About the Shanghai Stock Exchange on the Fu Energy Technology.

Notes on Financial Matters in the Annual Report Letter of Inquiry

Dahua Hezi [2024] No. 0011014270

Dahua Certified Public Accountants (Special General Partnership)

DaHuaCertifiedPublicAccountants(SpecialGeneralPartnership)

About the Shanghai Stock Exchange on the Fu Energy Technology.

Notes on Financial Matters in the Annual Report Letter of Inquiry

Catalog Page

1. Annual Report on Shanghai Stock Exchange on Funeng Technology 1-10

Statement of Financial Matters in Letter of Inquiry

Dahua Certified Public Accountants (Special General Partnership)

Floor 12, Building 7, Yard 16, Xisihuan Middle Road, Haidian District, Beijing [100039]

Tel: 86 (10) 5835 0011 Fax: 86 (10) 5835 0006

www.dahua-cpa.com

About the Shanghai Stock Exchange on the Fu Energy Technology.

Notes on Financial Matters in the Annual Report Letter of Inquiry

Dahua Hezi [2024] No. 0011014270

shanghai stock exchange:

We have received your report on June 13, 2024 on the issue of "On the issue of Fu Neng Technology (Gan

State) Limited Company's 2023 Annual Report Information Disclosure Regulatory Inquiry Letter, we have conducted a prudent verification of the financial matters that require us to explain in the inquiry letter, which is now reported as follows.

1. on offshore income. The annual report shows that in 2023, the company achieved total operating income of 16.436 billion billion yuan, of which overseas income was 9.873 billion billion yuan, an increase of 124.70 percent over the same period last year, accounting for 60.07 percent. The gross margin of products sold abroad was 12.72 per cent and that of products sold domestically was -5.91 per cent. The company is requested to:(1) supplement and disclose the specific regional distribution, year-on-year changes and reasons of overseas sales, the situation of the top five overseas customers, whether they are related parties, sales content and amount;(2) Supplementary disclosure of the amount of the top five overseas operating receivables, the corresponding customers and the repayment after the period, indicating whether the receivables from related parties have recovery risks;(3) explain the specific reasons for the large difference between the gross profit margin of overseas sales and domestic sales, and whether it is obviously abnormal from comparable companies in the same industry;(4) ask the annual audit accountant to explain the authenticity of the company's overseas income, the authenticity of overseas deposits and.

The audit procedures performed by the security and the audit evidence, coverage and proportion obtained, and the adequacy and effectiveness of the relevant audit procedures.

Company reply:

(I) additional disclosure of the specific regional distribution of overseas sales, year-on-year changes and reasons, the top five overseas customers, whether related parties, sales content, amount.

1. The company's main business overseas sales specific regional distribution, year-on-year changes and reasons.

In 2023, the regional distribution and year-on-year changes in overseas sales of the Company's main business were as follows:

Unit: ten thousand yuan

Sales area 2023 2022 Change ratio (%)

North America 221,522.27 53,091.23 317.25

Europe 765,485.91 386,244.72 98.19

Other 247.61 22.56 997.56

Total 987,255.78 439,358.51 124.70

The company's North American customers are mainly Mercedes-Benz U.S. International, Inc..

The large year-on-year increase in sales in North America in 2023 was mainly due to the company's supply to Mercedes-BenzU.S.International,Inc. The power battery products are still in the sample stage and will begin mass production sales at the end of 2022, and sales revenue in North America will increase significantly in 2023 as the company's supply gradually increases.

The company's main customers in Europe are MERCEDES-BENZ AG and Siro. Company

Supply EQE, EQA, EQB and other models of power battery products to MERCEDES-BENZAG. The main reasons for the large year-on-year increase in sales in Europe in 2023 are: first,

EQE, EQA and EQB models have just been put on sale in 2022. In 2023, the market feedback on relevant models is good. The company will increase its supply to MERCEDES-BENZ AG. Second, Siro's products are still in the development stage in 2022. In 2023, orders for new energy vehicles produced by its customer Togg will increase, and the market feedback is good. As a result, the company's sales of battery cells to Turkey's joint venture Siro in 2023 will increase significantly increase.

