the fierce market competition in the future, the research and development, production and preparation capabilities of 8-series and above high-nickel ternary materials have an important impact on the development of cathode material manufacturers.
3. Ternary cathode materials will remain one of the mainstream technical routes in the future.
For the downstream market, the cost performance of cathode materials is one of the important factors to measure the technical route selection. Since 2021, the installed capacity of Ferrous lithium phosphate has surpassed that of ternary cathode materials, mainly due to the technical breakthrough of lithium iron phosphate battery and the rising cost of ternary cathode materials due to the rising price of nickel and cobalt. Due to the determination of the high nickel trend of ternary cathode materials and the limited market space of consumer electronics, the demand for cobalt metal is reduced; In terms of nickel, with the continuous release of new production capacity, the supply continues to increase, so it is expected that the price of cobalt and nickel will stabilize, and it is expected that the following ternary materials with 8 series and above high nickel will have significant cost advantages, so ternary cathode materials, especially ternary materials with 8 series and above high nickel, will be one of the mainstream technical routes of power batteries in the future.
4. The comprehensive recycling of waste power batteries continues to increase.
With the popularization of electric vehicles, it is inevitable to deal with the waste power batteries. After the waste power battery is used step by step, the remaining part can be recycled because it contains precious metals. In the European market where the voice for new energy vehicles has been very high, specific targets and implementation paths have been set for the recovery rate of major metals such as lithium, nickel and cobalt, and the market development has been guided by legislative norms. China’s "Tenth Five-Year Plan for the Development of Circular Economy" puts forward that the development of circular economy is a major strategy in China, and the recycling of used power batteries is one of the key areas of action. Therefore, it is an important trend in the future to develop the recycling industry of waste power batteries, reduce the loss of precious metals and promote the sustainable development of resources and environment.
5. The supply chain of raw materials for lithium-ion batteries is fragile, which has a negative impact on the sustainable and healthy development of the new energy industry.
While the new energy industry is booming, the price of lithium salt, the main raw material of lithium ion batteries, is prone to violent fluctuations in the short term due to the imbalance between supply and demand, which is not conducive to the marketization and scale of new energy vehicles and energy storage industries. As the largest producer and user of lithium salt in the world, China’s lithium resource supply mainly depends on imports. With the increasing emphasis on the new energy industry in China, especially the huge demand for lithium resources brought by the increasing production, sales and penetration rate of upstream new energy vehicles, although the capital investment in both lithium mines and smelting ends continues to increase, due to the relative shortage of domestic lithium mines, the overall increase in the future is limited, and the fragile supply chain has caused concerns about the future sustainable development of the new energy industry.
6. The industrialization process of sodium ion battery is accelerated, and the market application and promotion are progressing smoothly.
While the new energy industry is booming, the imbalance between supply and demand of some raw materials for lithium-ion batteries has adversely affected the sustainable and healthy development of the industry. Sodium ion battery is obviously superior to lithium ion battery in low temperature performance, which is very suitable for all-weather and all-regional electric vehicle market demand. Most importantly, compared with lithium, sodium has more abundant reserves and lower price, and the supply chain of sodium ion battery raw materials is stable. On June 1, 2022, the National Development and Reform Commission and the National Energy Administration jointly issued the "Tenth Five-Year Plan for Renewable Energy Development", proposing to strengthen the research and development of high energy density energy storage technologies such as sodium ion batteries. From the industry practice, the head enterprises in the industry, including Contemporary Amperex Technology Co., Limited (300750), are also laying out sodium ion batteries with more advantages in cost and more stable electrochemical performance. Therefore, the sodium ion battery and upstream materials industry are expected to usher in rapid development opportunities.
(IV) Core technologies and R&D progress
1. Core technologies and their advanced features and changes during the reporting period.
Since its establishment, the company has focused on the research and development and production of cathode materials. In 2009, it completed the research and development and production of nickel-cobalt-lithium manganate ternary cathode materials with large single crystal particles at home and abroad earlier. The company has made some contributions to the technical route of domestic power battery industry in the technology of ternary cathode material with large primary particles and single crystal. At present, the global power battery market has formed a tripartite confrontation among China, Japan and South Korea. From the technical route and development direction, China’s power battery has a unique ternary cathode material system with large primary particles and single crystals, which enhances the market competitiveness.
