Zhejiang Leapmotor Technology Co., Ltd. (9863) Earnings Call Transcript & Summary

Good evening. I'm your host Danny Ling from CICC Auto. We also and my colleague, Xue Deng and my colleague [indiscernible]. Welcome to the 2024 Q3 Earnings Call for Leapmotor. Present today with Leapmotor Founder, CEO and Chairman, Mr. Zhu Jiangming; Co-President, Mr. Wu Qiang; also for Shen Ke, Board Secretary. First of all, we're going to have Mr. Shen Ke, Secretary, to read the disclaimer.

Thank you. Dear investors, good evening. The earnings call of Leapmotor may include forward-looking statements, specifically including, but not limited to, statements regarding the company's future financial strategies, strategy objectives, targets and future market conditions in which the company participates or will participate. These forward-looking statements are based on the company's current and future business development strategies, and the company assumptions about the future business environment, which inevitably involve some known or unknown risks and uncertainties. These factors, which company cannot predict nor control, may cause the actual performance of the company and the performance of the industry in which the company operates to differ from the future performance expressed or implied in the forward-looking statements. Therefore, we cautioned that no undue reliance should be placed on the forward-looking statements discussed in this call. These statements only reflect the opinions of the company's management as of the date of this call, and the company undertakes no obligation to update or revise any statements made in this call in light of new information, future events or other circumstances. The forward-looking events discussed in this call may not occur due to various uncertainties and assumptions. The above disclaimer applies to all forward-looking statements made in this call. In addition, shareholders and potential investors are reminded that nothing contained in this earnings call constitute any investment advice, nor does it constitute the basis or ground for any contract, commitment or investment decisions. Shareholders and potential investors are advised to act with discretion and caution when trading the company's shares. Thank you.

Thank you, Mr. Shen. Now, may I ask Mr. Wu Qiang to cover our Q3 performance 2024?