Other major companies opened up new customers in Southeast Asia in 2023.

2. The top five overseas customers, whether they are related parties, sales content and amount.

The company's top five overseas customers in 2023 are as follows:

Unit: ten thousand yuan

Customer Name Related Party Sales Content Amount

MERCEDES-BENZAG Note 1 module, battery pack 521,891.68

Siro is cell 243,442.64

Mercedes-Benz U.S. NOTE 1 MODULE 218,779.61

International, Inc.

Volta Power Systems No module 1,956.45

Zero Motorcycles, Inc. No Module 595.50

Total 986,665.88

Note 1: Markus Sch?fer, director of MERCEDES-BENZ AG, July 2021-2022

He served as a supervisor of the Company during June. July 2022 to June 2023 shall still be MERCEDES-

BENZAG as a related party of the Company. Therefore, the above table MERCEDES-BENZAG, Mercedes-Benz

U.S. International, Inc. No longer a related party of the Company after June 30, 2023.

(II) additional disclosure of the amount of the top five operating receivables abroad, corresponding customers, and post-period recoveries, indicating whether the receivables to related parties are at risk of recovery

1. Amounts of the top five operating receivables abroad, corresponding customers, and post-period recoveries

At the end of 2023, the Company's top five operating receivables and post-period repayments were as follows:

Unit: ten thousand yuan

Whether the amount returned after the closing period is more than the amount returned after the closing period.

Customer Name Receivable Amount

Joint [Note 1] cases (%)

Siro is 224,530.32 44,988.38 20.04

MERCEDES-BENZ No 30,583.33 30,583.33 100.00

AG

Magna Steyr

Fahrzeugtechnik No 2,132.51 2,132.51 100.00

GmbH & CO KG

Zero Motorcycles, No 914.79 0.00 [Note 2] 0.00

Inc.

Hyster Yale Group No 755 755.94 100.00

Total 258,916.89 78,460.16 30.30

Note 1: Post-period payback statistics as of June 14, 2024.

Note 2:Zero Motorcycles, Inc. The final payment of the product has not been returned yet.

2. Risk of recovery of receivables from related parties

As at the end of the reporting period, the Company's overseas related parties were mainly Funeng Technology and Turkey First New.

Siro, a joint venture established by energy vehicle brand Togg, has a balance of accounts receivable from Siro.

For 2245.3032 million yuan.

In 2023, Siro's vehicle customer, Togg, went into production of new energy vehicles, and the market for

Good product feedback led to an increase in battery demand, resulting in a significant increase in Siro's purchases of the company's cell products during the year.

On the cost side, due to the difficulty of importing Chinese suppliers during the 2022 epidemic, Siro

Higher raw material costs due to the increased use of European supply chains in the initial phase, combined with upfront production costs, led to Siro's operating losses in 2023.

In terms of cash flow, while experiencing an operating loss in 2023, due to Togg's

The outlook for orders in the second and third quarters was good, with Siro ordering a large number of the company's battery products, but Togg's subsequent orders declined, leading to an increase in Siro inventory and slow payback, which in turn affected cash flow.

Based on the current plan and support for the overall improvement measures of Siro reached between the company and Togg.

The case, including the introduction of China's supply chain, optimization of process processes, production, supply and marketing to reduce inventory and other measures, in the short term will significantly improve the Siro business situation and solid progress.

At the same time, Funeng Technology and Togg have agreed to provide Siro to Funeng for Siro's operations.

Technology's payback plan. According to the agreement, Siro will be required to pay back 2.924 to Funeng Technology in 2024.

billion euros. Siro's main customer is Togg, which will sell nearly 19700 million in 2023.