The company has successfully developed and formed a series of core technologies with independent intellectual property rights, including the synthesis technology of one-time large single crystal Ni-Co-Mn ternary materials, the synthesis technology of large single crystal Ni-Mn binary materials with cobalt-free layered structure, the synthesis technology of high-voltage lithium cobaltate materials, the synthesis technology of polycrystalline Ni-Co-Mn ternary cathode materials, the synthesis technology of spinel structure composite modified materials, the doping technology of cathode materials, the surface modification technology of cathode materials, and the synthesis technology of sodium ion batteries.
In the field of cathode materials for sodium ion batteries, after the accumulation of different projects and continuous running-in with customer product platforms, the company has formed a number of core technologies such as multi-element synergistic doping technology, crystal structure control technology, low pH value and low free sodium control technology, morphology size and particle size control technology, which can effectively improve the structural stability and air stability of cathode materials for sodium ion batteries, and improve the high and low temperature performance, cycle stability and rate performance of sodium ion batteries. For the above-mentioned core technologies, as of the disclosure date of this report, the company has submitted nine patent applications related to cathode materials of sodium ion batteries, forming a preliminary patent layout.
Relying on the above-mentioned core technology, the cathode material of sodium ion battery developed by the company has the characteristics of high pressure solid density, high capacity, low pH value and low free sodium. High voltage solid density and high capacity are helpful to improve the energy density of the battery; Low pH value and low free sodium can effectively improve the air stability of materials and the stability of battery slurry, thus improving the overall stability and consistency of the battery and improving the defect of gas generation and bulging of the battery. The related performance indexes of the cathode materials of layered sodium oxide ion batteries produced by the company are better than the market average, among which the specific capacity and first efficiency are higher than the market average, reflecting the higher energy density of the corresponding batteries; The contents of pH value, free sodium and nickel are lower than the market average level, which reflects that the battery produced correspondingly has better integrity and consistency and lower cost. The excellent performance of the company’s products has been recognized by mainstream customers in the downstream. During the reporting period, the company has achieved dozens of tons of sales of cathode materials for sodium ion batteries.
As of the signing date of this report, the company has been authorized 17 invention patents (including 16 domestic invention patents and 1 foreign invention patent) and 1 utility model patent, and has successively won 9 national, provincial and ministerial awards such as China Patent Excellence Award, Guizhou Patent Gold Award, Guizhou Scientific and Technological Progress Second Prize, Guizhou Scientific and Technological Achievements Transformation Second Prize, and Guizhou High Value Patent in 2020. In December 2018, the company successfully entered the list of the third batch of "Standards and Conditions for Lithium-ion Battery Industry" of the Ministry of Industry and Information Technology.
2. R&D achievements obtained during the reporting period
3. R&D investment table
Reasons for the significant changes in total R&D investment compared with the previous year.
During the reporting period, the total R&D expenditure was RMB250,950,100, up by 67.93% year-on-year. The increase was due to the company’s further enrichment of R&D team, increased R&D investment and continuous strengthening of R&D activities.
4. Research projects
5. R&D personnel
6. Other explanations
Iii. Analysis of core competitiveness during the reporting period
(A) analysis of core competitiveness
1. The first-Mover advantage and perfect product layout of NCM cathode material synthesis technology with large single crystal particles.
The conventional ternary cathode material of secondary particle aggregate is composed of many small single crystal particles, and the secondary particles are easy to crack and break during the cycle, which shortens the cycle life of the battery. The secondary particles are easy to break in the cold pressing process of the pole piece, which makes the performance of the battery deteriorate. The ternary cathode material with large primary particles and single crystal can avoid the above problems well. After compaction and high temperature cycling, the material can obtain better high temperature cycling stability, structural stability and high temperature resistance, so it has better safety performance. Ternary cathode materials with large primary particles and single crystals are mainly used in the domestic market and are one of the mainstream choices in the domestic power battery industry.
