On December 15th, GX Hi-Tech privately issued shares to Volkswagen (China) Investment Co., Ltd., completed the registration of new shares and officially went public, and the transaction that lasted more than a year was finally settled.
But the long-awaited surge in stock prices did not come. On the contrary, GX High-Tech’s stock price started a continuous decline for several days, and even the news of “harvesting a 200GWh iron-lithium order” failed to arouse enthusiasm.
Anxious investors asked in the investment community:
Why can’t VW support GX Hi-Tech ?
The situation is very different from CATL’s power battery. As a second-tier battery manufacturer, GX Hi-Tech’s market performance has always been unsatisfactory. Compared with production capacity, technology may be a more critical factor affecting its ability to obtain orders from automakers.
Limited by its technological level, GX High-Tech’s battery installed capacity is still concentrated in low-speed EVs, small cars with lower prices, and has not yet opened the mid-to-high-class passenger car market.
The cooperation with Volkswagen has just reached the stage of developing the first generation of standard batteries for the Volkswagen Group, and there is still a considerable gap between supplying power batteries to Volkswagen.
GX Hi-Tech has formulated an ultra-high production capacity plan and has obtained the blessing of Volkswagen China, releasing good growth expectations.
Technical shortcomings
Technical shortcomings in lithium battery manufacturing, the technical level of GX Hi-Tech is still different from that of first-line enterprises.
In the last round of competition among domestic power battery manufacturers, the ternary lithium battery technology completely surpassed lithium iron phosphate batteries in 2017.
Four years later, the competition for the technical of power batteries has gone through a small cycle. As the energy density of lithium iron phosphate batteries continues to increase, GX High-tech, which is known for lithium iron phosphate, has not become a winner.
In the first 11 months of this year, the installed capacity of lithium iron phosphate batteries reached 64.8GWh, accounting for 50.5% of the total. Lithium iron batteries surpassed ternary batteries in terms of production, sales, and installed capacity.
However, GX Hi-Tech’s market share of iron-lithium batteries is 11.5%, which is far lower than CATL (47.6%) and BYD (32.1%).
In terms of supporting car companies, GX is mostly equipped with A00-class models with a price of less than 100,000 yuan, and it has not yet opened the mid-to-high-class passenger car market. This is quite a gap with CATL which has a large-scale supporting to Tesla Model 3.
GX’s technical level is likely to be an important factor affecting its ability to obtain orders from automakers, this in turn will restrict its expansion
Although GX adheres to the iron-lithium, as the iron-lithium technology has fallen behind after 2017, its performance has suffered a negative impact and does not have much resources to invest in technology R & D.
During the four years from 2017 to 2020, GX has invested a total of 1.617 billion yuan in R&D expenses, which is far less than CATL and BYD’s R&D investment of over 10 billion in the same period. In this context, GX gradually lags behind its opponents, making it increasingly difficult to catch up.
Especially in the innovation of iron-lithium battery energy density, GX is obviously behind. This is also one of the important reasons why its iron-lithium battery fails to support mid-to-high-class passenger cars on a large scale.
But now the CTP products of CATL have many customers at home and abroad, and they have also exported their technology to foreign counterparts. GX’s JTM technology battery has not yet been mass-produced, and has not yet received orders from automakers.
On December 17, GX stated that JTM technology will undergo continuous improvement and product verification in terms of industrialization and large-scale applications, and will strive to achieve mass production as soon as possible.
The sequelae
The sequelae of the lithium iron phosphate-LFP battery
Behind the weak profitability are the various problems that GX has accumulated in the past development process: high accounts receivable, large inventory impairment, and excessive debt burden.
Behind the weak profitability are the various problems that GX has accumulated in the past development process: high accounts receivable, large inventory impairment, and excessive debt burden. The root cause is the long-term low-energy density iron-lithium battery supply in the past to customers that rely on policy subsidies, such as commercial vehicle companies and small car companies.
With the gradual decline of state subsidies for new energy vehicles, the living space of such car companies and products that rely on policy subsidies is gradually shrinking. Instead, the space for products that use ternary lithium batteries and driven by consumers’ real needs is increasing.
In this process, the subsidies of many car companies that rely on subsidies have decreased, subsidy payments have slowed down, and even business problems have occurred, which have also had a negative impact on GX’s profitability.
What can the VW bring?
GX is still far away from the goal of supplying batteries and power batteries for VW, and the development and verification process is full of uncertainties. GX is likely to become one of VW’s most important battery partners in China in the future.
From May to July this year, VW sent three teams respectively. GX adjusted its production target from 100GWh in 2025 to 100Gwh in 2023 and 200-300Gwh in 2025.
However, the main supplier of VW electric vehicles is still CATL. In July this year, GX and VW Group signed a memorandum to develop the first generation of standard batteries, but there is still a considerable gap between the supply of batteries and power batteries for VW (lithium batteries include battery cells and battery management system BMS two main parts ).
VW has a 2-3 year verification process for suppliers’ products. GX is still in the fixed-point stage of development, which means that mass production and mass supply of standard battery cells can only be achieved after the next-generation platform starts mass production in 2024.
At present, VW is also in the stage of transition from fuel vehicles to new energy sources. VW’s sales in the first three quarters of this year ranked fourth in the world, lower than Tesla, BYD and SAIC-GM-WL.
Similarly, GX recently disclosed a strategic supply agreement with a large-scale listed automobile company in the United States, which stipulates that it will be supplied from 2023 to 2028. There are also uncertainties before product orders are officially landed.
In comparison, obtaining 8.709 billion yuan of funds from Volkswagen through fixed increase is more practical and beneficial to GX’s performance. These funds can help them replenish liquidity, reduce debt pressure and interest expenses, and help them improve their profit performance.
However, even if GX’s profit level is improved, it is still not low compared to its current valuation. Assuming that GX can obtain a net profit margin of 10% (although the possibility is slim), its current rolling price-to-earnings ratio is also more than 100.
In the final analysis, technology is the lifeblood of GX. It is the key to opening the mid-to-high-class passenger car market, obtaining VW orders, and overtaking in the future changes in battery technology routes.
