Thirty-seven years ago, Cao Dewang founded Fuyao Glass in Fujian. He became China’s largest automotive glass manufacturer. People now call him the “Glass King.” Today, Cao Dewang’s sister, Cao Fang, and veteran Chen Jicheng have launched a new company. They created Jiangsu Zhengli New Energy Battery Technology Co., Ltd., which ranks tenth in the power battery market. Through strategic capital operations, Zhengli New Energy has officially submitted its application to the Hong Kong Stock Exchange. It begins its journey in the capital market. Cao Dewang and Cao Fang serve the automotive industry with glass and battery products. With the strong demand for automobiles, how many more IPOs can the Cao family create? FAW and Leap Motor are clients. They incurred a loss of 2.7 billion over three years.
As the “heart” of new energy vehicles, power batteries drive wealth creation. They birthed giants like CATL. New players like EVE Energy, Guoxuan High-tech, and Hive Energy also emerged. Zhengli New Energy fiercely competes in this crowded market. Zhengli New Energy manufactures power and energy storage batteries. It develops a diverse battery product lineup driven by market demand and technology. The company offers integrated solutions, including cells, modules, battery packs, battery clusters, and battery management systems. According to a Frost & Sullivan report, in 2023, Zhengli ranked 10th in China’s power battery market by installed capacity. It ranked 7th in the lithium iron phosphate battery market and 8th in the ternary battery market.
Zhengli New Energy ranks among the top ten power battery companies in China. It is one of the few with automotive parts expertise. The market demands power batteries. Zhengli New Energy’s sales surged. From 2021 to 2023, sales reached 2106.7 MWh, 3634.4 MWh, and 5906.7 MWh. This nearly tripled their sales. In the first quarter of 2024, sales hit 1150.2 MWh.
Zhengli New Energy’s batteries entered multiple vehicle models in the market starting in 2020. They formed a partnership with SAIC General. In 2021, they began collaborating with Leap Motor. In 2022, they established a partnership with GAC Trumpchi and engaged with SAIC-GM-Wuling. They have become one of the top three suppliers in terms of installation volume. They are also a core supplier for a certain battery-swapping model of FAW Hongqi. With support from major automakers, Zhengli New Energy’s revenue surged. From 2021 to 2023, they reported revenues of 1.499 billion yuan, 3.29 billion yuan, and 4.162 billion yuan, respectively. Their compound annual growth rate reached 66.6%. However, this led to a clear “dependency” on major clients. From 2021 to 2023, and for the three months ending March 31, 2024, the sales revenue from Zhengli New Energy’s top five clients accounted for 89.1%, 90.4%, 77.8%, and 86.6% of total revenue. The first client alone contributed 55.2%, 29.3%, 28.3%, and 47% of total revenue. “Concentration on a single client is common in public companies,” said professional investor Xinyu. “This situation has two sides. If the top client is competitive and demands high technical standards, focusing on them can indicate the company’s strong technical capabilities and value. However, it carries uncertain risks. If the top client cancels orders or the partnership, the impact on profits can be significant and unpredictable.” Zhengli New Energy faced this situation in 2021. Their top client, Client X, contributed 828 million yuan, accounting for 55.2% of revenue. In 2022, Client X experienced significant operational issues, leading to changes in their battery procurement plan and cancellation of orders for ternary batteries used in BEVs. This caused a decline in the sales volume and revenue of Zhengli’s ternary batteries, adversely affecting their sales costs, gross margin, and overall performance, worsening their losses. From 2021 to 2023 and in the first quarter of 2024, Zhengli New Energy reported net losses of 402 million yuan, 1.72 billion yuan, 590 million yuan, and 70 million yuan. Zhengli New Energy cited the main reasons for the losses. A significant impact came from customer X canceling purchase orders. The company also faced high expenses in technology and product development and fluctuations in raw material prices. The company has a valuation of 18.2 billion yuan. Its parent company has engaged in a “patent war” with CATL. Zhengli New Energy continues to incur losses, and its parent company previously had disputes with CATL. The prospectus shows that the actual controllers of Zhengli New Energy are Cao Fang and Chen Jicheng. They jointly own 64.6% of the total issued capital of Zhengli New Energy. In 2016, Cao Fang and Chen Jicheng co-founded Changshu Zhengli Investment Co., Ltd. On February 11, 2019, Zhengli Investment subscribed to 6.78% of the registered capital of Jiangsu Tafel New Energy Technology Co., Ltd. for 160 million yuan, making a minority equity investment in Tafel. Tafel was founded in 2015. Its founder, Long Huijin, and CATL’s founder, Zeng Yuqun, both came from a new energy technology company. Zeng Yuqun was Long Huijin’s superior. In March 2020, CATL sued Tafel for patent infringement, claiming damages of 120 million yuan. CATL stated that the patent in question was crucial for battery explosion-proof safety, impacting battery production and use. As the patent war began, Cao Fang and Chen Jicheng seized the opportunity. On May 12, 2020, Zhengli Investment subscribed to Tafel’s increased registered capital and acquired shares from existing shareholders for 1.08 billion yuan, raising its stake to approximately 43.47% and gaining control. On May 29, after gaining control of Tafel, Zhengli Investment sold its 70% stake in Zhengli New Energy to Tafel for 238 million yuan. Zhengli New Energy then became a wholly-owned subsidiary of Tafel. Despite Cao Fang and Chen Jicheng taking over, the patent war with CATL ended in failure after a year. On June 15, 2021, the Fujian Provincial High People’s Court ruled that Tafel and Dongguan Tafel New Energy Technology Co., Ltd. must jointly compensate CATL for economic losses of 22.9793 million yuan within fifteen days of the judgment taking effect. Tafel must immediately stop making and selling battery products that infringe on Ningde Times’ utility model patent rights from the date the judgment takes effect.