In 2009, the company launched the first generation of large single crystal NCM523 products in the whole industry earlier, and it was applied in batches in new energy vehicles in 2014. The company’s medium nickel 5 series single crystal products have been continuously and stably exported for many years, and have been widely recognized in the downstream market by virtue of their stable and reliable technical performance. Besides being mature and applied in foreign high-end models, they are also applied in batches in domestic mainstream models.
In 2018, the company successively launched the ternary cathode material of medium-high-nickel and low-cobalt primary particle large single crystal and the ternary cathode material of high-nickel primary particle large single crystal. At present, the medium-high-nickel 6-series single crystal products have a high cost performance advantage in high-voltage scenarios, accounting for an increasing proportion of the main business income, while the high-nickel 8-series single crystal products continue to increase steadily.
In terms of ultra-high nickel 9 series single crystal materials, tons of samples were sent to some customers in 2021, and the energy density and high-temperature storage performance of the products were superior to those of competitors of the same type. During the reporting period, more than 10 tons of products were shipped. At present, the company has the mass production capacity of ternary cathode materials with medium nickel, medium high nickel, high nickel and ultra-high nickel, forming a perfect product layout and promoting the long-term sustainable development of the company’s ternary cathode materials business.
2. The first-Mover advantage of the cathode material of sodium ion battery and the leading advantage of taking the lead in realizing ten-ton mass production.
In 2016, the company began to research and develop products related to the cathode materials of sodium ion batteries. With the rapid increase in the market price of lithium salt since 2021, the problem of the stability of lithium salt supply has become more and more prominent. The cathode materials of sodium ion batteries have gradually attracted market attention due to their rich reserves, high cost performance and safety performance, and the company has correspondingly accelerated the research and development process of the cathode materials of sodium ion batteries.
The accumulation of large single crystal technology system in the field of ternary cathode materials is an important guarantee for the rapid development of cathode materials for sodium ion batteries and the recognition of product performance by customers. The cathode material of single crystal sodium ion battery produced by the company through the large single crystal technology system has complete material structure and good processability, and there will be no particle fragmentation in the cycle process, which effectively reduces the situation of new interface caused by particle fragmentation and effectively improves the high-temperature and high-voltage cycle performance of sodium ion battery, especially the high-temperature stability.
Up to now, the company has mastered many core technologies such as multi-element synergistic doping, crystal structure control, low pH value and low free sodium control, morphology size and particle size control, and the patent layout guarantee technology is self-controllable; At the same time, combined with the downstream application scenarios, the company targeted the development of cathode materials for sodium ion batteries, and the performance of related products matched the needs of customers. During the reporting period, the market promotion and application progressed smoothly, and the company has achieved sales of tens of tons, fully guaranteeing the company’s leading edge in the positive electrode material market of sodium ion batteries.
3. Brand and quality advantages
Since its establishment, the company has focused on independent innovation and R&D, and created a brand image. By establishing a strict brand and quality management system and continuous investment in technology R&D, it has gradually established a long-term and stable cooperative relationship with many high-quality battery manufacturers in the industry, and established its own brand position through a number of international and domestic related qualification certifications.
On October 26, 2016, the company passed the quality management system standard "ISO/TS16949:2009", and the scope of certification was the design and manufacture of lithium-ion cathode materials. In 2018, it passed the edition change audit of "IATF16949:2016" to ensure that the company’s new product development and product quality can continuously meet the relevant standards of the quality management system and the needs of downstream customers.
The company always adheres to the product quality as the core, strictly abides by the quality management procedures such as Product Advance Planning Control Procedure and 5M1E Change Control Procedure, and implements the whole process guarantee for new product development and mass production. Since 2009, the quality and yield of the company’s cathode materials are at a high level, which has been recognized by leading domestic battery manufacturers downstream. During the reporting period, the company won excellent supplier awards from many customers.
