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In 2018, China's new energy vehicles are still soaring. In the first half of the year, the production and sales of new energy vehicles reached 413000 and 412000 respectively, with year-on-year growth of 94.9% and 111.5%. The upstream power battery directly benefited, achieving 15.45GWh of installed capacity, with a year-on-year growth of 150%. Throughout the economic history, few industries have been able to maintain such rapid growth for many years. However, what pervades the whole power battery industry is not the collective carnival of the previous two years, but the increasingly difficult living environment. The price of upstream raw materials is high, while the downstream automobile enterprises are struggling to keep down the price. The decline of new energy subsidies is more than a day long. Dozens of domestic power battery enterprises are facing internal and external difficulties. This sunrise industry, which claims that its future output value will reach hundreds of billions, has ushered in a tragic survival of the fittest after the explosion of its fourth year. Head concentration effect is accelerating, but what about the situation of head enterprises? We may be able to see the future of China's power battery industry from such a leading enterprise.

Ningde Times released the 2018 semi annual report 100 days after its successful listing, and handed over the first answer sheet to all shareholders on the capital market. In this 100 day period, the company, which has only been established for 7 years, took 9 days to surpass the market value of another industry leader, BYD, which has been established for 23 years and listed for 16 years.

In this financial report, we can not only see that Ningde era, which is in the limelight, is still ahead of the rest in terms of sales growth and market share, but also see that under the background of domestic and foreign difficulties, this unicorn company, which has absorbed almost half of the whole market by itself, is still inevitably trapped in the mud of declining business capacity, declining net profit margin and increasing accounts receivable, It depends on the future.

What happened in the first half year of history? Under the background of significant decline in subsidies for new energy vehicles, the vehicle enterprises pass on the pressure, and the power battery enterprises bear the brunt of the embarrassment. The upstream raw materials continue to be high at home, and the vehicle manufacturers drive down the prices outside. In addition, the relevant national industrial policies have become more strict, and the financing difficulties in the capital market have intensified. Under many factors, the problems accumulated over the years in the entire power battery industry have erupted in a concentrated manner, and the battery enterprises or performance and stock prices have both declined, or they are trapped in a crisis and cannot extricate themselves, or they have gone bankrupt and closed down.

At the peak of the industry in 2015, there were 450 domestic power battery supporting enterprises, and then half of them were eliminated every year on average. In 2017, there were only 96 supporting enterprises for automobile enterprises. Today, this number has been reduced to 50. It is estimated that by 2020, there will only be more than 20. The Ningde era is undoubtedly lucky. When the whole industry is getting deeper and deeper into the cold winter, it is listed in a flash and has sufficient cash flow.

In the first half of 2018, Ningde Times continued to widen the gap with its competitors with an installed capacity of 6.5GWh, and the trend of becoming a dominant company became more obvious, with its market share reaching 42%. However, as powerful as those in Ningde era, there are still deep hidden worries behind.

In 2015, 2016 and 2017, the gross profit margin of Ningde Times was 38.64%, 43.70% and 36.29%, respectively, which declined to 32.77% in the first quarter of 2018 and further declined to 30.31% in the second quarter.

The decline of the overall gross profit margin in Ningde era is due to two reasons. One is the sharp rise in the prices of upstream positive and negative materials and other raw materials driven by cobalt, lithium and other mineral resources in recent years (even though the prices have declined since last year, they still remain at a high level), which has led to a significant increase in production costs. For example, Ningde Times, BYD and other domestic front-line supporters can reduce product costs by integrating and controlling upstream raw material supply, optimizing product design and production process, expanding scale effect, improving production efficiency and product yield, but they still face huge cost pressure in the joint pressing of multiple upstream industrial chains. The second reason is that auto enterprises constantly exert great pressure on battery purchase price. As a result, the gross profit margin of major main businesses has been continuously compressed, although the business income has grown significantly due to the continuous expansion of sales volume.

Although the three major businesses of Ningde Times, namely, power battery system, energy storage battery system and lithium battery material recycling business, achieved significant growth in revenue (34.92% year-on-year growth in battery system, 1024.5% growth in energy storage system and 123.59% growth in lithium battery material), the gross profit margin continued to decline.

On the other hand, we can see that the power battery business, which accounts for nearly 80% of Ningde Times' revenue, is the root cause of the decline in gross profit margin. This is undoubtedly significant good news for auto enterprises, and according to the current trend, this trend will continue.

In 2015, Ningde Times obtained gross profit of RMB 0.95 for every 1Wh of power battery system sold. In 2016, the figure was RMB 0.9, and in 2017, the figure was only RMB 0.5.