The patent battle just ended. Cao Fang and Chen Jicheng quickly launched a series of capital operations. First, they separated Zhengli New Energy from Tafel, which had been in a patent dispute with CATL. On December 28, 2021, Tafel’s shareholders signed a share transfer agreement with Zhengli New Energy. Tafel’s shareholders acquired 100% of Zhengli New Energy’s equity for a total price of 2.538 billion yuan. After the transfer, Zhengli New Energy was no longer a wholly-owned subsidiary of Jiangsu Tafel. However, Tafel had developed a mature customer base and production capabilities, which were essential. On February 10, 2022, Tafel transferred its business and several assets to Zhengli New Energy and its subsidiaries for a total price of 1.855 billion yuan. After this transfer, Zhengli New Energy successfully took over Tafel’s employees, customers, and suppliers. In other words, through these two steps, Cao Fang and Chen Jicheng effectively used Zhengli New Energy’s “new bottle” to hold Tafel’s “old wine.” Both Zhongchuang Xinhang and Hive Energy, also battery manufacturers, faced patent battles with CATL during their IPOs. Since Zhongchuang Xinhang began preparing for its IPO, CATL filed several infringement lawsuits against it. The lawsuits involved seven lithium battery patents, five of which related to the battery cover structure, with total claims exceeding 600 million yuan. In 2022, CATL sued Hive Energy for unfair competition after a former employee violated a non-compete agreement by joining Hive Energy. Currently, Zhongchuang Xinhang has successfully gone public, while Hive Energy terminated its listing on December 22, 2023. Lawyer Niu Juqin from Shanghai Zhengce Law Firm stated, “Ningde Times sued Tafel and Zhongxin Xinhang for patent infringement and accused Hive Energy of unfair competition. These lawsuits reflect the competition for the new energy market. Ningde Times relies on significant R&D investment to build a strong portfolio of core patents. It uses its advanced technology and personnel advantages to create market barriers. As more players enter the new energy market, Ningde Times’ market share will face pressure. Therefore, Ningde Times initiates multiple patent lawsuits to maintain its competitive edge.” After successfully repackaging its offerings, Zhengli New Energy gained substantial capital support. The prospectus shows that since 2022, Zhengli New Energy completed three financing rounds, raising over 5.3 billion yuan. Investors include CICC, SAIC Emerging Industries Fund, Jianfa Investment, CITIC’s Juxin Xihai, Xingsheng Investment Management, and Shengtun Mining. After the latest financing round in July 2024, Zhengli New Energy’s valuation reached 18.2 billion yuan. Cao Fang, the sister of “Glass King” Cao Dewang, retired and then started a business. Her brother provided significant financial support. Cao Fang, born in 1958, is the sister of the automotive glass mogul. After Cao Dewang’s automotive glass business expanded in 1997, Cao Fang joined his company as a director. She became the deputy general manager in 2011, overseeing business operations. Cao Fang retired from Fuyao Glass in 2014 at the age of 56. However, she did not stop her career. In 2016, she co-founded Changshu Zhengli Investment Co., Ltd. with veteran Chen Jicheng, focusing on investments in core components for electric vehicles. Current controlling shareholder of Zhengli New Energy, Chen Jicheng worked at Fuyao Glass for 13 years. He joined Fuyao Glass in 2003. From February 2011 to April 2016, he served as deputy general manager. From October 2015 to April 2016, he acted as executive director. In April 2016, Chen left Fuyao Glass. Besides Cao Fang and Chen Jicheng, board member Wu Shinong currently serves as a non-executive director at Fuyao Glass. Chief Financial Officer and board secretary Liang Wangchun previously worked at several subsidiaries of Fuyao Glass. However, Wu Shinong left Zhengli New Energy in mid-June 2024, before submitting the prospectus. As an elder brother, Cao Dewang financially supports his sister’s new venture. The prospectus shows Fujian Yaohua Industrial Village Development Co., Ltd. holds 2.67% of Zhengli New Energy. Fujian Yaohua owns 73.56% of the equity held by Sanyi Development Co., Ltd., which Cao Dewang wholly owns. Additionally, Fuyao Glass’s long-time client SAIC also invests in Zhengli New Energy. In July 2022, CICC SAIC Emerging Industry Fund, Haisong Capital, and Southeast New Energy invested in Zhengli New Energy at a price of 7.63 yuan (10$) per share. CICC SAIC holds 1.65% of the shares. According to Qichacha, the largest contributor to CICC SAIC Emerging Industry Fund is Qingdao SAIC Innovation Upgrade Industry Equity Investment Partnership, in which SAIC holds a 99.6% stake. In 2023, SAIC-GM Wuling purchased lithium iron phosphate batteries from Zhengli New Energy for about 650 million yuan, accounting for 15.6% of Zhengli’s total revenue that year. During the process of bringing in external shareholders, Cao Fang and Chen Jicheng also completed some cashing out. In November 2023, Cao Fang and Chen Jicheng, through their wholly-owned companies New Zhongyuan Venture Capital and Zhengli Investment, transferred the registered capital of Zhengli New Energy to Southeast Industrial Investment. They transferred 77.3143 million yuan and 42.5884 million yuan, cashing out 590 million yuan and 325 million yuan, respectively. The total cash out reached 915 million yuan.
