Another 200 million yuan investment! R&D in Nanshan, Shenzhen, started in the new year

The cross-border e-commerce industry was really difficult last year! Both listed big sellers and small and medium-sized sellers are reducing costs and increasing efficiency to stabilize profit margins. The 2022 annual performance forecasts recently disclosed by big sellers are a direct reflection of the sluggish consumer market last year.

Declining revenue, plummeting net profits, increasing losses ...are no longer surprising.

Even Daotong Technology, which was listed on Amazon's BS list as soon as its new product was released, announced that its net profit plummeted by 76% last year. However, a few days after the performance forecast, Daotong Technology ignored the plunge in net profit and invested more than 200 million yuan in research and development in Nanshan, Shenzhen.

Products are king, Daotong Technology invested 210 million in R&D and construction in Shenzhen

A week ago, Shenzhen Daotong Technology Co., Ltd. (hereinafter referred to as "Daotong Technology") announced its performance in 2022. The report showed that Daotong Technology is expected to achieve annual operating income of 2.289 billion yuan in 2022, an increase of 36 million yuan compared with the same period in 2021, a year-on-year increase of 1.58% .

In terms of net profit, Daotong Technology expects the net profit attributable to the parent company's owners in 2022 to be 107 million yuan, a decrease of 332 million yuan, or 75.65% year-on-year, compared with the same period in 2021. Among them, the net profit attributable to the parent company's owners after deducting non-recurring gains and losses is 94 million yuan, a decrease of 75.46% compared with the same period in 2021.

Regarding the continued decline in net profit, Daotong Technology said it was due to increased marketing and R&D expenses for new businesses.

In the past two years, in response to the huge supply and demand gap of new energy overseas, Daotong Technology has firmly adhered to its transformation strategy and has continued to increase its investment in technology research and development, sales networks, and personnel incentives.

Just a few days ago, Daotong Technology invested 210 million yuan in Nanshan District, Shenzhen, to build a 2,000-square-meter product (energy storage technology, charging piles) R&D laboratory and a 3,000-square-meter charging pile production line .

Why choose Nanshan, Shenzhen as the location for the R&D project?

Nanshan District of Shenzhen is itself a high-tech cluster area. Daotong Technology's products have high technological content requirements. As market competition intensifies, Daotong Technology will face more pressure from industry internal competition in the future. A strong technological environment will be more conducive to the updating and iteration of its products.

Not only Daotong Technology, but Anker Innovations also spent 1.54 billion to buy a building in Shenzhen last year . It was not just for the purpose of setting up its southern headquarters, but also because it was attracted by Shenzhen's rich R&D resources.

Big sellers are well aware of the truth that "product is king". Only by making products better and pursuing higher technological content can they avoid being surpassed by successive competitors and gain more room for product premium.

It is also for this reason that Daotong Technology can ignore the fact that its net profit continues to decline and continue to increase its investment in research and development.

Its financial report pointed out that in the first three quarters of last year , Daotong Technology's investment in research and development totaled 440 million yuan, a year-on-year increase of 21.25%, accounting for 28.51% of its revenue , an increase of 6.3 percentage points year-on-year .

The investment in product research and development has also received positive feedback. At present, Daotong Technology's charging pile business has been recognized by many European and American countries, and related products have also obtained certifications from many countries, including the US UL, CSA, Energy Star certification and the EU CE, UKCA, MID certification, etc.

Daotong Technology also recently stated that the sales order volume of its charging pile business in the European and American markets has gradually increased. Its AC pile products have entered overseas supermarket channels such as Costco, Best Buy, and Home Depot, and its DC piles have successively reached cooperation with many overseas CPOs, operators, governments and other customers.

In addition, its multi-series AC and DC charging pile products have passed the ERTEP project access of NV Energy, the Nevada power company in the United States , becoming the only charging pile brand currently selected.