The key to the decline of the power battery market price lies in the cost reduction. The overall capacity of the domestic power battery industry has been overcapacity, and the sales price of the battery market has been declining. Even if it has been in a strong position in the upstream of the industrial chain, many car enterprises are competing for batteries in the Ningde era, which cannot be exempt from customs.

From 2015 to 2017, the average sales price of the power battery system of Ningde Times was 2.28 yuan/Wh, 2.06 yuan/Wh and 1.41 yuan/Wh respectively, and further decreased to 1.11 yuan/Wh in the first half of this year. In contrast, the unit cost of its battery was 1.33 yuan/Wh, 1.13 yuan/Wh and 0.91 yuan/Wh respectively, and this year it dropped to 7.44 yuan/Wh. It is obvious that the selling price drops faster than the cost.

It is a permanent pain for battery enterprises to sell the batteries and not collect the money. What makes them even more depressed is that the longer the billing period will become the norm, and it will become longer and longer.

Taking Ningde Times as an example, its accounts receivable in the first half of the year reached 8.53 billion, an increase of 1.61 billion over the same period last year. According to the data as of the end of 2015, 2016 and 2017, its accounts receivable balances were 2.397 billion, 7.322 billion and 6.938 billion respectively, accounting for 42.05%, 49.22% and 34.70% of the current operating income.

By the end of the first half of 2018, the accounts receivable of Ningde Times accounted for 87.7% of the current operating income.

According to the past industry practice, battery enterprises and automobile enterprises usually adopt the "3-6-1" accounting period model, that is, 10%~30% of the advance payment shall be paid in advance after signing the contract, 50%~60% of the advance payment shall be paid within 2~3 months after the arrival of the goods (mainly based on bank acceptance), and the remaining 10% of the advance payment shall be paid within 12 months after the delivery of the goods, and in most cases, the payment will be delayed.

The decline of the national subsidy policy has resulted in the reduction of the subsidy amount on the one hand, and the long audit cycle on the other hand, which has led to the shortage of funds for many car enterprises and the inability to get subsidies in time. Therefore, they can only share the account period and transmit the pressure to the power battery enterprises. Therefore, in the industry, lengthening the account period has become a potential rule in the power battery industry.

In order to get orders, small and medium-sized battery companies can only compromise with automobile enterprises to sign contracts with longer accounting periods, and ensure market share by extending the accounting period. The current real situation is that many automobile enterprises have dragged the accounting period to an absurd situation of 2 to 3 years or even longer, until it becomes a bad account, a dead account, or even the collapse of battery enterprises.

The bloody facts are in front of us. In this long list, Waterma, Mengshi Technology, Miaosheng and Zhihang.

On the other hand, the car enterprises are also "bullying the soft and afraid of the hard". For front-line manufacturers such as BYD, which has opened battery business in the Ningde era, and is "hard to find", in order to maintain a good cooperative relationship for a long time, the car enterprises must give priority to these battery enterprises. As a result, extending the accounting period has become a curse for the entire industry chain to start the malignant development, accelerating the elimination process of battery enterprises without scale effect and capital strength.

Taking Ningde Times as an example, the financial report shows that more than 90% of the accounts receivable of 8.53 billion are within one year. And since the second quarter, the collection has shown a strong momentum. The ratio of cash to income of the collection in the second quarter reached 156%, which should be because the state began to issue subsidies to new energy vehicle enterprises. Generally, in the second half of each year, the performance of the domestic new energy vehicle market is much better than that in the first half of the year. Therefore, in order to get goods from the head battery enterprises and cope with the surge in market demand, the vehicle enterprises have to "settle the accounts first".

What's more, the cash reserves in the hands of Ningde Times alone are more than 17 billion.

In this way, the advantages of leading enterprises will become more and more obvious, and all resources in the industrial chain will also be closer to them.

However, we should not take it lightly, because Japanese and Korean battery manufacturers such as Panasonic, LG, Samsung, and SKI have been sharpening their swords. It can be predicted that by 2020, the new energy subsidy will be finally cancelled, and China's power battery enterprises will face a fierce battle.

Before this time window is closed, more core technologies need to be reserved, new manufacturing processes need to be developed, more upstream resources need to be integrated, and more downstream car enterprises need to be bound.

More than a year ago, Zeng Yuqun sent a letter to employees of Ningde Times, "Can pigs really fly when the typhoon comes?" We asked our complacent employees to guard against the brutal market environment after the policy barriers were lifted.

A year has passed, and the storm may come ahead of schedule. Japanese and Korean companies have entered their homes, increasing capital and expanding production in succession; BYD has also opened its battery business, waiting for the further release of new capacity; Subsidies will decline or even disappear, and it is certain that auto enterprises will shift cost pressure to the upstream.

The future of worse living environment has come, and the power battery market has long been a red sea.

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