On the evening of April 19, Guoxuan Hi-Tech announced its 2023 annual results. Benefiting from the increase in earnings due to changes in the fair value of financial assets and the decline in asset impairment losses, Guoxuan Hi-Tech's profit increased by three digits. However, domestic and foreign market shares did not increase as profit levels increased; on the contrary, there was a continuous decline.

In 2023, Guoxuan Hi-Tech achieved operating income of 31.61 billion yuan, up 37.11% year on year; net profit to mother was 939 million yuan, up 201.3% year on year; gross margin decreased 0.87 percentage points year on year to 16.92% year on year, but net interest rate increased 1.48 percentage points year on year to 3.07% year on year.

1. Profits are growing rapidly, but we need to be wary of declining domestic market share and slowing growth

Guoxuan Hi-Tech was able to achieve a three-digit increase in net profit throughout 2023. The main reasons are as follows:

First, in 2023, Guoxuan Hi-Tech's fair value change income from transactional financial assets increased quite a bit, benefiting from profits such as Mannst and Cyrus stocks (143 million yuan). Overall fair value earnings increased from -140 million yuan to 106 million yuan, greatly strengthening Guoxuan Hi-Tech's non-recurring profit and loss level.

Second, in 2023, Guoxuan Hi-Tech's overall asset impairment losses were reduced compared to previous years. Since the main price decline of the raw material lithium carbonate was completed in 2022, the overall inventory price reduction reserve amount for 2023 is relatively small. Guoxuan Hi-Tech has proposed various impairment provisions of 580 million yuan, far lower than the 860 million yuan in 2022, and the impact on the overall net profit level has decreased.

Third, the share of Guoxuan Hi-Tech's higher-margin overseas business and energy storage business is increasing.

Fourth, the company's cost and expense base in 2022 is high.

However, Guoxuan Hi-Tech is still facing a decline in domestic and foreign market share and a slowdown in installed capacity growth.

Specifically, in the domestic power battery market, Guoxuan Hi-Tech's installed power battery capacity in 2023 was 15.91 Gwh, an increase of 19% over the previous year; the market share also fell 0.42 percentage points to 4.1% in the fierce price war.

In the global power battery market, Guoxuan Hi-Tech's performance is also quite poor. The installed capacity of power batteries in 2023 was 17.1 GWh. The growth rate was only 23.1%, and the market share dropped 0.3 percentage points to 2.4%.

According to Wall Street News and Insights research, the reason behind the growth rate of Guoxuan Hi-Tech's installed capacity and the decline in market share is poor sales of Guoxuan Hi-Tech's supporting models.

Guoxuan Hi-Tech mainly provides battery products for A00 and A0 class NEVs. Among them, the market is already highly saturated. The penetration rate of NEVs exceeds 90%, and sales growth has turned negative.

In 2023, total retail sales in the mini car market fell to 692,000 units, a decrease of 27.9%. Even the hugely popular Wuling Hongguang mini EV saw a 12.3% drop in sales to 1.4 million units.

Guoxuan Hi-Tech's batteries are mainly supplied to the top three NEV companies in the market: SAIC-GM-Wuling, Great Wall Motor, and Geely. These three companies account for more than 46% of the market. Its main supporting models include small electric vehicles such as the Wuling Hongguang Mini EV, Fun, Geely Panda MINI, and Oula Good Cat. With the decline in sales of these models, Guoxuan Hi-Tech's battery installed capacity is also difficult to increase.

2. The power battery business dominates, but the importance of the energy storage business is gradually becoming more prominent

Guoxuan Hi-Tech's core business includes lithium power batteries and energy storage battery businesses, of which the power battery business currently dominates. Despite this, the revenue and gross margin of the energy storage business continue to grow rapidly, and it is expected that the power battery business will go hand in hand in the future. (1) Power battery business

As the company's largest business division, Guoxuan Hi-Tech's power battery business, despite facing a fierce price war, the company's battery pack production and sales volume grew to 148,96.1 million Ah and 140,07011 million Ah, respectively, with annual growth rates of 69.37% and 63.67%, respectively.

The business's revenue reached 23.05 billion yuan, an increase of 24.72% over the previous year, accounting for 72.93% of total revenue.

However, the revenue growth rate of power batteries is lower than the sales growth rate, which suggests that Guoxuan Hi-Tech has made huge concessions to terminal car companies. Gross margin fell 10.12 percentage points to 15.04%.

In particular, the price drop (52%) of the company's main product, lithium iron phosphate batteries (accounting for about 92%), exceeded that of ternary lithium batteries (44%), indicating that they were greatly affected by the price war.

(2) Energy storage battery business

As a potential business segment of Guoxuan Hi-Tech, the energy storage battery business has surpassed the power battery business in terms of shipment volume and revenue growth. In 2023, Guoxuan Hi-Tech's energy storage battery shipments exceeded 10 Gwh, with a year-on-year growth rate of about 100%, ranking 7th in the world. Guoxuan Hi-Tech has maintained a stable order flow with many important overseas customers, showing the broad prospects of the energy storage business.

From 2022 to 2024, Guoxuan Hi-Tech has signed a number of important orders with Sumeda, Omart Technology, and Daiwa Energy, including orders for 10 GWh for 3 years, 0.75 GWh per year, and 1 GWh for 2 years.

In 2023, Guoxuan Hi-Tech's energy storage battery business revenue reached 6.932 billion yuan, an increase of 97.61% over the previous year, far exceeding the power battery system business; the share of revenue increased to 22%, an increase of 6.7 percentage points; the gross margin level did not decrease but increased by 9.78 percentage points to 18.29.

Guoxuan Hi-Tech's gradually maturing energy storage technology system and complete product matrix have clearly been recognized by the market and customers, showing huge potential for growth. Guoxuan Hi-Tech's energy storage business will make more and more contributions to the company's future profit growth.

3. Overseas exports are expected to break the deadlock for Guoxuan Hi-Tech

With the support of Volkswagen Group, Guoxuan Hi-Tech has become one of the few battery companies that have entered the US and Europe to build power battery plants at the same time. Guoxuan Hi-Tech is actively expanding its overseas business.

The company has reached an agreement in Illinois and Michigan, and plans to build a production project including 40 GWh of cell production capacity, 10 GWh of pack production capacity, and 200,000 tons of positive and negative electrode materials. Furthermore, in Göyengen, Germany, Guoxuan Hi-Tech will build a 20 GWh pack production capacity project and cooperate with European battery company Inobat to jointly build a 40 GWh battery cell and pack factory.

Despite poor domestic market performance, Guoxuan Hi-Tech's overseas revenue reached 3,062 billion yuan in 2023, a year-on-year increase of 115.7%, clearly exceeding the domestic revenue growth rate (25%).

The share of overseas revenue also increased from 12.93% the previous year to 20.34%, and gross margin stabilized at 18.77%, while domestic business gross margin fell 6.8 percentage points during the same period.

With battery plants in the US and Europe being put into operation, Guoxuan Hi-Tech's overseas business has shown huge potential for growth and is expected to make an important contribution to the company's future profit growth.