The large investment in product research and development and marketing promotion has indeed promoted the further expansion of its sales channels, and the improvement of product performance has also made it more recognized by the market.

Daotong Technology received orders from many countries, and its new products were listed on Amazon BS list as soon as they were released

Gradually focusing on the automotive new energy track, while maintaining the competitive landscape of traditional businesses and stable profitability, Daotong Technology has continued to increase its R&D investment in new charging pile businesses on the one hand; on the other hand, it has also increased the layout of the sales team and market expansion efforts, successfully achieved sales breakthroughs in many countries, and continuously strengthened product competitiveness and brand influence.

The company's unreserved spending on R&D and market expansion has propelled its new products to quickly become best-sellers once they are released.

It is reported that since the launch of its new energy charging pile products in 2022, Daotong Technology has quickly received orders from North America, Europe, Asia and other regions and has gradually achieved delivery. In June 2022 , its AC pile products landed on Amazon US and ranked top 5 in the category , winning the Amazon Best Seller logo . In 2022, the company's charging pile-related operating income increased to 95 million yuan.

Founded in 2004 and listed in 2020 , as a major auto parts seller, Daotong Technology 's products have been exported to more than 70 overseas markets including the United States, Germany, the United Kingdom, and Australia .

In terms of profit, in December last year, Daotong Technology said that because the company mainly sells its own brands , the overall profit is more considerable than that of OEM . Although the price level may gradually decline as the number of competitors increases, the European and American markets will be better than the domestic market. On the one hand, European and American consumers are less sensitive to prices and there is no need to compete with low prices. On the other hand, the production costs of local European and American pile companies are relatively high, and product prices are unlikely to drop significantly.

The market performance is relatively positive and the profit level remains good, but Daotong Technology, which is still in a critical period of market expansion, also faces many challenges.

With profits under pressure and risks continuing, Daotong Technology is having a difficult time moving forward

It is reported that as of the third quarter of last year , the net cash flow generated by Daotong Technology's operating activities was negative 365 million yuan, a year-on-year decrease of 337.45%. Daotong Technology attributed this to the increase in resources and inventory related to new energy business .

In fact, Daotong Technology 's performance has been under pressure since the third quarter of 2021. As of the end of 2022 , its net profit has declined for six consecutive quarters .

In order to increase profits, Daotong Technology has previously unlocked equity incentive methods and plans to transfer 65% of the equity of its wholly-owned subsidiary Shenzhen Daotong Intelligent Automobile Co., Ltd. to the actual controller and others at a lower price .

After going public in 2020 and hitting a historical high of 97.13 yuan per share in July 2021 , Daotong Technology's stock price continued to fall. As of the end of 2022, its closing price fell to 31.55 yuan per share, a year-to-date decline of more than 50 %.

Daotong Technology also faces multiple operational risks, such as international trade frictions, intensified industry competition, and changing policies and regulations. Since it is mainly export-oriented and its overseas business revenue is relatively concentrated, Daotong Technology also faces the risk of relying to a certain extent on the North American market.

However, amid short-term pressure, cost pressure has been alleviated to a certain extent thanks to rising exchange rates, lower shipping costs, and market expansion. Therefore, Daotong Technology's current gross profit margin is gradually improving, reaching 58.4% in the first three quarters.

In terms of specific products, Southwest Securities believes that from 2022 to 2024, the order volume of Datong Technology's automotive diagnostic analysis systems, TPMS, ADAS, new energy products, software cloud services and other products will increase significantly. Among them, the business order growth rate of new energy products including DC charging piles will reach 400% in 2023 .

Several securities companies have stated that considering the huge gap between supply and demand of charging piles overseas, coupled with the mature product line and channel construction of Daotong Technology, and the fact that the core competitiveness of its traditional business has not been weakened, they are optimistic about its subsequent growth potential.

Although professionals are optimistic, Daotong Technology faces constant resistance in terms of net profit and market risks.

Big Sell

Research and Development

Shenzhen Nanshan