The first super-expected financial report after listing, what did ZEEKR do? | Jianzhi Research

Just one month after going public, ZEEKR delivered its first financial report that exceeded expectations.

In the first quarter of 2024, ZEEKR's revenue was 14.737 billion yuan, a year-on-year increase of 71% but a decrease of 9.9% from the previous quarter; the net loss was 2.02 billion yuan, a year-on-year contraction of 18.2% and a quarter-on-quarter narrowing of 31.3%; the gross profit margin increased by 3.9 percentage points year-on-year but decreased by 2.4 percentage points quarter-on-quarter to 11.8%.

In the first quarter, ZEEKR's sales remained stable at over ten thousand units, positioning itself in the upper-middle level among new energy vehicle manufacturers. Despite the intense price competition, ZEEKR's profitability did not deteriorate significantly.

Specifically, ZEEKR's gross profit margin only slightly declined quarter-on-quarter from the fourth quarter of last year, remaining at 10%. Due to cost reductions in research and development expenses, ZEEKR's net loss also significantly narrowed.

1. Strong Sales Growth, Positioned at the Upper Level Among New Energy Vehicle Manufacturers

In the first quarter of this year, ZEEKR's sales reached 33,000 units, a year-on-year increase of 117% but a decrease of 16.6% from the previous quarter. Looking at the sales in the first half of the year, ZEEKR's monthly sales have basically stabilized at the ten thousand to fifteen thousand level, gradually aiming for 20,000 units.

As a new energy vehicle manufacturer that only launched its first model in 2022, ZEEKR has positioned its sales in the upper level among its peers within just two years. From January to May this year, ZEEKR's total sales reached 67,800 units, ranking behind only GAC Aion, Aito, and Li Auto.

However, there is still a gap from ZEEKR's annual sales target of 230,000 units set at the beginning of the year, with a target completion rate of only 29% in the first five months. To avoid repeating last year's performance (with an 85% completion rate of the annual sales target), ZEEKR needs to make more efforts to achieve the annual sales target. In the next seven months, ZEEKR's monthly average sales need to reach at least 23,000 units, which is also a significant challenge for ZEEKR, which has not yet surpassed the 20,000-unit mark.

Currently, ZEEKR's main ways to boost sales are:

First, ZEEKR is expanding into the overseas new energy vehicle market. In early June, ZEEKR officially announced cooperation agreements with PT Premium Prima in Indonesia and Sentinel Automotive Sdn.Bhs in Malaysia, allowing its ZEEKR X and ZEEKR 009 to enter the Indonesian and Malaysian markets.

Second, ZEEKR is accelerating the launch of new vehicle models. In just two years, ZEEKR has transitioned from the single model ZEEKR 001 (coupe model) to a full lineup including ZEEKR X (SUV model), ZEEKR 009 (MPV model), ZEEKR 007 (mid-size sedan), and ZEEKR MIX (not yet launched) In the future, it is expected to gain more favor from consumers.

Thirdly, price reduction promotions. Even in the continuous price war of new energy vehicles last year, ZEEKR only reduced prices once in August. However, in just the first quarter of this year, ZEEKR adjusted the price of the all-new ZEEKR 001 to a minimum of 269,000 yuan, a reduction of 31,000 yuan.

2. Gross profit margin risks holding at 10%, net losses begin to converge

In the bloody price war in the first quarter of this year, although ZEEKR's gross profit margin held at the 10% mark, it still declined by 2.4 percentage points compared to the previous period. There are two reasons behind this: the combination of price reduction promotions and the decrease in the proportion of high-priced models in sales, resulting in a decrease in ZEEKR's per vehicle income; the prices of raw materials such as lithium carbonate rose instead of falling in the first quarter, limiting the extent of cost reduction per vehicle.

Specifically, in the first quarter of this year, ZEEKR implemented a promotion activity to reduce the price of the ZEEKR 001 model, which accounts for more than half of the sales, by 31,000 yuan, directly lowering the overall per vehicle price of ZEEKR.