The sales of 11300 cars from January to May this year have exceeded half of the sales in 2023.

volume, which is expected to grow significantly in 2024 based on customer guidelines, with good terminal sales. At the same time, the Turkish government has actively introduced various measures to promote the development of the local new energy vehicle industry, such as the reduction of purchase tax and the increase of tariffs, which will help Togg to maintain a stable growth momentum in the future, thus providing stable cash flow for Siro and realizing the repayment of the company.

In summary, Funeng Technology's receivables to Siro can be effectively recovered, the risk of not being able to recover is small.

(III) explain the specific reasons for the large difference between the gross profit margin of overseas sales and that of domestic sales, and whether it is obviously abnormal from comparable companies in the same industry.

The Company's gross profit margin on overseas sales is higher than that on domestic sales, which is mainly due to the combined effect of various factors such as the level of overseas consumption, high added value of products and product positioning. Overseas new energy vehicles

Price, energy prices are higher than the domestic, driving overseas power battery products pricing is relatively high. At the same time, thanks to the demand for medium and high-end products in overseas markets, such products usually have high technical content and brand value, and the cycle from fixed point to mass production is long and the substitutability is low, so the added value of product research and development is high. in addition, the company is deeply bound with customers, and the customer stickiness is strong, so the price of overseas customers is higher. In addition, overseas customers generally have higher end product positioning and higher pursuit of product performance and quality, which also provides higher market pricing space for products, thus achieving higher gross profit margin.

In summary, the high gross profit margin of overseas sales products is mainly due to the combined effect of multiple factors such as the increase in sales prices, high added value of research and development, and high-end product positioning.

The gross profit margin of domestic and overseas main business of comparable listed companies in the same industry in 2023 is shown in the following table, and the gross profit margin of overseas sales of comparable companies is higher than the gross profit margin of domestic sales:

Enterprise Name Overseas Gross Profit Margin Domestic Gross Profit Margin.

Funeng Technology 12.72% -5.91%

Ningde Times 25.19% 21.80%

Yiwei lithium energy 24.72% 14.16%

Guoxuan Hi-Tech 18.77% 16.45%

Industry average 20.35% 11.63%

Source: Annual reports of listed companies

As shown in the table above, the company's domestic and foreign sales gross margin is higher than the domestic sales gross margin in line with industry characteristics.

Accounting firm response:

(I) the audit procedures performed by the public accountant on the authenticity of the company's overseas income, the authenticity and security of overseas deposits and the audit evidence, coverage and proportion, and explain the relevant.

Adequacy and effectiveness of audit procedures

1. Procedures for verifying the authenticity of the company's overseas income and the audit evidence, coverage and proportion obtained.

(1) Understand the key internal controls related to revenue recognition, evaluate the design of those controls, determine whether they are being implemented, and test the operational effectiveness of the related internal controls;

(2) Obtain and examine sales contracts, orders or framework agreements from major customers, verify whether there are special terms in contractual agreements or routine transactions, and verify whether the point of time at which control is transferred under the contract is consistent with the point at which the company actually recognizes revenue;

(3) Implementing substantive analysis procedures on operating income and gross margin by month, product, customer, etc., to identify whether there are significant or abnormal fluctuations and to identify the reasons for the fluctuations;

(4) Check supporting documents such as sales contracts, export declarations, sales invoices, customer sign-off records, etc. by sampling, with an inspection amount of 8,096.9224 million yuan and an inspection ratio of 82.01 per cent;

(5) Confirm current sales to major customers on a sample basis, in conjunction with accounts receivable correspondence, with a correspondence amount of $8,330.3047 million and a correspondence ratio of 84.38 percent;

(6) Field visits to the company's overseas warehouses and new customer joint ventures, Siro, to verify the match between the actual situation and the operating data;

(7) Export the company's export data from the China Electronic Port Export Tax Refund Network Inspection System and reconcile it with the company's export revenue;

(8) Implement a cut-off test on operating income recognized before and after the balance sheet date to evaluate whether operating income was recognized in the appropriate period;

(9) Obtain a record of sales returns after the balance sheet date and check for the existence of assets

Where the conditions for revenue recognition are not met at the balance sheet date;

(10) Check whether information related to operating income has been properly presented in the financial statements.

