How far is Leapmotor from joining the ranks of top new forces? | Jianzhi Research

On the evening of May 17th, Leapmotor released its financial report for the first quarter of this year. As one of the outstanding players among China's second-tier new energy vehicle manufacturers, Leapmotor managed to maintain sales growth and narrowed its net loss despite the fierce price war in the first quarter.

However, negative impacts still persist as the leading gross profit margin level turned negative again in the first quarter.

Specifically, in Q1, Leapmotor achieved operating income of 3.486 billion yuan, a year-on-year increase of 141.7%, and a quarter-on-quarter decrease of 33.9%; the gross profit margin level fell back to -1.4%, a year-on-year increase of 6.4 percentage points, and a quarter-on-quarter decrease of 8.1 percentage points; the net loss narrowed to 1.01 billion yuan, a year-on-year decrease of 10.6%, and a quarter-on-quarter increase of 6%.

1. Overseas markets to provide incremental growth this year, supporting Leapmotor in achieving annual sales targets

In the first quarter of this year, Leapmotor's total sales reached 33,400 units, a year-on-year increase of 217.9%. This sales volume not only ranks among the top in the second-tier new energy vehicle manufacturers (NIO sold 24,000 units, ZEEKR sold 33,000 units), but also surpassed XPeng's 22,000 units and Nio's 30,000 units.

Leapmotor's annual sales target is set at 250,000 to 300,000 units, a year-on-year growth of 73.6% to 108%.

This target is ambitious, and Leapmotor needs to achieve a quarter-on-quarter growth rate of over 40% in the next three quarters to meet it.

The overseas market is expected to contribute to some incremental growth. In mid-May, Leapmotor announced the establishment of Leapmotor International B.V. in partnership with Stellantis Group, with Leapmotor providing product technology and Stellantis Group providing global market resources and influence.

Specifically, as the world's fourth-largest automotive group, Stellantis has over 10,000 dealers worldwide. Leapmotor is expected to leverage these existing overseas dealer channels to introduce its first two products, TO3 and C10, for overseas sales.

Currently, Leapmotor's overseas market has entered the initial product introduction stage. Leapmotor expects to complete full certification for overseas products and officially start sales in Europe in the third quarter of this year. The plan is to expand the European sales network to 200 outlets by the end of the year, while simultaneously entering the new energy vehicle markets in India, Asia-Pacific, the Middle East, Africa, and South America.

2. Gross profit margin turns negative again

Leapmotor achieved a positive gross profit margin for the first time in the third quarter of last year, maintaining it until the fourth quarter. However, in the first quarter of this year, Leapmotor's gross profit margin returned to negative, decreasing by 8.1 percentage points to -1.4% quarter-on-quarter In the context of a fierce price war, Leapmotor's gross profit margin fell by more than 8 percentage points compared to the previous period, exceeding market expectations. Huawen Research believes the main reasons are as follows:

Firstly, Leapmotor's main sales volume is shifting from below 100,000 yuan to the 200,000 yuan price range. However, Leapmotor offered significant price discounts in the first quarter of this year, which suppressed the increase in per-vehicle revenue.

In the first quarter of this year, Leapmotor implemented cash discounts of 15,000 to 32,000 yuan for its entire range of models. The newly launched 2024 models were priced 10,000 to 50,000 yuan lower than the old models.

Despite the shift in sales volume from the 50,000-70,000 yuan price range T series models to the 100,000-200,000 yuan C series models.

Specifically, in the first quarter of this year, the delivery volume of Leapmotor T03 was 9,433 units, with its sales proportion decreasing by nearly 10 percentage points compared to the previous quarter, to 28%. At the same time, the delivery volumes of C series models such as C11, C01, and C10 were 12,122 units, 3,998 units, and 7,857 units respectively, with year-on-year growth rates of 129% and 209% respectively. The sales proportion of C series models has exceeded 70%.

This strategy effectively offset some of the decline in revenue caused by price reductions. Compared to the fourth quarter of last year, per-vehicle revenue actually increased, rising by 8,000 yuan to 104,000 yuan.

In the second quarter of this year, Leapmotor's sales volume decreased compared to the first quarter, leading to an increase in amortization and per-vehicle manufacturing costs.

At the same time, the prices of some lithium battery raw materials such as battery-grade lithium carbonate rebounded in the first quarter, rising from around 90,000 yuan/ton to over 110,000 yuan/ton. This also led to an increase in Leapmotor's per-vehicle costs, which far exceeded the growth in per-vehicle revenue. In the first quarter of this year, Leapmotor's per-vehicle cost was 105,800 yuan, a decrease of 43,200 yuan compared to the same period last year, but an increase of 16,800 yuan compared to the previous period.

Fortunately, Leapmotor will shift its focus from pure electric models to extended-range models in the future, which will have a positive impact on the gross profit margin.

Compared to the pure electric version, the C11 extended-range version has a battery capacity of more than half, calculated at an average price of 0.52 yuan/Wh for ternary lithium battery cells (power type), while the fuel engine costs around 5,000 yuan. This will bring about a cost reduction of nearly 20,000 yuan for Leapmotor, but the price of the C11 extended-range version is only 3,000 yuan cheaper than the pure electric version.

3. Increased R&D investment, short-term ammunition is not a problem

After 8 years of independent research and development, Leapmotor has significantly increased its investment in intelligent driving technology in addition to core components such as the three-electric system (battery, motor, control), aiming to quickly catch up to the industry's leading level In the first quarter of 2024, Leapmotor launched its first OTA (Over-the-Air) upgrade, introducing new features including high-speed intelligent navigation, significantly enhancing the intelligence level of the vehicles. In addition, the intelligent driving version based on high-precision maps has also been introduced to the market, with the urban NOA (Navigation Assisted Driving) function expected to be officially launched in the second quarter. At the same time, the development of cloud-based vehicle networking solutions has been put on the agenda, becoming a new focus of the company's research and development.

In the first quarter of 2024, the company's R&D expenditure has reached 520 million yuan, a year-on-year increase of 26.1%. Such investments, although difficult to reduce in the short term, are crucial for enhancing Leapmotor's competitiveness and market position in the field of intelligent driving.

However, Leapmotor is intentionally controlling its sales expenses. Sales expenses in the first quarter were 430 million yuan, an increase of only 8.8% year-on-year and a decrease of 19.8% quarter-on-quarter. This is reflected in a decrease of 50 stores to 510 stores quarter-on-quarter.

Cash flow has also improved, with an increase of 8.7 billion yuan compared to the same period last year, and a decrease of 1.8 billion yuan quarter-on-quarter. As of the end of the first quarter, the company's cash and cash equivalents, restricted cash, and bank time deposits amounted to 17.58 billion yuan.

Leapmotor is getting closer to the forefront, but the competition in the current new energy market remains fierce, and Leapmotor needs to achieve profitability as soon as possible