&#34;Boosting efficiency and setting off again&#34; - this was the slogan proposed by Zhu Jiangming, founder, chairman, and CEO of LEAPMOTOR (09863) at the company's seventh anniversary last year. This year marks the eighth year and the second year after the IPO, and the company has truly achieved improvements in quality and efficiency, gradually entering a new cycle of profitability.
According to Zhitong App, the development of new energy vehicles is booming, but the competition among brands is also fierce. It is rare for companies in the industry to achieve profitability. LEAPMOTOR stands out among many brands, not only ranking high in sales volume but also achieving gross profit. In 2023, the company's profitability has continued to improve on a quarterly basis, with positive gross profit achieved in Q3 and a gross profit margin of 1.2%. The sales volume remained strong in the first two months of Q4, and it is expected that the gross profit margin will further increase.
In the eighth anniversary letter titled &#34;Moving forward with unwavering determination,&#34; Zhu Jiangming mentioned that the company achieved the goal of positive gross profit in the third quarter ahead of schedule, demonstrating its ability to generate cash flow. He also emphasized the importance of continuous cost reduction, efficiency improvement, technological innovation, and internal strength training to continuously enhance the company's operational quality and market competitiveness, ultimately winning the marathon-like competition in the automotive industry.
In addition, the company has performed well in the capital market. In the secondary market, its market value has rebounded strongly in 2023, with a return rate of over 20% for shareholders. In the primary market, it has gained favor from institutional investors and industrial capital. In October, it introduced multinational giant Stellantis Group as a second shareholder and reached a strategic cooperation, jointly establishing LEAPMOTOR International and embarking on a global layout. With the support of overseas giants, LEAPMOTOR has a significant advantage in going global compared to its peers.
As LEAPMOTOR enters a new profitable cycle in the upcoming year of 2024, can it continue to lead the industry?
According to Zhitong App, LEAPMOTOR, with its strong overall self-developed product capabilities, has secured a spot in the top three of the monthly sales ranking. Adhering to the concept of &#34;fully meeting user needs and continuously surpassing user expectations,&#34; LEAPMOTOR has created pure electric and extended-range &#34;dual-power&#34; models, focusing on high cost-performance ratio. This allows users to enjoy luxury configurations worth over 400,000 yuan at a price range of 150,000 to 200,000 yuan, gaining recognition from users. From 2020 to 2022, the company's sales volume increased from 1.14 vehicles to 111,200 vehicles, a growth of 8.75 times. In the first 11 months of 2023, the sales volume reached 125,500 vehicles, surpassing the total sales of the previous year and surpassing Xiaopeng Motors.
In the industry, sales volume is king. In the first 11 months, LEAPMOTOR ranked among the top three new forces, second only to NIO and Xpeng. However, when looking at monthly sales, LEAPMOTOR has the potential to surpass them. Since the second quarter of this year, LEAPMOTOR's monthly sales have shown strong growth momentum, consistently ranking in the top three or even top two in the new energy vehicle sales charts. While Xpeng made a strong push in Q4, it lacked follow-through. According to a report released by a certain institution on weekly sales, LEAPMOTOR maintained its position in the top three for the first two weeks of December, while Xpeng experienced some decline.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492587475483.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492587475483.png"/>
Data source: Data released by major car companies
In the third quarter of 2023, LEAPMOTOR sold 44,300 vehicles, a year-on-year increase of 24.5%. Compared to Q1 and Q2, which saw growth rates of 318.3% and 30.33% respectively, this quarter achieved a historical high. The strong growth in sales has driven LEAPMOTOR's performance to maintain a high growth trend. From 2020 to 2022, the company's compound annual growth rate reached an impressive 443.06%. In the first three quarters of 2023, the company's revenue continued to grow, with Q3 revenue reaching 5.656 billion yuan, a year-on-year increase of 31.9%.