4. Advantages of high-quality customer resources
The company has always adopted the competitive strategy of concentrating limited enterprise resources to cultivate and maintain large customers, which can form scale operation to gain cost advantage, share information in time to promote product technology innovation to meet customer needs, form a stable source of sales orders, produce market radiation effect and increase market share. The long-term recognition of high-quality large customers also enhances the company’s reputation in the industry, and can bring other high-quality new customers to the company while expanding its production capacity and maintain a strong competitive advantage.
For a long time, the company has been guided by the needs of downstream and end customers, and continues to independently research and develop cathode materials, and constantly improve the competitiveness of products on the basis of ensuring excellent cycle stability and safety performance of materials.
Since 2004, the company has established a good reputation in the industry with its reliable product quality, and has successively entered the supply chain of well-known domestic lithium-ion battery manufacturers, and formed a long-term and stable cooperative relationship. Through long-term close cooperation, the company has become an important supplier of cathode materials for domestic battery manufacturers such as Contemporary Amperex Technology Co., Limited, Funeng Technology, ATL, Polyfluoride (002407), Tianjin Lishen, Zhuhai Guanyu and Weihong Power.
5. Advantages of industrial intelligence
While accelerating the construction of production capacity, the company also pays attention to the improvement of industrial intelligence. Through the organic integration of industrial robots, intelligent equipment and information technology, the company realizes the automation of anode material production, quality control, logistics and distribution, realizes the digitalization of product design, manufacturing and service, and promotes the intelligent upgrading of manufacturing industry. Improve the efficiency of production management and energy management; It improves the management ability of production inventory, agility and responsiveness of operation, and ensures the quality and delivery of products.
6. Advantages of sustainable development
As a subsidiary company of central enterprises, the company actively serves the national strategy by operating business, and pays attention to social responsibility while creating economic value. By participating in the company Red Star Electronics, the company laid out the waste lithium-ion battery and material recycling industry, and strengthened the ability to control the cost of raw materials such as ternary precursors. As of the end of the reporting period, the company holds 34% equity of Red Star Electronics. Red Star Electronics uses waste lithium-ion batteries and secondary biomass to extract and recover valuable materials such as usable lithium and cobalt, and converts its production into raw materials used in the production of ternary precursors, lithium carbonate and other companies. The industrial layout of waste lithium-ion batteries and materials recycling is an important way for the company to accelerate the integration of upstream industries, at the same time, it can effectively reduce the loss of precious metals and promote the sustainable development of resources and environment.
At the same time, the company continues to promote the integration of sustainable development and daily production and operation. The company has two production bases, which are located in Guiyang City, Guizhou Province and Yilong New District, Southwest Guizhou Province. Yilong production base has passed SGS carbon-neutral certification, declared to be a zero-carbon factory in 2022, and was awarded the national green factory of the Ministry of Industry and Information Technology. In terms of rural revitalization, Anlong County, where Yilong production base is located, was originally a national poverty-stricken county. The company has made important contributions to rural revitalization and common prosperity through industry guidance, employment assistance and radiation, and was selected as an excellent practice case of rural revitalization of listed companies promulgated by China Association of Listed Companies.
(II) Events that have seriously affected the core competitiveness of the company during the reporting period, impact analysis and countermeasures.
Fourth, risk factors
(A) Not yet profitable risk
(2) Risk of sharp decline in performance or loss
(C) core competitiveness risks
1, the risk of technology update iteration
There are many technical routes for cathode materials of lithium-ion batteries. At present, cathode materials of lithium-ion batteries which are widely used in the market include lithium cobaltate, lithium manganate, Ferrous lithium phosphate and ternary cathode materials (including NCM and NCA). With the expansion of the production and sales of new energy vehicles, the demand for cruising range and energy density has increased, and ternary cathode materials have developed rapidly in recent years.
Since the second half of 2021, due to the superposition of factors such as declining subsidies, rising energy storage market and rising nickel and cobalt raw materials, the cost-effective advantage of lithium iron phosphate batteries has been highlighted, and the installed capacity of lithium iron phosphate batteries has exceeded ternary batteries for many months. In addition, with the rapid increase in the market price of lithium salt since 2021, sodium ion batteries have gradually attracted market attention because of their low cost, good electrochemical performance and safety.