2. Audit procedures performed and audit evidence, coverage and proportion of the authenticity and security of the Company's overseas deposits

Sales to foreign countries by domestic companies within the scope of the Company's consolidation are refunded to domestic bank accounts, and therefore foreign deposits are all deposits of foreign subsidiaries.

(1) The situation of the company's overseas subsidiaries.

The Company's overseas subsidiaries are as follows:

Company Name Registered Place Shareholding Ratio (%)

Farasis Energy USA,Inc. United States 100.00

Farasis Energy Europe GmbH Germany 100.00

Farasis Energy Global Limited Hong Kong 100.00

Farasis Energy(Germany) GmbH Germany 100.00

Farasis Energy(Luxembourg)Co.Ltd Luxembourg 100.00

Farasis Energy(Luxembourg) Innovative Luxembourg 100.00

Solutions Co.LTD

The Company has six overseas subsidiaries, with actual operations as of the end of 2023.

2 companies, specifically:

Subsidiary Farasis Energy USA,Inc. ("FEU") is primarily responsible for the U.

China's market development and customer docking services and new product development, belongs to the group's R & D center and trade terminal;

The subsidiary Farasis Energy Europe GmbH (hereinafter referred to as "FEE") is mainly responsible

Mercedes-Benz's docking service for overseas customers and European customers.

(2) Audit of overseas companies

FEU and FEE are the main operating entities of Funeng Technology's overseas business, with annual financial reports.

Hire Frazer LLP and HWS to REUTLINGEN GMBH & CO.KG two local accountants respectively

The firm has worked with both firms in previous years. For two

Frazer LLP is Moore Stephen (Chinese name "Dahuaguo"

International ") member offices operate under a unified monitoring policy and order to evaluate the operation results of the quality monitoring system; The partners of HWS REUTLINGEN GMBH & CO.KG have communicated with the project team before appointment, and the project team believes that the firm is competent after understanding the firm's qualifications and working ability. The project team obtained the audit reports and audit working papers submitted by the foreign firms and examined and analyzed their audit reports and audit working papers.

At the same time, the project team personally went to the subsidiary FEE for on-site visits. Visit the company's main

Camp site, determine whether its production site matches the financial data; communicate with key personnel to understand the company's business situation.

(3) Deposits of overseas subsidiaries:

Unit: RMB ten thousand yuan

Farasis Farasis Farasis Farasis

EnergyEnergy(Luxembourg Farasis Energy Energy Energy

Total Company Name

Global ) Innovative USA,Inc. (Germany Europe

Limited Solutions Co.Ltd. )GmbH Gmbh

End of 2023

Overseas deposit 0.08 40.08 14,161.23 2,715.89 455.38 17,372.66

Balance

(4) Audit procedures and access to the authenticity and security of the company's overseas deposits

Audit evidence, coverage and proportion

For FEU and FEE, we obtained audit reports from foreign accounting firms,

Audit working papers, bank inquiry letters for all bank accounts, bank deposit schedules of overseas subsidiaries were checked, and the amount of correspondence was $146.1661 million and all replies were obtained;

For the remaining foreign subsidiary bank deposits, we obtained bank statements and personally performed correspondence procedures for all bank accounts, with a correspondence amount of $27.5605 million and all of which were returned.

3. Verification opinions

After verification, we believe that the company's overseas income is true and accurate, overseas deposits are true and safe, and the relevant audit procedures of the project team are adequate and effective.

For this explanation, please check.

Dahua Certified Public Accountants of China (Special General Partnership):

Wu Jianchu, Beijing, China

china certified public accountants:

Xie Pinghui

June 20, 2004