In fact, compared to other new energy vehicle manufacturers, LEAPMOTOR focuses more on creating high-quality products. Currently, they only have three models on sale: T03, C01, and C11. However, their sales consistently rank at the forefront. On the other hand, competitors like Xpeng have multiple models such as G3, P5, P7, G6, G9, and X7, which may give users the impression of selling the same product with different shells. The C11 model from LEAPMOTOR has a relatively high sales proportion, accounting for 61.8% in Q3. The key to its success lies in its high value-for-money proposition.
The C11 model comes in two versions: pure electric and extended range. The price of the pure electric version ranges from 155,800 to 209,800 yuan, while the extended range version ranges from 149,800 to 175,800 yuan. These prices are significantly lower than similarly equipped models, making it a popular choice for customers. The C11 extended range model is equipped with a large 43.7 kWh battery, which can achieve a range of over 300 km on pure electric mode. In comparison, the maximum range of competing extended range vehicles is generally within 200 km. For example, the Deep Blue S7 extended range model has a maximum 31.73 kWh power battery and a pure electric range of 200 km.
In addition to range, LEAPMOTOR has independently developed leading technologies in the areas of powertrain, battery, and intelligent systems. This is another reason why the C11 model sells well.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492602189388.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492602189388.png"/>
According to a research report by Zhejiang Securities, LEAPMOTOR has achieved independent research, design, and production of all core systems and electronic components of smart electric vehicles. The self-developed and self-produced components account for 70% of the total vehicle cost, and the platform architecture has undergone three iterations in five years. The company's clover-shaped central integrated electronic and electrical architecture combines one SOC chip and one MCU chip to create a central supercomputer, achieving deep integration of hardware and software, decoupling of hardware and software, and iterative layering of software. In terms of integration, it surpasses Xiaopeng's X-EEA electronic and electrical architecture, achieving a better intelligent driving experience.
Zhu Jiangming stated that the company adheres to the strategy of comprehensive self-research and development. In 2023, LEAPMOTOR released the &#34;clover&#34; central integrated electronic and electrical architecture, realizing the industry's first integration of four domains, laying a solid foundation for truly realizing software-defined cars and entering the LEAP3.0 technology era. The company has also established a moat in the field of smart electric vehicle technology, enabling continuous cost reduction and efficiency improvement, and providing users with products that have high value for money and superior configurations.
Under the strategy of comprehensive self-research and development, LEAPMOTOR's technological advantages drive its leading sales volume, while cost advantages drive continuous optimization of profitability, entering a positive profit cycle and becoming a leader in the industry.
Profitability has improved beyond industry peers, entering a new profit cycle
Zhitong App has learned that LEAPMOTOR has continued to accelerate and improve its profitability in 2023. In fact, this year's price war has been intense, with major automakers, especially new players, significantly reducing prices or offering discounts and benefits to gain market share and sacrifice profits for growth. The impact of the price war on profitability is significant. Taking a new player in the same sales tier as an example, the gross profit margin was 13.53% in Q3 of last year, but has been continuously losing money in Q2 of this year.
However, LEAPMOTOR has been able to maintain and improve profitability against the trend, with the gross profit margin rising from -8.9% in Q3 of last year to 1.2% in Q3 of this year, achieving its first positive result. The company's profitability has increased due to its products' higher competitiveness compared to industry peers under the comprehensive self-research strategy, as well as its cost advantages and high value for money. Additionally, the company set the goal of improving efficiency at its seventh anniversary and has made significant progress in reducing costs and improving efficiency.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492641530923.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492641530923.png"/>
Data Source: Company Earnings Report
It is worth mentioning that LEAPMOTOR's various expenses are also trending towards optimization. In Q3 2023, the expense ratio (sales, administrative, and research and development) was 19.9%, a YoY decrease of 3.7 percentage points. Compared to Q1 and Q2 of this year, it decreased by 48.4 and 4.2 percentage points, respectively. The sales volume of major car companies in Q1 was relatively weak, resulting in higher expense ratios. However, they have all decreased afterwards. In comparison, LEAPMOTOR has stronger cost control capabilities, with Q3 and the first three quarters' expense ratios being 15.2 and 21.16 percentage points lower than a certain brand of new forces, respectively.