If the mainstream technical route of power batteries for new energy vehicles is updated and iterated in the future, and the installed capacity of ternary cathode materials for power batteries continues to decline, it will no longer become one of the mainstream cathode materials for power batteries, then the market demand for ternary cathode materials may face the risk of substitution. If the company fails to develop and launch new cathode materials that meet the market demand in a timely and effective manner, it will adversely affect the company’s competitive advantage and profitability.
2, new technology and new product development risk
At present, the company’s main research and development directions include the development and basic research of low-cost ternary precursors, sodium ion battery cathode materials, primary particle large single crystal ternary materials, cobalt-free nickel-manganese binary materials, high-voltage lithium cobaltate and other materials. Due to the technology-intensive nature of the cathode material industry, new technologies and corresponding new products are at risk of R&D failure. The above-mentioned research projects of the company focus on reducing material costs and new cathode materials, and there are risks that the research and development results of new technologies and corresponding new products fail to pass customer certification, fail to meet customer needs, and the relevant performance indicators are not as expected. Once the research and development of new technologies and corresponding new products falls short of expectations, or there is a breakthrough in the core technology of the company’s industry and the company can’t master the relevant technologies in time, it will have a certain adverse impact on the market competitiveness and profitability of the company’s products.
At present, the sodium ion battery market as a whole is in the early stage of industrialization. At present, the company’s sodium ion battery cathode materials have achieved sales of dozens of tons. However, if the industrialization verification of sodium ion battery cathode materials fails to meet expectations and customers’ needs, it will have a certain adverse impact on the market competitiveness of the company’s products and the realization of the company’s development planning objectives.
3. Risk of loss of key technologies
At present, The company has mastered a series of independent knowledge, such as the synthesis technology of one-time large single crystal Ni-Co-Mn ternary material, large single crystal Co-free layered structure Ni-Mn binary material, high-voltage lithium cobaltate material, polycrystalline Ni-Co-Mn ternary cathode material, spinel structure composite modified material, cathode material doping technology, cathode material surface modification technology, medium-high Ni-Low Co one-time large single crystal material, high Ni one-time large single crystal material and sodium ion battery cathode material synthesis technology. The company’s market competitiveness and profitability depend on the above-mentioned long-term accumulated core technologies. In the current increasingly fierce market competition, if there is a loss of key technologies, it may affect the company’s market competitiveness and profitability to a certain extent, thus adversely affecting the company’s future operating performance.
(4) Operational risks
1. The fluctuation of raw material prices and the risk of fragile lithium salt supply chain.
The main raw materials needed for the company’s production and operation include ternary precursors, lithium carbonate, lithium hydroxide and cobaltosic oxide, and the corresponding metal raw materials include lithium, cobalt, nickel and manganese. Affected by the macroeconomic situation, changes in the supply and demand pattern of the industry and unexpected events, the market prices of major metal raw materials such as lithium, cobalt and nickel have fluctuated greatly in recent years. In addition, China is the largest producer and user of lithium salt in the world, and the supply of lithium resources mainly depends on imports. With the increasing emphasis on the new energy industry in China, especially the huge demand for lithium resources brought by the increasing production, sales and penetration rate of upstream new energy vehicles, although the capital investment in both lithium mines and smelting ends continues to increase, due to the relative shortage of domestic lithium mines, the overall increase in the future is limited, and the fragile supply chain has caused concerns about the future sustainable development of the new energy industry.
If the market price fluctuation of major raw materials leads to a large deviation between the procurement cost of raw materials and the market price at the time of sales pricing, or the production scale of the company expands rapidly, and the supply of lithium salt is intensified, so that the inventory lithium salt can not meet the production demand and cannot be purchased in time, or the inventory is impaired during the downward period of lithium salt price, which will lead to a large fluctuation in the profitability of the company’s products and affect the stability of the company’s supply chain, thus adversely affecting the company’s production, operation and profitability.
