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

Hello, everyone. Welcome to join Leapmotor Q1 call, and today's host, Yin Xinchi, Chief Auto Analyst at Citi Securities. Also online is Kangkai auto analyst of our team. Management's representatives is Mr. [ Li Peng Fei ], CFO of Leapmotor; Mr. Wu Qiang, Co-President; and Mr. Shen Ke, Board Secretary. First, Mr. Shen Ke will announce the disclaimer.

Thank you, distinguished investors. Good evening. This call may contain certain forward-looking statements, specifically, including, but not limited to, statements regarding the company's future financial position, strategies, objectives, metrics as well as the future market development that the company may participate in. These forward-looking statements are based on the company's current and future business development strategies as well as our assumptions about future business environment. It's inevitable that there are known or unknown risks and uncertainties. Factors beyond the company's anticipation and control may cause the company's actual performance and the performance of its industry to differ from the future performance expressly and implicitly indicated in these forward-looking statements. Thereby, we remind you, you shouldn't place undue reliance on these forward-looking statements discussed in this call. These statements only reflect the reviews of the company's management as of this call. The company has no obligation to update or revise any statements made during this call based on new information, future events or other circumstances. The forward-looking events discussed in this call may also not occur due to various uncertainties and assumptions. This disclaimer applies to all forward-looking statements mentioned in this call. I also remind stakeholders -- shareholders and potential investors, nothing in this call constitutes investment advice, nor does it form the basis of or evidence of any contract commitment or investment decisions or shareholders or potential investors should exercise rational judgment and act prudently when trading the company's shares. Next, let's invite Mr. Li Peng Fei to share the company's performance in the first quarter of 2025.

Good evening. I'm Li Peng Fei of Leapmotor. Next, I would like to report you on the Q1 2025 Leapmotor performance. First, financials in Q1, our -- the revenue is RMB 12 billion with an annual increase of about 187%. Our gross profit in Q1 reached a record high 14.9%, and the number in Q4 2024 was 13.3% and that's because our increased sales and optimized portfolio and that gave rise to a gross increase month-on-month. And right now, the net loss is about RMB 130 million. The number last year is about RMB 1 billion. The company has sufficient capital and right now, there is RMB 25.7 billion in our account and we are the fastest brand with the highest growth speed, and we rank top in Q1 C -- in Q1 the C car delivery volume reached about 60,000 units and we reached a milestone of delivering 700,000 units. The patents was released on 10th of April. As of today, it already delivered over tens of thousands of units. And we achieved a milestone of getting sales of 18,000 units. As to our products based on our LEAP 3.5 architecture is equipped with advanced smart driving and Qualcomm 8650 chips and Qualcomm 8295 chips, we achieved advanced premium experience, setting a good example for premium cars at the price of CNY 250,000. It has got 12 awards such as the China's first car to get a Green Design award. We also get a Golden Reward in a French design competition and get a reward in London design competition. B10 was released in Shanghai Auto showing the latest pursuit of young generation. It offers the optimal range and performance, providing a best option for the young generation among electric vehicles and is equipped with the 3.5 LEAP architecture. We also adjust the chassis together with the 220-kilowatt equipment, providing better driving experience. According to the car test indicators, Leapmotor performed the best performance, including the driving experience, the CTC battery passed the national certificate and we meet the GB 1 year in advance. All of our models passed the certificates and tests and our performance is higher than GB. In terms of R&D on 10th of March, we integrated our software and hardware. We use the Qualcomm 8650 chips, realizing an integration of smart cockpit. Our control domain has been deployed and integrated and we achieved upgrading of batteries and the thermal systems that highlights our competitiveness. We took only 6 months to integrate the Qualcomm 8650 chips into our 3.5 architecture with our self-developed assisted driving together with the LiDAR and Qualcomm 8650 chips, we are able to achieve urban comprehensive assisted driving function. We will enhance investment in smart driving with anticipated investment of over RMB 800 million and introduce more talent. As of the end of March, there are 449 service stores across China, covering 97 cities in China. Our N+1 models have been promoted in 2025 Q1. Our sales also increased by half. We will enhance our channels into second cities in China. It is expected that we will add over 80 cities of second level or below. We will speed up our implementation of city showrooms. In terms of retail sales in Q1, we continue to optimize our operating indicators. Compared with 2024, the efficiency increased 4%. We provide consulting services and the number reached 15,000 tonnes. Our Leapmotor improved in volume and quantity. In terms of services, we are committed to providing the best customer services, improving in standard customer service standards and restoring parts originated from the factory. We also provide digital metrics in Q1, we get significant achievements. We provide fast service response. Our response rate in 15 minutes reached about 99.4%, a significant increase. Our parts delivery in 48 hours also increased a lot. We also expand our operation overseas. We export -- the volume of exports of Leapmotor ranked Top 1 among the forces. Overseas, we set up over 500 networks with the function of sales and repairs with a month-on-month increase of over 50%. Together with Stellantis, we will use Stellantis existing factories in Malaysia. By the end of 2025, we will realize the localized assembling and manufacturing in Malaysia. We will also facilitate the localized manufacturing in Europe. In terms of social and environment management for 2 years, we got MSCI ESG international certificates. It shows our performance in environment, society and governance and be at the leading position in the industry. We are driven by technology and science. We commit ourselves to integrating technological innovation and social service. We donated RMB 5 million to institutes in Zhejiang Province to improve the livelihood of people, enabling people to enjoy a better life brought by advanced technology. We will respond to sustainable development around the world, creating long-term benefits to shareholders and parties interested. Next is our revenue, and our revenue is about RMB 10.02 billion due to better sales, or her indicators also improved our sales cost and gross profit margin. The sales cost is RMB 8.53 billion decrease 26.9% compared to Q4 last year. That's because of the off-season due to spring festival. Our Q1 margin is 14.9%. The improvement has been achieved due to higher sales and scale effect. We also optimized our portfolio. In terms of expenses, R&D expense is about RMB 800 million, an increase of about 53%, the year-on-year increase is because of greater investment in labor and the R&D cost. Our sales expense also increased -- decreased, year-on-year increase due to our seasonal marketing investments. Also due to more administrative person, this related expense also increased. The loss in Q4 2024 was about RMB 14 million, Q4 2024 the loss was about CNY 1 billion, the reduction of gross profit margin is larger than the reduction of sales. The net cash is RMB 340 million. Q4 the net cash is about CNY 2.24 billion. In Q1 it increased because of better management of operating cash. The month-on-month declined because of our better management. Free cash in Q1 also increased.