Thank you. Good evening. Welcome to the Leapmotor Q3 2024 Earnings Call. On the slide, we have a PowerPoint slides, if you are able to see it, we'll likely use as a summary. First of all, in the third quarter, we have made many important progress. The third quarter delivery was 86,165, which is up by 61% Q-on-Q and 94% year-on-year. Among the delivered products, we're also seeing further optimization. In Q3, C-Series accounted for 78.3%. In terms of revenue, the third quarter revenue CNY 9.8 billion revenue represents 84% Q-on-Q and 74% growth year-on-year. And the GP margin in Q3 has improved to 8.1%. Compared with the first 9 months of the year averaged only 4.8%, that is a massive improvement. Therefore, the Q3 net loss has been massively narrow to only CNY 690 million. And also operating cash flow is steadily growing. The Q3 operation -- operating cash flow was CNY 1.96 billion. And we also have a lot of cash on hand at CNY 18.7 billion cash at hand. And also in Q3, in terms of channel buildup, we are further deploying our channels. As of end of September, the domestic sales outlet reached 493, and service outlets, 362. In overseas, based on our deployment by the end of October, in Europe, our distributor store will reach 339. So that is a basic summary. I'm going to provide a bit more details. Now, on this slide, we're looking at our monthly sales which is setting records month after month. And we can see from January to September this year and also October compared with 2023, we are seeing new highs we made every month. And also the models are seeing optimization of the model mix. From Q1, Q2, Q3, the C-Series contribution grew from 73% in Q1 to 75% Q2, and 78% Q3, so there was a constant improvement of product mix. So the first 9 months of the year, the total sales was 172.8 million units. And also on the 17th of October, we achieved the 500,000 units rolling out in the production line, a landmark event. In October, the sales of 38,100 and the order in October is over 40,000. C11, C10 and C16, the 3 SUV order exceed 10,000 each. C11,C10, C16, the 3 SUVs come together to an excellent product mix to meet consumer different needs. The 3 model continued to ramp up volume, so that Leapmotor is the only where we have over 10,000 orders for 3 SUVs in the range of CNY 100,000 to CNY 200,000. In terms of sales ranking, for many months, we are steadily among top 3 of sales. Among the start-ups, we're the top 3. In the last week of September, the weekly sales was over 10,000. So we are moving up to the second place of start-ups OEMs. Our overall business performance steadily grow and profitability also improved significantly, and we have positive operating cash flow and sufficient funding. You can see from the chart, in Q3, CNY 9.86 billion of sales, up by 84% Q-on-Q, 94% -- 74% year-on-year, thanks to the significant growth delivery and improvement of product mix. Q3, 8.1% also improved on GP margin compared to Q2, which is 2.8%. So you expect in 2024, the GP margin target will exceed our target, which is about average 5%. So the net loss of CNY 690 million compared to last year. The first one and second quarter has been massively narrow in terms of loss. It is because of the growth of sales and sale growth of revenue, improving our profit margin and control the costs. In Q3, operating cash flow, CNY 1.96 billion. Capital CapEx, CNY 640 million. So free cash flow was CNY 1.3 billion. So Q4 operating cash flow will continue to be positive, both operating and net cash. So all the financial metrics goes to show that, while Leapmotor continues to improve on almost all metrics. In terms of products, the company is launching C10, C16 and remodel C11, C01, we continue our deployment and deploying the latest technology so that we have completed the deployment or roll down of C lineups. So the 4 models of C-Series has formed a matrix in the price range of CNY 100,000 to CNY 200,000 that target different target markets, like 5-seater SUV, 6-seater SUV and 5-seater sedan. The 6-seater SUV, the C16 provide the spacious view of MPV, but also a style SUV, will be Qualcomm 8295 chip and also the X chips and LIDAR. The BEV model achieved a 800V silicon carbide high-voltage platform and 3-in-1 electric drive assembly, which have high performance, high efficiency, high intelligence and high lifespan. And also the first C10 that's designed by the 