2. Risk of fluctuation of sales price
According to the industry practice, the company’s main products adopt the cost-plus pricing model of "main raw material cost+processing price". During the reporting period, the market prices of the upstream main raw materials of the company, such as ternary precursor, cobaltosic oxide and lithium carbonate, fluctuated greatly, resulting in the sales prices of the company’s main products also fluctuated greatly.
In view of the fact that the purchase time of raw materials in the actual cost of the company is earlier than the product sales pricing time due to the factors such as production cycle, safe inventory and scale benefit of centralized procurement, the average price of raw materials in the actual cost may deviate from the market price at the sales pricing time. If the market price of raw materials falls sharply or fluctuates in a certain period of time, which leads to the deviation between the average price of raw materials in the actual cost and the market price at the time of sales pricing, the company has the risk of being unable to pass on the raw material procurement cost to the downstream, thus having a certain adverse impact on the company’s profitability.
3. Risk of idle new production capacity
With the continuous production of projects under construction, the overall production capacity of cathode materials has been improved to some extent. If the future market development fails to meet the company’s expectations, the market environment changes significantly, or the company’s market development fails to meet the expectations, the company will not be able to achieve the expected economic benefits according to the established plan, thus facing the risk that the capacity utilization rate will drop after the expansion, the new capacity will not be digested and the related production lines will be impaired.
4. Risk of high concentration of downstream customers.
The company’s downstream lithium battery industry has a high market concentration. According to the survey data of GGII, from 2018 to 2022, the total market share of the top five power battery companies in China exceeded 80%. Influenced by the high concentration of the downstream market and the company’s strategy of adhering to the core high-quality big customers, in 2022, the company’s sales amount to the top five customers accounted for more than 90% of the current operating income, which was at a high level. There is a risk of high concentration of downstream customers in the company. In the future, if major customers reduce their purchases from the company due to unfavorable operation or adjust the scope of suppliers, or fierce competition leads to the loss of major customers, it will have an impact on the company’s sales scale, repayment speed and gross profit margin, thus adversely affecting the company’s operation.
5. Risk of product quality problems
The final application direction of ternary cathode materials produced by the company is mainly in the fields of new energy vehicles. New energy vehicles have higher requirements for the safety of power batteries, and all industrial chain enterprises need to ensure that their products continuously meet the relevant standards of quality management system in terms of technical performance, quality reliability and consistency. The quality of cathode materials for lithium-ion batteries is easily affected by the stability of production process, which has the characteristics of high technical difficulty and complex process. The downstream customers of the company are well-known domestic lithium battery manufacturers, and usually have high requirements on product quality. Therefore, strict control of product quality is an important guarantee for the sustainable and healthy development of ternary cathode materials enterprises. If the company has serious product quality problems in the future, which will lead to a large number of returns, it will probably affect the market sales of products and lead to the loss of major customers, thus adversely affecting the company’s operating performance.
(V) Financial risks
1. The risk that the gross profit margin of product sales fluctuates greatly
According to the industry practice, the products of the company are priced by the cost-plus model of "main raw material cost+processing price", in which the "processing price" is basically stable, and the "main raw material cost" is mainly determined by both parties through consultation with reference to the market price of raw materials in the previous month at the point of sale. In view of the fact that the purchasing time of raw materials in the company’s actual cost is influenced by factors such as safety inventory and scale benefit of centralized procurement, which is earlier than the pricing time of products, the matching between the average purchasing price of raw materials in the cost and the market price of raw materials at the point of sales pricing is lagging behind. Affected by the market price fluctuation of main raw materials during the reporting period, the gross profit margin of the company’s main business fluctuated greatly due to the lag in the matching of product unit cost and "main raw material cost" in sales pricing.
At the same time, in view of the difference in gross profit margin among different types of ternary cathode materials, the sales structure of ternary materials with high nickel, medium high nickel and medium nickel in different periods will also have an impact on the overall gross profit margin of ternary cathode materials. In this context, if the market price of raw materials falls sharply or fluctuates in a certain period, resulting in a significant deviation between the average price fluctuation trend of raw materials in actual cost and the market price of raw materials in last month, the unit cost of raw materials drops significantly below the unit selling price, or the production and sales volume drop significantly due to the downstream demand shocks, the product structure of the company has not been effectively improved, or the company’s procurement cost of ternary cathode materials is still relatively high due to the direct layout of ternary precursors, then the company has the risk of large fluctuation in gross profit margin.