Furthermore, the highest-priced model, ZEEKR 009 (50-78.9 thousand yuan), performed poorly in sales in the first quarter of this year, with its sales proportion dropping significantly from the previous 15%-20% range to 4% in the first quarter. This also led to a decrease of 20,000 yuan in per vehicle income to 248,000 yuan for ZEEKR.

As for per vehicle costs, due to the price of lithium carbonate rising from below 100,000 yuan per ton to around 130,000 yuan per ton in the first quarter of this year, even though ZEEKR's per vehicle amortized cost had some positive effect due to the scale effect of sales volume, it only reduced per vehicle costs by 14,000 yuan compared to the decrease in per vehicle income, resulting in a decline in gross profit margin.

It is worth noting that ZEEKR's net losses in the first quarter of this year narrowed significantly by 31.3% to 2.02 billion yuan compared to the previous period, but this was mainly due to cost reduction, especially a significant cut in research and development expenses (a decrease of 39.1% and 11.6% in research and development expenses and sales expenses respectively), rather than a significant improvement at the operational level, making it difficult to sustain. ZEEKR still has a distance to go before reaching the breakeven point.

3. Some weakening in the rigidity of ZEEKR's cost structure

Previously, the advantages formed by the repeated increase in ZEEKR's sales volume and the continuous introduction of new models were built on the rigid investment in sales promotion, basic equipment construction, configuration research and development, and technological innovation by ZEEKR.

From 2021 to 2023, ZEEKR's research and development expenses are 3.16 billion, 5.446 billion, and 8.369 billion yuan respectively, with year-on-year growth rates of 72.3% and 53.67%, totaling 17 billion yuan over three years; the number of ZEEKR's research and development personnel has also increased from 2,582 to 7,427, accounting for 44.6% of the total number of employees Now that the vehicle lineup matrix has been completed and the high-end SEA Haohan architecture has been successfully built, ZEEKR, which has gained initial advantages, has also reduced its investment in research and development.

In the first quarter of this year, ZEEKR's R&D expenses were 1.93 billion yuan, a year-on-year increase of 6.7% and a quarter-on-quarter decrease of 39.1%.

The growth rate of ZEEKR's current R&D spending has slowed down for two main reasons:

On the one hand, in the field of intelligent driving, ZEEKR is still in the early stage with relatively small investment, lagging behind the first-tier new energy vehicle companies such as Aito and XPeng. ZEEKR is expected to launch urban NOA in the second half of this year and achieve the first batch of urban landings by the end of the year.

On the other hand, ZEEKR has launched 4 models for sale in the past two years, with only one upcoming model, ZEEKR MIX. The progress of new vehicle R&D will slow down in the short term.

In terms of sales expenses, ZEEKR's sales expenses in the first quarter of this year were 1.95 billion yuan, a year-on-year increase of 51.9% and a quarter-on-quarter decrease of 11.6%. The increase in sales expenses is mainly due to increased marketing and promotional activities, as well as the expansion of sales networks and charging facilities.

All models under ZEEKR are pure electric models, actively building a replenishment network. As of early May this year, ZEEKR has built 471 ZEEKR charging stations, 2547 ZEEKR charging piles, 1028 charging stations, and 6105 charging piles, covering nearly 140 cities nationwide. It is one of the top three new energy vehicle companies in China in terms of self-built charging piles for pure electric brands.

However, the substantial R&D investment has brought pressure to ZEEKR, which has not yet achieved profitability. As of the first quarter of 2024, ZEEKR's cash, cash equivalents, and restricted cash amounted to only 3.79 billion yuan, obviously less than first-tier new forces in car manufacturing such as Nio and Li Auto.

Nevertheless, with the support of its parent company Geely, the market does not need to worry too much about cash flow issues. At the same time, after raising $441 million in this IPO, the company's cash flow pressure has also been alleviated.

With sufficient funds supplemented, ZEEKR, the car-making new force that successfully landed on the US stock market after Nio, XPeng, and Li Auto, needs to address the profitability challenge while developing alongside these companies. It is hoped that ZEEKR can quickly reach the breakeven point and become another successful new force in car manufacturing