5-star standard, both in China and Europe, the C10 chassis tuning was in collaboration with Stellantis and Maserati team, to get to the premium car maneuverability. The company continue to build in China as the largest single market, but also expanding overseas, working with Stellantis, continue to expand. C03 and C10 have completed the European Union WVTA as a certification end of September, has been launched officially in Europe by Leapmotor International. C01 is also in large 5-seater is actually achieving top 5 in the NEV models, a great result. After the C-Series, in China and world, we're going to launch our new generation B-Series. The first model B10 has been making debut on the 14th of October in Paris car show, and also achieving great expectation and attention. This B10 is a compact SUV focused on CNY 100,000 to CNY 150,000 market. We expect by the Q1 2025, it's going to be launched in China. It's based on Leapmotor's brand new integrated intelligent 3.5 architecture, with Qualcomm 8295 chip, with AI large language model with LiDAR and Qualcomm's 8650 self-driving chip, to achieve the urban and expressway high -- advanced autonomous drive, assisted driving. LEAP 3.5 architecture using higher integrated central controller with high integration, multicore electric power drive system, with the new generation of control system. B-Series is going to face a large segment in China, it's going to be the great growth driver for the company in 2025. In terms of R&D, we performed OTA in July for all the upgrade for smart cockpit. And also AI model was launched in C10, so that we have the automobile systems, encyclopedia. So we are the first to launch AI model on this price range. In October, the OTA C10 also added 31 new features. After launch of C16, also, we have performed the first OTA push with 39 new features and optimization. Into the R&D, we'll continue to step up our R&D investment and achieve great progress. In the highway NAP and Urban NIC, we are now rolling out end-to-end large model smart driving system development. In talent recruitment, right now, we have 400 R&D engineers. By the end of the year is we're going to 500. In terms of AI computing, data infrastructure, we continue to build up the losses to make sure we have end-to-end AI large language model R&D and also multiple delivery by 2025. In terms of channel, we'll continue to have 1 plus 1 channel model to expand the channel expansion and the transformation. By the end of September, our sales cover -- with sales network coming to 204 cities, with 493 sales outlets and 362 service outlets, we expect over 700 outlets by the end of the year and over 400 service outlets by the end of the year. In terms of overseas, we were the fastest among all the Chinese EV makers to be implemented by C03, C10 in Europe by September. So this is a journey that describe the slide from this beginning of the nationalization; Leapmotor International, the launch of the 2 models and as well as the first B10 as historical trajectory. In overseas development, Stellantis helped Leapmotor products into the international market and providing support to the service -- customer services. As of October we have 339 distributor stores in Europe and they all have sales -- aftersales functionalities. Leapmotor International will deploy in Asia Pacific, Middle East, Africa, South America, forming a network of 500 stores. In Europe, aftersales spare part delivery is having a spare part depot, 5 spare part subdepots and 104 district distributing centers so that we have twice-a-day delivery through the service networks. So in Q4, let's say, if you were to make any outlook, there will be a continuing of the rapid growth and improvement of financial performance. In sales, based on the hot-selling C-Series product, we'll continue to grow our sales. We expect this year we're going to outperform our budget, which was 0.25 million unit sales this year. In Q4, there will be a continuation of rapid growth and better performance in finance. In GP margin, we're going to continue to be favorable GP margin since Q3. Net loss should be narrowing consistently. On the 15th November, in Guangzhou car show, we're going to make a big, big debut of the brand new 3.0 architecture, B-Series, which is B10. So those are the summary of the Q3. Let's have a discussion together with our Chairman, Zhu Jiangming. Thank you.