The most significant characteristic of most new energy brands is that their net cash flow from operations is generally negative, and investment expansion requires continuous financing to fill the gap. LEAPMOTOR has undergone a qualitative change this year, and with improved profitability, its net cash flow from operations has achieved a net inflow. In Q3 of this year, it achieved a net amount of 1.4 billion yuan, and together with Q2, a total of 4.162 billion yuan of net inflow. If this trend continues, the company will be able to break free from financing dependence by 2024 and meet its capital expenditure needs through net cash flow from operations.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492661263390.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492661263390.png"/>
Data Source: Company Earnings Report
Note: The expense ratio refers to the combined ratio of sales, administrative, and research and development expenses.
Ample cash flow meets the company's needs for technological research and development, capacity expansion, and overseas market development. Based on the average net investment outflow of the company in the past two years, it can meet the net investment needs of nearly ten years without considering operating cash replenishment.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492678586540.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="image.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20231225/1703492678586540.png"/>
Cooperating with Stellantis to expand the global market and drive valuation adjustment through high growth performance
The competition in the new energy vehicle industry is fierce, and the trend of cross-border cooperation in new energy technology and sales is accelerating. In the rapidly changing market environment, strong alliances are formed to seize the global market. The cooperation between Volkswagen and Xiaopeng, as well as LEAPMOTOR and Stellantis, confirms this trend.
Compared to the cooperation between Volkswagen and Xiaopeng, the cooperation between LEAPMOTOR and Stellantis is more deeply bound. Firstly, Stellantis has become its second largest shareholder, playing a more important role in the company's development. Secondly, the scope of cooperation is broader. Volkswagen and Xiaopeng mainly launch models for the domestic market, while LEAPMOTOR and Stellantis target the global market and jointly establish &#34;LEAPMOTOR International&#34;. With the endorsement of Stellantis, LEAPMOTOR has significant advantages in overseas markets.
Zhu Jiangming stated that in the future, relying on Stellantis' global business network, LEAPMOTOR is expected to quickly open up international markets and create an international brand worldwide.
According to the plan, LEAPMOTOR International will be responsible for the overseas sales of existing mass-produced models as well as future models. Stellantis has disclosed that LEAPMOTOR has planned for more than 10 models in the mid-term, with a focus on the European market initially and expanding to the global market after 2025. LEAPMOTOR's first global model under the LEAP 3.0 technology architecture, the C10, is the industry's first intelligent electric vehicle to use the Qualcomm Snapdragon 8295 chip. With a vehicle torsional stiffness of up to 42,500 N.m/deg, it surpasses some million-dollar luxury cars and has participated in exhibitions both domestically and overseas. It is scheduled to be delivered domestically in the first quarter of 2024 and plans to enter the European market in the third quarter, which will be a key step in its overseas expansion.
Overall, LEAPMOTOR is in a leading position in terms of sales, growth, and profitability in the industry. It has achieved comprehensive improvement and efficiency enhancement this year and entered a new profit cycle in Q3. It is expected to maintain profitability in Q4 and 2024. With self-developed products and steadily expanding production capacity, as well as strategic cooperation with Stellantis, LEAPMOTOR is poised to open up the global market. It faces a vast ocean of opportunities and has a high-growth performance with certainty.
In the capital market, investors hold an optimistic attitude towards the company's development, driving the continuous increase in market value. However, compared to the valuations of other new players in the automotive industry, LEAPMOTOR is clearly undervalued. As its performance is released, its valuation will also be further adjusted.

09863

LEAPMOTOR has entered a new cycle of profitability in its eighth year, with both sales and profitability leading the industry. It is expected to maintain its profitability in 2024. The company has gained favor from investors and industry capital, performing strongly in the capital market with a market value increase of over 20%. At the same time, LEAPMOTOR has formed a strategic partnership with Stellantis Group, embarking on a global layout. The company's products are powerful, focusing on pure electric + extended range "dual-power" models, and have gained recognition from users for their high value-for-money. In the upcoming year of 2024, LEAPMOTOR is expected to continue leading the industry.

LEAPMOTOR's 8th Anniversary: Leading Sales, New High Market Value, Entering a New Profit Cycle