2, the risk of high asset-liability ratio
At the end of 2022, the company’s asset-liability ratio was 63.07%, which was at a high level. On the one hand, the high asset-liability ratio makes the company face a certain risk of debt; on the other hand, with the continuous expansion of the company’s production and operation scale, the capital demand continues to increase, which also brings certain pressure to the company’s new debt financing.
3. Higher accounts receivable may increase the risk of bad debt losses.
At the end of 2022, the balance of the company’s accounts receivable was 1,686,741,800 yuan, accounting for 12.10% of the current operating income, respectively. The company’s accounts receivable amount and the proportion of the current operating income were relatively high. If the company’s accounts receivable amount increases further in the future, and individual customers delay or refuse to pay due to their own factors such as the deterioration of business conditions, the company will face the risks of prolonged accounts receivable age, decreased collection rate, increased bad debt provision, and the need to make provision for bad debts for some customers’ accounts receivable, which will have a certain adverse impact on the company’s profitability.
4. Risks such as large inventory amount and falling prices.
In 2022, the book value of the company’s inventory was 1,825,297,400 yuan, accounting for 16.49% of the total assets at the end of the period, and the inventory amount was relatively high. Higher inventory takes up a large part of the company’s working capital, which may lead to a certain risk of inventory backlog. At the same time, if the market environment changes adversely, there may be a risk of inventory depreciation in future operations.
(VI) Industry risks
Downstream industry demand fluctuation risk
NCM ternary cathode material, the company’s core product, is currently mainly used in the domestic new energy vehicle power battery market. Policy changes in the new energy automobile industry will affect the changes in the production and sales volume of the new energy automobile industry. As ternary cathode materials account for a relatively large proportion in the total cost of power batteries and are the key components of power batteries, the policy changes in the new energy automobile industry will have an impact on the market demand for ternary materials.
In the future, if the global economic situation and downstream industry demand fluctuate significantly or continuously, it will adversely affect the company’s production, operation and profitability.
(VII) Macro-environmental risks
The development of the ternary cathode material industry in which the company is located is closely related to the development status and development trend of the downstream new energy vehicles, consumer electronics and energy storage industries, and there is still some uncertainty in the current global macroeconomic situation. If the macro-economic environment undergoes major adverse changes, the economy enters a downward cycle, or the market demand factors affecting downstream new energy vehicles, consumer electronics and energy storage industries change significantly, it may adversely affect the company’s operating performance.
(8) Risks related to depositary receipts
(9) Other major risks.
V. Main operations during the reporting period
VI. The Company’s Discussion and Analysis on the Company’s Future Development
(A) the industry pattern and trends
For details of the industry pattern and trend during the reporting period, please refer to "II. Description of main businesses, business models, industries and R&D of the company during the reporting period" and "III. Industry situation" in "Management Discussion and Analysis".
(II) Company development strategy
The company is market-oriented and based on the analysis of market trends, rationally allocates the company’s resources and defines the future development strategy and main path:
1. Adhere to "technology empowerment and innovation drive", focus on the design, R&D and production of cathode materials for lithium-ion batteries and sodium-ion batteries, strengthen supporting capabilities, concentrate resources on R&D and production of high value-added products, build the company’s core competitiveness and drive the company’s high-quality development;
2. Adhere to the development guiding ideology of "market demand-oriented, customer satisfaction as the purpose";
3. Adhere to the sustainable development concept of "people-oriented, innovative development, honest management and green win-win";
4. Actively research and develop new energy technologies and related supporting materials and other new functional materials.
