ZEEKR launches the "sinking" battle

Author | Huang Yu

Editor | Zhou Zhiyu

The competition in the new energy vehicle sector is fierce, and no one can take it lightly. Even ZEEKR, which has received resources from the Geely Group, cannot relax after a successful IPO. Another company within the Geely Group, Polestar, which is on the brink of delisting, serves as a warning to ZEEKR, which went public through a "bloody" process.

ZEEKR is well aware that it must accelerate its pace. One month after successfully listing on the NYSE, on June 11th, the "second generation of the automotive circle" ZEEKR (NYSE: ZK) released its first quarterly financial report after going public. The report shows that ZEEKR achieved a revenue of 14.737 billion RMB in the first quarter of this year, a year-on-year increase of 71%, but a decrease of 9.9% compared to the previous quarter.

Facing intense market competition, ZEEKR has seen a decline in both the unit selling price and profit margin. In order to further expand its market share in this competitive landscape, ZEEKR's strategic focus this year is to accelerate its penetration into third and fourth-tier cities. To increase sales volume, ZEEKR still needs to make compromises in terms of pricing and profits.

According to the financial report, ZEEKR's total vehicle sales revenue in the first quarter was 8.174 billion RMB, a 73% increase year-on-year but a 22.8% decrease compared to the previous quarter. In terms of profit margin, in the first quarter of this year, ZEEKR's automotive profit margin was 14%, while in the first quarter and fourth quarter of 2023, the profit margins were 10.1% and 15.3% respectively. The overall gross profit margin was 11.8%, compared to 7.9% in the same period last year and 14.2% in the previous quarter, representing an increase of 3.9 percentage points and a decrease of 2.4 percentage points respectively.

ZEEKR's CFO Yuan Jing stated during the first quarter financial report conference call, "The year-on-year increase in gross profit margin is mainly attributed to cost savings in procurement, as the cost of automotive components and materials has decreased. The quarter-on-quarter decrease is mainly due to the delivery of new models and changes in product structure."

Specifically, in the vehicle structure of the first quarter of this year, the proportion of the highest-priced ZEEKR 009 model decreased from 15% in the previous quarter to 4%, while the proportion of the lower-priced ZEEKR 007 model increased from 2% in the previous quarter to 45% in this quarter. The proportion of ZEEKR 001, which accounts for more than half, saw a price reduction.

Despite a slight decline in profit margin, ZEEKR's performance in the first quarter of this year exceeded market expectations in the intensified market competition. For comparison, the gross profit margins of the three major new energy vehicle companies listed on the stock market - Li Auto, XPeng, and Nio - in the first quarter of this year were 20.6%, 12.9%, and 4.9% respectively.

ZEEKR's CEO An Conghui once said, "ZEEKR is definitely the new energy vehicle company, apart from Tesla, that can make money the earliest and the fastest." While ZEEKR is still in a loss-making state, the first quarter of this year has shown some positive signals.

Data shows that from 2021 to 2023, ZEEKR's net losses were 4.514 billion RMB, 7.655 billion RMB, and 8.264 billion RMB respectively, with a total accumulated loss of as high as 20.433 billion RMB over the past three years In the first quarter of this year, ZEEKR incurred a loss of 2.022 billion yuan, but it narrowed compared to the loss of 2.99 billion yuan in the fourth quarter of last year.

After independently listing, ZEEKR aims to quickly turn losses into profits and has set a goal to achieve a profit under the Hong Kong Financial Reporting Standards this year.

According to the Hong Kong accounting standards, ZEEKR's loss in 2023 was 1.135 billion yuan, an improvement from the loss of 2.039 billion yuan in the same period last year. Once the goal of turning losses into profits this year is achieved, ZEEKR will become the new carmaker with the fastest balance of profits and losses to date.

To achieve this goal, ZEEKR has set a full-year delivery target of 230,000 vehicles this year, nearly doubling from the 119,000 vehicles delivered last year.

ZEEKR revealed that in the first quarter of this year, it delivered approximately 33,100 smart electric vehicles, a 117% increase year-on-year, marking the best Q1 since the brand started deliveries and consistently maintaining its position as the champion of pure electric vehicle sales in China with sales of over 200,000 units.

Compared to other new carmakers, there is still a certain gap between ZEEKR's delivery volume and Li Auto, with a similar level to Nio. Data shows that Li Auto delivered 80,000 vehicles in the first quarter, Nio delivered over 30,000 vehicles, and XPeng delivered approximately 22,000 vehicles.

In April and May of this year, which are crucial stages for ZEEKR's listing, it delivered 16,100 and 18,600 vehicles respectively. In the first five months, ZEEKR's cumulative delivery volume reached 68,000 vehicles, with a total completion progress of less than 30%, posing considerable pressure to achieve the full-year delivery target.

In fact, in order to achieve the annual target, ZEEKR is going all out, entering a period of intensive product launches in 2024. Since the beginning of this year, it has successively launched ZEEKR 007, the newly launched ZEEKR 001, MPV ZEEKR 009, and ZEEKR MIX.

An Conghui stated that with the increased production capacity of the new ZEEKR 001, ZEEKR 007, and other models, ZEEKR is confident in continuously increasing the number of terminal deliveries and accelerating the achievement of the full-year delivery target of 230,000 vehicles.

It is reported that ZEEKR MIX will be officially launched in the fourth quarter of this year. In the second half of the year, ZEEKR will also release a new large and medium-sized pure electric SUV, expanding its product lineup to 6 models, covering more segments of the automotive market from compact SUVs to large and medium-sized MPVs.

Goldman Sachs analysts are optimistic about ZEEKR's scale growth, believing that ZEEKR's vehicles are newcomers in the field of new energy vehicles with fewer models on sale. However, given the successful launch of the new ZEEKR 001, the commencement of deliveries for ZEEKR 007, and expectations for the company to launch subsequent models, they estimate that ZEEKR's annual compound sales growth rate from 2023 to 2026 is expected to reach the industry's highest level of 56%.

At the same time, ZEEKR is accelerating channel sinking to expand the brand's growth space. By the end of May, ZEEKR had opened 392 stores globally, with 380 in China. Particularly noteworthy is the ZEEKR Home model, which integrates experience, retail, delivery, after-sales, and other full-chain one-stop service experiences, and has opened 64 stores An Conghui revealed that this year, ZEEKR's key focus is to strengthen the diversification of channels such as ZEEKR Space in third- and fourth-tier cities. It is expected that the number of stores will increase to over 520 by the end of this year to ensure the achievement of the annual sales target.

In addition, it is worth mentioning that the export quantity is planned to reach 30,000 units out of ZEEKR's target delivery of 230,000 units.

ZEEKR is vigorously expanding into overseas markets. As of the end of May, ZEEKR has entered more than 20 countries and regions including the Netherlands, Sweden, Thailand, the United Arab Emirates, and Saudi Arabia. It is expected that by the end of this year, ZEEKR will enter the luxury markets of 8 European countries, as well as more than 50 countries and regions globally including Southeast Asia, the Middle East, Latin America, and Oceania.

It is reported that ZEEKR 001 and ZEEKR X have started deliveries in Europe, and the right-hand drive version of ZEEKR X will start deliveries in the third quarter.

For ZEEKR, going public is not the end but the starting line of a new stage. Although its parent company Geely provides strategic advantages and deep synergies, in the face of intense market competition, ZEEKR, after flying solo, needs to achieve sales growth and turn losses into profits through a more complete product lineup and channel layout.

The road ahead is long and challenging for the newly listed ZEEKR, with many obstacles to overcome