Thank you management for excellent sharing. We're going to allow more time for investors. Operators, how do we ask questions, please?

[Operator Instructions]

I'm [indiscernible]. Congratulations to excellent results. We are very happy to see the Q3, now your sales order, GP margin, cash flow or net profit, narrowing of the loss. We are seeing a very strong momentum. I have a few questions, starting with 2 questions. First of all, I'd like to ask, what's your view on the subsequent sales and GP margin, the latest guidance? Mr. Wu talked about the sales and GP margin, we should be beating our budget this year. So what kind of level can we expect? And also, what about next year? Do we have any new guidance for next year? And the second question has to do with your B-Series. After launch of B-Series, what's your capacity to find the CapEx guidance?

Let me take your first question regarding sales, because today is the middle of November already, and you can see October, there was excellent result. In October, we had 42,000 kind of order -- competitive order, which is we can expect that in Q4, the sales should be massively higher as well compared with Q3. So in terms of sales, we already have such a high base like 40,000 competitive order in October. So in the coming two months, I think the Chinese government policy continues. The sales are still being reported. When it comes to GP margin, we were talking about like Q3, we got to 8.1% on average that was keep getting better and better. So we expect in Q4, there should be even better performance. Now, in terms of guidance for the next year, because this is Q4, we are hopeful to get the 40,000 per month of sales over the full year. So we are aiming at 500,000 or even higher kind of as a target. We do have a foundation to aim that high, because we -- our C-Series in -- we are selling 10,000 every model. So next year, by middle of next year, C-Series, like we're going to further build on the product execution of C-Series. And also, we are talking about the launch of B-Series, which is a highlight for next year. We're going to be launching multiple model in a B-Series based on the B platform. So in terms of sales is also going to contribute to next year as a substantial boost because the B-Series had the 3 model -- our C-Series, is really the Class A model. The Class A is the biggest segment, CNY 150,000 price range. In China, this is still the largest selling segment. So therefore, Leapmotor next year and also the year beyond, we're going to be getting even greater potential for higher sales. So that was the C-Series. Now, when it comes to B-Series, it's a brand-new platform, which is based on the Leapmotor 3.5, the 3.5 architecture include autonomous driving, Copec, and with higher level of integration, the HPC central controller. We have highly integrated power, electric drive system and, obviously, DCD are integrated. So technology is even more integrated. We're using the latest generation of our in-house Leapmotor super-thermal management system. This is also something we're really looking forward to. So next year, the Leapmotor 3.5, the B-Series, the latest generation of technology. So in terms of cost, performance and reliability, the B-Series will keep scaling new highs. So I think with the addition of B-Series, the sales of Leapmotor next year should be something we can look forward to. Now regarding GP margin, now we continue to work on economic scale, and we work to improve efficiency, reduce cost. And? So it's going to be following the Leapmotor's objective, where we aim for 5% GP margin this year. Next year, about 10% GP margin. So that was roughly our guidance for you at this moment. But I think we can get there faster. We can get there faster and better. Second question about the B-Series capacity, well, because in production, well, our order delivery is subject to the capacity that we have 2 factories in Jinghua. Put together, it's about 40,000 -- a little bit more than 40,000 capacity. And it's fully loaded, it's fully utilized. So we are accelerating the new factory in Hangzhou. We believe we're going to build up a new capacity in Zhejiang of Hangzhou City. We hope by the first half of next year, it should be put into production. As the progress goes, things seem to be normal and on track. So I think capacity next year shouldn't be a problem. But also, we are thinking about the third factory in Jinhua. We are planning, quite busy planning. So maybe end of next year or early beginning of the -- end of -- the beginning in next year, it could it be a third factory. We're planning for 1 million units. So that was our plan for capacity, but that will not happen until the end of next year. So in terms of capacity, we are leading the feature. We have sufficient support from the capacity supply.

Thank you. That was very clear. Given us a bit more confidence and something we look forward to. Perhaps we can have more time for analysts, investors. Can we get question from the line, please?

I'm Wu, Pingyue from Citic Securities. Congratulations to the company, once again improving your upward momentum and your capability. I have 2 questions for you. Related overseas, because we have seen that in October, you are there at the Paris car show. So my question is -- now the first question is, we look at the European sales, what are the target audience appealing to? And how do you convert the target audience? You see you have a fleet going on tour on Europe. What things -- what are you doing to persuade his European consumers to convert them? How are they interested? How appealing it is to consumer? Can you give some quantitative color to the sales? And secondly, we're looking at China and Europe, and the geopolitical strategy is really something we're looking into. So my question is, over the longer term, you are localizing in Europe, are you remain committed to localization in Europe? Regardless relation between China and Europe or regardless of other partners or change of partner, are you able to carry out the strategy of localization? Are you able to carry out and continue with the execution of the localization?

Okay. Thank you to your first question. As I mentioned, Europe, in May, we have set up the company. In March, we're starting to build a team in March. And in May, we have the team put together in September. Leapmotor, we have T03, C10 pass the European Union certification. At the same time, based on our partner, Stellantis, leveraging on the existing dealer distributor network. So very quickly in September, October, we are developing 350 distributor network and dealer network so that the cars are in the store now. So right now, in terms of the European distribution network, I think the network and the overall back-end service system, because we are using Stellantis, where they have existing dealers network, so we have that already. And we are not only selling the 2 models only because this is the original store. Because at Stellantis, they have 14 auto brands. So every dealer, they operate and carry multiple brands. So all they need to do is give some space to Leapmotor and place it into the showroom, and we can again generate sales. So this is the fastest way, the cheapest way, to get to launch in Europe and the build of our dealer network in Europe. That's the fastest way and the most cost-effective way. The 2 models, C10, it's the best seller China. We're selling 10,000 and 12,000 a month already, C10, 12,000 a month in China. So in Europe, it's a flagship model. It's a flagship for Europe because generally, the automotive demand. They like it to be compact, like C10, is a big model in China -- in Europe already. T03 is a kind of a delicate and small model, it's kind of an A00 class in Europe. Leapmotor -- the model strategy for Leapmotor is, first of all, we want to build up a benchmark. We want to use C10 to benchmark some of the best models in Europe, like Volkswagen ID.4 and Tesla Model Y. So they are at the same volume, similar performance. And also, we have even better intelligent features. So this is a flagship model by Leapmotor. And T03 was a volume driver. So as the moment, in terms of user acceptance, for the appearance, internal trim, texture, maneuverability, people are very happy. They are very happy. The sales is doing very well. We are -- I mean, in Q3, we have exported over 6,000 units. So the sales momentum has been excellent. Now, regarding geopolitics. Indeed, this is a delicate timing. This is not a good timing to go global because European Union just slabbed 20% more duty, so we have to pay 30% duty exporting to Europe. So this is making it a bit more difficult to sell to Europe. And Europe and global electrification is also seeing some headwinds in terms of geopoliticals and government's intentions, and also we have to pay 30% tax. But if you look at it in China, you can see the future. Electrification is irreversible. In the future, there's still going to be a lot of drivers to motivate them to further go electric, to go NEV. Because why NEV has been so successful in China because it has better maneuverability, drive better experience and lower cost of use and almost the same cost with ICE model. So naturally, it's a better product. It is a better product that's going to be a bigger market. So in many countries in the world, the oil versus the power is similar to China. The oil price versus electric tariff is similar. Like in Spain, oil and power is the same with China. It's all 1.5x, right? So whatever works in China, it should work in those countries. And with the Chinese NEV progression, the cost of the automobile will benefit from the economy of scale, and this will further penetrate to overseas. Now because of such a high tariff, as Leapmotor, we need to further accelerate our localization. We are even more determined because you have 30% tariff, you have to put in -- put a freight. At least a car will cause EUR 1,000 shipments from China to Europe. So everything put together, I think selling EV to Europe is almost not competitive even if we have the economy of scale. But if you are exporting whole cars, you don't really have a chance. So this is actually accelerating our resolution to go local. We're accelerating a suitable place using the Stellantis, Vintage and the local where they have existing manufacturing capabilities so that we can deploy localization production of Leapmotor automobiles. So I think that is what I'm just talking about. We are very good at 2 things. First of all, we have dealers network. We can quickly deploy in the dealer network with the lowest cost by using the system service network of Stellantis. So Leapmotor have -- we can deliver spare parts faster in Europe and in China. In China, it will take 48 hours in some place. But Leapmotor part can be delivered in Europe 24 hours, within 24 hours, in a day. So this is one thing. The other thing is Leapmotor is the best suited, among all the Chinese OEMs is best suited to be deploying localization production. For localized production, Leapmotor also have enjoyed a unique advantage.

That's very clear. I believe with localization, you definitely will play even better products to meet the demands. Thank you.

The next caller, 9596.

Okay. I'm auto analyst Liu, Yiming from Haitong Securities. First of all, we can see excellent -- you have excellent earnings and margin. We are very excited. I have two questions for you. First of all, we can see in some of the months, the European passenger car, NEV, we have seen some drops of sales. So I wonder, has the drop impacted or changed your shipment guidance or profit guidance for Europe? And secondly, you are all in the European car shows. So based on your observation, is there any change to the demand for EREVs in Europe? Now if we can see some observation of demand, would that impact your subsequent product rollout?

Yes. Thank you. Indeed, the European Union, Europe as a whole, the sales, we have some overall decline because they economy in Europe. We have war and everything, so they're declining. Of course, Leapmotor, we have set 8,000 to 10,000 -- 12,000 as our target. We remain confident in delivering the target. Because in Q3, we're already actually at over 6,000 units, and we also have like 12,000 unit order at hand. So Q4, if we are selling another 6,000, it's still quite possible. So first -- second thing about the profit, profitability indeed, because of the tariff, additional tariff, this is indeed cut away a lot of visibility. The biggest objective is, hopefully, we can drive their sales up so that we can reduce the impact to profitability. So in terms of the sales of Leapmotor in the future, I think within 2 years, we're going to be relying on the Chinese market. Because for overseas market, it takes time for them to get to understand a new brand, getting user buy-in and for the product to be rolled out completely. For every series, every segment you deploy, it takes a process. In doing so, we want to expand the economy of scale. We want to expand size. And as I mentioned, we hope to get to localize production as soon as possible. This will be helpful for supporting the cost and getting advantage from the cost perspective. Based on our model, our rapid deployment model, we are able to get to those advantage. Now the second question has to do with the EREV demand. We can see indeed, there was a significant demand for extended-range EV, because it depends on the habit, right? During weekend, they want to travel far, but normal days, they just travel in the urban city. So they do need a long-haul security. Like they can go to the Europe, there are lots of charging facilities, but many charging facilities are still not yet built. So they do need an EREV to support the longer range. And also because Europe, they are more demanding in terms of the drivability. I believe many analysts have been to Europe. Europe, they drive very fast. They drive so fast, so they are very demanding in terms of the maneuverability. This is exactly where EV come into play, because from 0 to 50, EV will be excellent to give that acceleration. Giving you better experience of driving. So EREV is a great fit for a market in Europe.

Next question from investor 0521.

I'm from Zhongtai Securities, auto analyst Junyi He. Congratulations again to excellent earnings results. I have 2 questions for you. First of all, GP margin, yes, there's a big improvement. You talk about product mix improvement, economies of scale. But is it possible to give a bit more color on attribution. I mean how much margin improvement come from economies of scale? How much coming from cost structure, a bit of attribution, please? And second question about intelligence. As you can see, first half next year, autonomous driving will be -- intelligence will be launched. So next year, are we able to see as a standard of it? Like B10, they do have some LIDAR, is it going to be available in all models? So if that's the case, what is your R&D investment next year? And how much we do expect to spend?

Right. First of all, on GP margin, we have been constantly driving down costs, using Leapmotor motivation to drive down cost in -- everywhere. Like everybody is involved working together without compromising quality. And even with improved quality, we're driving to -- we're trying to drive down costs. Secondly, economies of scale, this is quite a very significant driver. Because in third quarter, we have explosive growth, GP margin was so much higher. It's really because C10, C16. As I mentioned, the improvement in product mix. Because T03 was a smaller portion. We now have C11, C16, it's about 16,000 to 20,000 a month. T03, we intentionally cut back on T03 shipment. So this month, it's only 4,000. This month, 4,000, 5,000 T05, most of the sales will be high value. So -- for all the models, they are actually profit-making. So this is a product mix. And secondly, as I mentioned, C10 and C11, this is a platform model. They are excellent building on platform. 70% to 80% of the components are the same of the 2 model. You're looking at a 6-seater versus a 5-seater, but have you noticed many like hood or the lamp and front seat, they are all the same components? They share most of the components. This is really helping us with economies of scale. In the future, we're going to drive more towards the platform-based model. And also, we're going to drive up the advantage from economy scale. Because, indeed, our Q4 margin is something we're really looking forward to. Now, when it comes to intelligence, we have just talked about like from 2021, we are building intelligence team. We are shifting our way. We have the chips, we have hardware, we have the full stack in-house and camera and LIDAR. We have everything in-house. But from 2021, we're starting to focus on intelligence driving algorithm. We have reshuffled our team, built a new team. So after 3 years, we are now able to get close the level of tier 1 teams. We have over 500 people. Our NAP based on the first -- the latest OTA in October, we already have the LIDAR version. If you have LIDAR version, then the highway NAP is already best in class. It's still best in the industry. In terms of CD NOP was still developing. So by Q4 this year, in the last OTA, we're going to be opening up the OTA for point-to-point commuting. So here next year, next Q2, we hope that the stack at BEV, the urban, self-build map and autonomous driving will be made available. So by the end of next year, we're going to be completely stay abreast with a Tier 1 in terms of autonomous driving. We're going to be the first tier of autonomous driving. I think our progress and our capability, our talent reserve, we are able to get there. And also we're going to be popularized in talent driving. We want to make it more accessible. Because B10, which is the CNY 100,000 to CNY 150,000 model, even at B10, we are giving it LIDAR. We're giving LIDAR on that model. So we might be the fastest OEM to use Qualcomm 8650 for volume production. We're probably the first to be used on the first model B10, we're going to be giving you Qualcomm 8650, which is a chip that is better than our win from NVIDIA in computing power. And our power consumption is only 1/3 of NVIDIA, so it's a very competitive chip and we'll be the first to make it available on our models. So that we are able build Leapmotor's unique advantage in the hardware of autonomous driving or in talent driving.

Congratulations. I hope you're going to be even more successful in smart driving.

Next question for 9649.

I'm Ming from the Bank of America Securities. Two questions. First of all, a bit more color on your European capacity. Because, Mr. Zhu, you also showed up on the car show, you went to Europe and visited many places. So my question is, what about your partner, Stellantis? What about their capacity going online? What's the progress? When can we expect that we can see some localized production? And also, we should have a lot of components that are going to be locally sourced in Europe. So I wonder, Mr. Zhu, based on your visits in Europe, based on your observation of the progress and supplier there, how much of a fit is the European supplier of your parts?

Thank you. Making Europe or production in Europe, we have to comply with some of the domestic requirements. And also, we're going to comply with the local industry requirement. We talk about Stellantis, Stellantis, they have 36 factories worldwide and they have many factories in Europe. This is really helping us with the localization. It paves a very good foundation. In terms of capacity, Stellantis, they have Fiat, Chrysler and Citroën. So, therefore, they have a lot of factories. So we have enough options to choose from. We have to be selective, where we have relatively low cost of manufacturing, but also complying with the way of doing things in China so that we can actually -- so we're going to have better localization and better component supports. So we're looking to those sightings. I believe very soon, we're going to have some information, some news for you in the specific location of that capacity. Well, because we want to avoid European tariff, so we have to fit the 40% threshold of local production, 40%. It's not a simple assembly, these are real making local component, they have to be compliant with that threshold. So we have to take -- we have to do a lot of localization in Europe. Automobile is -- Europe is where automobile started. So they do have a lot of spare part component, one of supply in Europe, like chassis, component like Bosch and Continental. There are many suppliers in Europe already. So it's relatively easy to pick a nice supplier. So I think in terms of the progress, we are hoping that end of next year, before the end of next year, we're going to start localized production.

Got it. I have 1 more question. Because next year, you're going to have 3 models from the B-Series, can you roughly give us some color on the 3 models? Which quarter will be launched in China? And when can we expect to see the launch in Europe?

Well, in the Paris car show, this is the global debut of B10. In a couple of days, it's going to be showing the 3 models in Guangzhou car show, Guangzhou Auto Show. So next year, next April, B10 will be delivered with its first model. And this is going to be the first SUV. We also have a sedan, we have a sedan aiming at delivery by Q3. So the last model will be Q4. So basically, that's the pacing. In terms of overseas, it will be a quarter behind China, generally a quarter behind China.

Next caller, ended 0877.

I'm [indiscernible]. I have 2 questions. Again, related to the overseas presence. Mr. Zhu just mentioned, and you talk -- give a little bit -- quite a bit of detail. Because of the tariff, you still want to get to the -- I mean, for next year, you aim for CNY 100,000, how much will become of overseas? And what is your expected GP margin? Is it going to be a similar GP margin with the company's margin? Or is it going to be 10% for overseas production? And second question I'd like to ask to your smart driving. I mean if you're using like AI model, end-to-end, commuting, what about the cost per car? How much more does it have the cost? Because you look at the peers like visual solutions, they are making it available for models below CNY 200,000. So how do you compete with those guys? So these will be my 2 questions.

Right. As mentioned, last month, we got 40,000 of order in October. So to achieve 500,000 unit sales next year, we have a good confidence, and that's probably a very conservative target. As I mentioned, our next year GP margin has to be above 10% next year. So we can see Q3, we're getting 8.1%, very close to our target. So our target has been quite conservative. Like 500,000 and 10% margin. So that's our target. We might beat those expectations. We might well beat that target. So overseas overall margin, because of the current condition and before we have localized production, I think our GP margin is going to be similar China versus overseas. Otherwise, we cannot sell, because you have to pay 30% tariff and close to 10% freight, so that's 40% already. And you have to take away some margin, so it's going to be a very low gross margin. Otherwise, you are not able to sell. So for next year, I think we should have similar margin China versus overseas. Second question regarding smart driving. As you mentioned, you hope smart driving to be more democratized. To democratize smart driving, we're going to be launching the most competitive solution, as mentioned. The LEAP 3.5 base architecture -- the LEAP 3.5 is a high level of integration. The high integration, this is like central domain controller, smart driving, cockpit, infotainment. So 4 in 1, we have the 4 in 1 truly in 1 box. This is a further elevation of integration. At the same time, we're using the most competitive 8650 Qualcomm chip for smart driving. So we believe that our product will surely be very competitive.

Now, the caller ended 0749 -- 7490, please.

I'm from Zhongtai Auto. Congratulations for the results for Q3. I have 2 questions. First about overseas, Mr. Zhu, you just talked about Q3, you have exported 6,000 units and you have a 12,000 order backlog. So consumer in Europe, they have a different preference versus Chinese consumers. So I'm thinking like T03, C10, as the 2 models in Europe. What's the split between the 2? That will be my first question.

Right. Thank you. So because October, we have just started to sell October, so at the moment, like 20-80 or 30-70. Like 20% to 30%, C10. It vary from country to country. In some of the countries, they have higher C10, but at the moment, we just started. We are not seeing the good condition. I think it will not be 3 to 5 months later, because we foresee a more normal range, a normal rate.

Yes, on the second question because we're going to go to South America, Middle East and other regions, they're going to go global to a broader market. So I like to see after Europe, what are the regions that you are you're going to do more focused next year to expand? I mean among those markets, any planning for localized assembly?

Yes. Because we're not able to go to Europe. So other than China being the largest market, U.S. is the second largest, Europe the third largest. The rest are more fragmented, like Japan, Korea, where they have 4 million, 5 million apiece, but the rest are all fragmented. And India, India is actually have a lot of constraints to China. So we don't really have a lot of places to go to. So we thought in the future, South America should be a market that's definitely better. Like Australia is not a good market other than Europe. Middle East. Well, Middle East is another good destination. I think you saw this too.

Well, thank you. Maybe we -- it's time for us to take the last 2 questions, please.

Hi. I'm [indiscernible] auto analysts. You talked a lot about the plan for China and overseas. I have 2 questions, if I may. Mr. Zhu, you just mentioned that you have the Leapmotor 3.5 platform, a lot of advantage to the platform. In terms of cost cutting, we have the B-Series model on that platform. Is there any quantitative advantage to offer? And second question is about the B-platform sales planning. What are the plans for the B-Series? What do you think of the model ramp-up on B platform? Is it going to be having some impact on the gross margin?

Okay. For B platform, from the very beginning, we designed the platform to be excellent in cost. It's highly cost optimized. So I believe the B platform, well, compared with other peers, it's a highly competitive in cost. Like we have our own smart driving platform using 8295, 8650. That is the best optimal solution with the best value for money. Of course, it's only part of the picture, there are many details. I'm not able to provide all the details, but at least I can give you some confidence that the B platform is very cost advantageous. And also in itself, I want them to make sure they have GP margin, defended a level without compromising the overall GP margin of Leapmotor as a whole.

Got it. What about the sales planning. What do you plan for sales in a month?

Well, for BE platform, we have a high hope for B platform. So I'm not saying next year, but in the next 2 years, within next 2 years, we believe the B platform should get to or even exceed the sales of C platform.

All right. So it's been an hour since the call, and thanks to the management for your presence and thanks to all the investor analysts. We look forward to the next call with you. If there's any questions, feel free to reach out to IR team of Leapmotor. And that concludes the earnings call today. Thank you, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]