(3) Business plan
1. Make use of rich product structure and strengthen cooperation with downstream.
At present, the company has realized the industrial production and sales of a full range of ternary cathode materials covering medium nickel, medium high nickel, high nickel and ultra-high nickel, and is also a manufacturer of cathode materials for lithium ion batteries such as lithium cobaltate and composite ternary. At the same time, around the market of sodium ion battery cathode materials, the company has successfully developed a series of layered sodium cathode products, which have achieved dozens of tons of sales. To sum up, the company’s existing business can achieve full coverage of the downstream power, consumption and energy storage battery markets. In addition, in March 2016, the company invested in Red Star Electronics to lay out the waste lithium-ion battery and material recycling industry. The layout of the recycling end can effectively strengthen the company’s ability to control the cost of raw materials such as ternary precursors.
The company plans to make use of its rich product structure, strengthen contact and cooperation with well-known battery customers at home and abroad, and enter the battery supply chain of well-known brands of electric vehicles, electric bicycles, energy storage and digital products at home and abroad.
2. Strengthen core competitiveness and consolidate market position.
The company will continue to focus on the field of cathode materials for lithium-ion batteries and sodium-ion batteries, adhere to the principle of "technology empowerment, technology drive", continue to strengthen research and development, continuously improve product performance, reduce costs through research and development innovation, manufacturing upgrading, efficiency improvement and other ways, create cost-effective advantages of products, strengthen the company’s core competitiveness and consolidate its market position. In the field of cathode materials for sodium ion batteries, the company has reached a comprehensive and in-depth cooperative relationship with domestic head battery customers by virtue of its excellent performance and excellent cost performance advantages. In the future, it will continue to promote related work efficiently and pragmatically, and work with downstream customers to promote the scale of sodium ion batteries and the sustainable development of new energy industry; Strengthen the leading edge and consolidate the company’s market position.
3. Promote capacity building in an orderly manner and strengthen risk management and control.
Based on the prediction of the future development trend of the power battery industry of new energy vehicles, the company actively promotes project construction to expand production capacity. In recent years, in addition to the company’s IPO fundraising projects, Yilong Phase II and Shawen Phase II, the company also started the construction of Yi dragon three Phase I project and Shawen Phase I technical transformation project. Different projects are carried out at the same time, and there are differences in project construction location, construction scale, construction period and construction content. While promoting production capacity construction in an orderly manner, the company must strengthen relevant risk management and control to reduce project risks.
4. Improve the construction of talent echelon and build talent advantage.
With the sustained and rapid growth of the company’s business scale, adequate talent reserve and perfect talent echelon construction are important guarantees for the company’s sustainable development. According to the idea and requirements of "increasing the total number of talents, improving the quality of talents, improving the structure of talents and building the advantages of talents", the company has established and improved the mechanism of educating people, attracting people, employing people and retaining people. On the one hand, we will continue to promote the reform of human resources optimization, achieve the goal of "streamlined organization and lean personnel", further improve organizational efficiency and execution, improve production efficiency, and open up space for talent growth; On the other hand, we use resource expansion channels to introduce specialized technical talents, activate the efficiency of human resources, and improve the professional ability and overall quality of employees.
5. Strengthen management level and promote high-quality development.
(1) Integrate sustainable development into the company’s business process, strategic direction and decision-making process; Continue to implement the protection of labor rights, human rights, occupational health and safety in enterprises and supply chains, actively fulfill social responsibilities, and fully integrate employees’ personal pursuits into the long-term development of enterprises; Improve the ability of independent innovation in an all-round way, and strive to achieve technological leadership and improve core competitiveness in the field of new materials; Committed to eliminating the problems of honesty, morality and honesty in enterprises and supply chains, and ensuring the operational safety of companies and partners; Adhering to the green concept, we take how to achieve a harmonious and win-win situation between man and nature, society and economy as our goal and purpose. Actively undertake economic, ecological and social responsibilities while the enterprise develops, and realize the promotion of sustainable development ability.
(2) Continue to promote the digital transformation of enterprises and promote the intelligentization of production and operation. Realize the upgrade of the company’s internal organization and operation, reduce management costs and improve the efficiency of production and management operations.
(3) Strengthen corporate governance, build an internal control system that is compliant, more in line with enterprise development and more effectively operated, and ensure the long-term healthy development of the company.
