Good day, ladies and gentlemen. Thank you for standing by. And welcome to CBAT Energy Technology's Second Quarter and First Half 2023 Earnings Conference Call. Currently, all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Thierry Li, Investor Relations Director of CBAT Energy. Mr. Li, please proceed.

Thank you, operator. And hello, everyone. Welcome to CBAT Energy's second quarter and first half of 2023 earnings conference call. Joining us today are Mr. Yunfei Li, our Chief Executive Officer; Mrs. Xiangyu Pei, our Chief Financial Officer; Mr. Xiujun Tian, our General Engineer; and Jennifer, our interpreter. We released our results earlier today. The press release is available on the company's IR website at ir.cbat.com.cn as well as from news wire services. [Technical Difficulty]. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company doesn't assume any obligations to update any forward-looking statements except as required under applicable laws. Also, please note that, unless otherwise stated, all figures mentioned during the conference call are in US dollars. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese and I will translate his comments into English.

[Foreign Language] Thank you. And hello, everyone. Thank you for joining our earnings conference call today. [Foreign Language] The first half of 2023 witnessed considerable macro uncertainties over the upstream market for lithium batteries. Due to price fluctuations of lithium carbonate, which is an essential raw material of lithium batteries, our overall business was somewhat affected. That said, we still made meaningful progress in our primary business, the sales of lithium batteries. In the first half of 2023, our battery business generated revenues of $51.84 million, an increase of 27.2% year-over-year. Among this revenues, $46.76 million came from batteries used in energy storage applications, up 17% year-over-year, while $3.12 million came from batteries used in light electric vehicles, a surge of 309.9% year-over-year. Moreover, revenues from batteries used in electric vehicles reached $1.96 million, an impressive increase of 6,454 times compared to the same period last year. In the first half of 2023, the gross margin of our battery business reached 12.8%, up 3.4 percentage points year-over-year since a significant number of clients were expected to place orders over the second half of the year. Our revenue growth in the second quarter was relatively flat. As we see it, that won't be the case going forward. And we have high expectations for our revenues over the next two quarters and the full year 2023. Our battery business will remain solid. As we gradually expanded our brand influence and continuously elevated our R&D capabilities, we have received orders from an array of leading companies worldwide [Technical Difficulty] capacity and provide high quality products for new and existing clients alike, further propelling our revenue growth over the long run. [Foreign Language] First off, I'd like to introduce the recent developments in our business. As of July 31, 2023, we have recorded RMB…

Thank you, Mr. Li. And thank you, everyone, for joining our call today. I will now go over our key financial results for the second quarter and the first half of 2023. For the full details of our financial results, please refer to our earnings press release. We are pleased to report strong half year results, marked by sustainable growth and increased profitability. Thanks to our product strength and optimized operating efficiency, our gross margin rose to 15.4% compared with 11.0% for the same period last year. As we progress year-over-year, our top priorities are to accelerate sales growth and improve profitability. Our solid balance sheet gives us the flexibility to continue investing in our future by accelerating our research and development across product lines as well as expanding our technology and business initiatives to create value for both our users and our shareholders. Turning to our financial performance. Our net revenues were $42.4 million in the second quarter and $84.8 million in the first half, representing a decrease of 24.7% and 37.8%, respectively, from that same period in 2022. This decline was primarily attributable to a decrease in sales of the battery business and Hitrans, an indirect majority-owned subsidiary engaged in the production and sale of battery raw materials. During the first half of 2023, our battery business had strong revenue growth of 97% in the first quarter. However, during the second quarter, we began to experience a temporary slowdown in sales. Our second quarter battery sales declined by 13.5% year-over-year to $22.2 million. That decline was primarily driven by the price volatility of lithium cabinets, leading clients to hold off placing new orders during the quarter. Despite this short term challenge, we remain confident that we will achieve strong full year 2023 revenue growth as many of our…

[Operator Instructions]. And our first question comes from the line of Brian Lantier with Zacks Small Cap Research.

I was wondering if I could ask a couple of follow up questions. First on the Shangqiu lease, I was wondering if you could provide any additional details on that facility? Basically, was it operational? Do you still expect it to be operational by the end of 2023? And what type of batteries may have been produced in the past? And then I'll follow up with additional questions. [Foreign Language]

[Foreign Language] Yes. Shangqiu battery plant, I would like to give you more detail about this. As you know, the production capacity of our Dalian plant is significantly insufficient. We cannot meet the demand of our customers. That is why we decided to rent this Shangqiu battery manufacturing plant. It is a state-owned battery plant and we share the same products and the equipment devices in this plant is also similar to our Dalian plant. Currently, the production capacity of this plant is 100,000 per day and we are doing some renovation and improvement in this plant, and it is expected that it will be in fully, totally normal production by the end of this year.

If I could ask one follow-up question on the battery gross margins. They appeared as though they've gone from 11% last year to 15.4% this year. Was that due to a shift in mix toward some of your newer products, like the 32140, and away from some of the older products, like the 21700? [Foreign Language]

[Foreign Language] There were several reasons behind the increase of gross margin. One of the most important reason is that, this year, the production capacity of our Dalian and Nanjing production facilities have been increased and we can achieve a very high utilization rate of this plant. For our Dalian plant, it almost reached full production capacity. And for Nanjing, since the construction of the first phase of the plant in 2021 and the completion of the first phase at the end of 2022, now our production capacity can be released to a large extent. And this production capacity growth also become a very important driving force for the reduction of the cost. And secondly, as we know, in the second half of last year, we underwent obvious fluctuation in the raw material price. And the increase of the raw material price also has a negative impact in our cost. So the cost occupied quite a big margin in our profit margin. However, since the second quarter of this year, we have seen the decline of raw material price. And that also led to the reduction of the cost which also contributes to the improve of the gross margin.

[Operator Instructions]. And we have a question from the line of Saiko Wu [ph] from TPG.

This is Saiko from TPG. [Foreign Language] You mentioned just now company already have the capacity to produce 46 series lithium battery. And I'd like to know for what reason that you decided to give priority to 46115 and 46157 instead of 46800. And in the future, how big is the chance for you to mass produce 46800?

[Foreign Language] Actually, we made this decision based on our overall layout of our business portfolio. For example, we can take into consideration the business of our energy storage market. For 46110, the height is about 31 and the energy storage as well as the model is more standard in the markets. And for 46157, it is a bit higher than 46115 and we can do [indiscernible] 8,000 to 10,000 which we believe will well meet the market of the US and Europe. And we mainly use the material of lithium iron. As we know, this is a very important to the material and it has a superior energy capacity – in density – sorry, energy density. And, currently, we are not thinking about true mass produced 46800. It is with even high total height – bigger height. But it doesn't mean that we will not produce this at all. When the time is appropriate, we will also take into consideration the development and production of 46800.

Thank you. And I'm showing no further questions. So with that, I'll turn the call back over to Mr. Yunfei Li for closing remarks

[Foreign Language] Thank you, operator. And thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.