Weixiaoli welcomes its fourth competitor | Jianzhi Research

The second-tier new energy vehicle manufacturers have also entered the stage of positive gross profit margin. NIO, Xpeng, and Li Auto have finally welcomed their fourth competitor, LeapMotor.

On the evening of October 16th, LeapMotor announced its third-quarter performance. In the third quarter of this year, LeapMotor achieved operating revenue of 5.656 billion yuan, a year-on-year increase of 31.9% and a month-on-month increase of 29.4%. The operating cash flow remained positive, reaching 1.4 billion yuan. The gross profit margin turned positive for the first time, reaching 1.2%. The trend of expanding operating losses also showed signs of convergence, reaching 1.025 billion yuan, a year-on-year decrease of 24.7% and a month-on-month decrease of 12.7%.

In the third quarter, LeapMotor demonstrated record-breaking quarterly revenue and car sales volume, and the gross profit margin turned positive for the first time, achieving the target ahead of schedule. The trend of expanding operating losses also showed signs of convergence. Has LeapMotor finally turned the corner?

1. Record-breaking Sales Volume and Revenue

In the third quarter of this year, LeapMotor's total sales volume reached 44,300 vehicles, a year-on-year increase of 24.5% and a month-on-month increase of 30.4%. As a second-tier new energy vehicle manufacturer in China, this sales volume not only set a new quarterly record for LeapMotor, but also surpassed Xpeng's 40,000 vehicles and NIO's 35,000 vehicles. LeapMotor is also quite optimistic about the fourth quarter, stating that it is expected to achieve a new high in delivery volume based on the current order volume.

In addition to the reasons for the increase in sales volume, LeapMotor's main sales in the third quarter have gradually shifted from the T03 model priced below 100,000 yuan to the C11 and C01 models priced between 150,000 and 300,000 yuan. This has also stabilized LeapMotor's per vehicle income.

In the third quarter of this year, the sales volume of LeapMotor's low-priced T03 model decreased significantly by 51.5% to 8,622 vehicles, while the sales volume of the C11 and C01 models increased by 58.6% and 1384% respectively to 27,378 vehicles and 8,325 vehicles. Obviously, the two models with pure electric and extended-range dual-power layouts can better meet the diversified needs of consumers and have gained market recognition.

This also resulted in LeapMotor's per vehicle income in the third quarter reaching around 128,000 yuan, reversing the downward trend in the second quarter. The adverse impact of LeapMotor's previous across-the-board price reduction (with a maximum reduction of 59,000 yuan) has gradually been eliminated.

2. Gross Profit Margin Turns Positive, Operating Losses Show Signs of Convergence

As a leading second-tier new energy vehicle manufacturer in China, LeapMotor's net losses have expanded in previous years, and its gross profit margin has remained negative for a long time, which has been criticized by the market. In the third quarter of this year, LeapMotor finally broke through the market's doubts and achieved a positive gross profit margin for the first time, reaching 1.2%, a year-on-year increase of 10.1 percentage points and a month-on-month increase of 6.45 percentage points.

Previously, LeapMotor, following the strategy of reducing prices to maintain sales volume, made every effort to expand its sales scale. Although the gross profit margin level has gradually improved as the scale effect gradually unfolds, from -95.7% in 2019 to -15.43% in 2022, it still hasn't escaped the embarrassing situation of losing money on every car sold. Fortunately, the transition between Zero Run's old and new models has been relatively smooth. Its high-end models, such as C11 and C01, have gradually entered a period of strong performance. They have also seen a significant increase in their overall delivery share. The previous low-priced model, T03, has quickly dropped from around 65% to the current 15%. Zero Run has completely shifted its product focus from the T series to the C series, which has also boosted its gross profit margin to 1.2%. Additionally, Zero Run's operating losses have not continued to expand, with a decrease of 24.7% YoY and 12.7% MoM in the third quarter, amounting to 1.025 billion yuan.

Despite the fierce price war in the new energy vehicle market this year, Zero Run has managed to contain its operating losses.

3. R&D investment growth is not a major issue, short-term ammunition is sufficient

As a new force in the automotive industry that insists on self-developing all aspects, manufactures core components for electric vehicles, and provides cloud-based solutions for connected cars, Zero Run will continue to increase its R&D investment.

In the third quarter of this year, Zero Run's R&D expenses reached 474 million yuan, an increase of 17.3% YoY and 15.6% QoQ. Fortunately, the growth in R&D expenses is indeed in line with the growth in sales and revenue for Zero Run, as well as its focus on pure electric and extended-range "dual-power" vehicles. Therefore, it is not a major issue.

However, compared to its competitors such as Xiaopeng, Li Auto, and NIO, whose quarterly R&D investments range from 1 to 3 billion yuan, Zero Run's level of R&D expenditure is not considered high.

Furthermore, due to Zero Run's positive operating cash flow for two consecutive quarters (27.6 billion yuan and 1.4 billion yuan in the second and third quarters of this year, respectively), the company's liquidity issues have been partially alleviated. As of the end of the third quarter, Zero Run had a total of 11.63 billion yuan in cash and cash equivalents, restricted cash, and bank time deposits, which has increased by 1.43 billion yuan compared to the second quarter.

Although the main factor contributing to this improvement is the government's subsidies for new energy vehicles, it is difficult to sustain this improvement as the subsidies phase out. However, it has provided some short-term relief for Zero Run.

The third-quarter performance of Zero Run has shown significant improvement, raising market expectations. However, whether the company can truly overcome its challenges remains to be seen. The market expects Zero Run to prove its success through concrete actions in the coming quarters.