[Operator Instructions] We've seen in Q1, gross profit margin and other financial indicators are much higher than expectations. Based on it, what's our expectations of performance and the gross profit margin in Q2, whether you will raise your annual expected gross profit margin.

In Q1 our performance is robust especially compared with Q1 2024, there is a significant improvement. The overall sales reached 87,000 units. But in 2024, the overall sales in the first 6 months almost was 87,000 units. Of course, our gross profit margin is higher than last year, year-on-year. We also mentioned why we achieved such a high gross profit margin in Q1, that's one of the reasons is our strategic cooperation to complete vehicle, our gross profit margin in Q1 compared with Q4 last year, there is a minor adjustment. Our expectations for Q2 -- in Q2, we launched a new model on the 10th of April. Last month, we will launch a new model of C16 and our C11 updated model will also be released very soon. So we're facing the shift from old models to new models. Therefore, compared with Q1, I think gross profit margin in Q2 will decline slightly. But as to the sales in Q2, we expect it to maintain very robust. In Q1, the sales expected to reach from 130,000 to 140,000. So it's very positive. In Q2, we will try our best to realize breakeven in Q2 as to our annual targets. We also gave our annual guidance in the beginning of the year. The sales is about 500,000 to 600,000 units and the gross profit margin will close 10%. We will try our best to realize annual breakeven. Based on our performance in Q1, we are more confident that we will be able to achieve our annual objectives. We are confident that we will be able to do that and try our best. And right now, we don't have the intention of adjusting our annual objectives and guidance.

I'm Kangkai, auto analyst of Citic Securities. I would like to ask what's the percentage of revenue due to strategic cooperation. And what's your revenue from spare parts? And do you have guidance?

As to our strategic cooperation we signed agreements with our partners. So it's not convenient for me to tell you specific data. What I can tell you is the gross profit for complete vehicle in Q1 except the strategic cooperation, the level is very similar to that in 2024, a slight decline because the overall sales in Q1 is lower than Q4 in 2024. In Q1 2024, our C series was promoted by optimizing cost. This promotion cost was settled. So in Q1 2025, our gross profit margin maintains the trend in 2024. As to our strategic cooperation, I can tell you that our cooperation has been conducted smoothly. Our strategic projects have been conducted successfully and smoothly. Other future corporate strategic cooperation is under discussion.

My second question. You mentioned in Q2, you will release of release of new models such as C 11, C16 right now the cost is aggressive. We want to ask after the release of those models, whether gross profit margin will increase? