Octillion Energy Holdings Inc. got a major charge from SAIC-GM-Wuling Automobile (SGMW) when the GM joint venture invited it to supply battery systems for its popular Wuling Hongguang Mini EV. As the partnership took off, Octillion's revenue shot up as well, fueled by China's generous subsidies to promote the development of its new energy vehicle (NEV) sector.
But what Beijing gives, it can also take away. And with the sunset of China's NEV subsidies at the end of last year, SGMW slashed its orders for Octillion's A00-grade batteries, sending the battery systems supplier into a downward spiral.
Octillion has strong credentials in its sector, led by Chairman Zhou Peng, whose 17 years of experience include tenure as chief engineer for the powertrain of Tesla's
According to the document, the company's revenue grew by more than a factor of five from 1.02 billion yuan ($140 million) in 2020 to 5.57 billion yuan in 2022, as it drove out of the red after losses in 2020 and 2021 to record a profit of nearly 110 million yuan last year. Its rapid rise tracks almost exactly with a similar takeoff for the Wuling Hongguang Mini EV.
Launched in July 2020, the Wuling Hongguang Mini EV series got off to a quick start and was dubbed by some as China's "national car," with cumulative sales to date of more than 1.15 million units. It was China's top-selling purely electric vehicle for 28 consecutive months, and its popularity helped to drive the market for China's smallest model of A00-class batteries.
Last year, A00-class EVs accounted for 26% of the total EV sales in China, with the Wuling Hongguang Mini EV accounting for half of all sales with 554,000 units sold.
Big Order Cut
But things took a sharp downward turn with the end of China's national subsidy policy at the end of last year. Since then, the Wuling Hongguang Mini EV's monthly sales slipped from a peak of 50,000 units to less than 20,000 units for several months this year. Sales in October were down 57.5% year-on-year, though they picked up on a month-to-month basis in November.
Octillion confessed that its sharp declines in the first half of the year owed mainly to big cuts in orders for its A00-class batteries from a major customer. The customer supplied Octillion with just 240 million yuan in revenue in the first half of the year, down sharply from the 2.56 billion yuan it supplied for all last year. Octillion did not disclose the customer's name. But everyone believes it's SGMW, which was the company's largest customer, supplying 46% or more of Octillion's revenue each year from 2020 to 2022.
The huge drop in orders from its biggest customer caused Octillion's revenue to tumble 53.9% year-on-year to 1.12 billion yuan in the first half of the year, while it fell back into the red with a loss of 3.77 million yuan from a profit of 32.6 million yuan in the year-ago period. The company also turned cashflow negative, reporting a cash outflow of 144 million yuan for its operating activities in the first half of the year, after being cashflow positive in the previous three years.
But the sharp reversal hasn't stopped Octillion from seeking a Hong Kong listing to satisfy its urgent need for capital. Despite its woes, the company is hoping to entice investors with two potential new stories. One is its bet on the Indian market, whose contribution grew from just 1.6% of total revenue last year to 21.9% in the first half of 2023. The other is its search for major new customers, such as Jianghuai Automobile Group (600418.SH) (JAC). But each plan has its obstacles.
India Risks
Chinese companies are facing numerous risks in India, in no small part due to political tensions between the pair of giants. The air of rivalry has created a business environment that's often unfavorable for Chinese companies in the country. Insufficient charging facilities due to weak power generation infrastructure is also holding back development of India's NEV market, though that is changing with the country's rapid growth.
Octillion currently sells EV battery systems for commercial NEVs such as buses and trucks in India. The average price of EV battery systems it sold in India last year was 125,000 yuan, up 6.5% from an average of 118,000 yuan two years ago. In the first quarter of this year, the company also started production at its new Indian manufacturing facility with an initial capacity of 2GWh.
Octillion currently has five factories in China, as well as one the one in India. The Indian factory has an initial production capacity of 16,000 units, and is scheduled to expand to 35,500 by the end of 2025. The company is also building a factory in the U.S. that will begin operations next year with an initial annual capacity of 18,000 units to "capture government subsidy opportunity and meet market demand from local customers."
With the big loss of business from SGMW, another major customer, JAC, is playing a bigger role at Octillion. JAC's contribution to the company's revenue grew from 23.6% in 2020 to 35.5% in the first half of this year after the big cutback from SGMW. But JAC is also vulnerable to the same market forces affecting SGMW, reporting its EV sales fell by nearly 2% year-on-year to nearly 170,000 in the first 11 months of the year.
But the JAC relationship could still hold some new potential, after the company announced this year that it is partnering with Chinese tech giant Huawei to build cars. That could provide some new business for Octillion directly, and also eventually help it find new business in Huawei's supply chain. But all those things are just possibilities, and the cold realities could ultimately cast a chill over this listing if and when it makes it to market.
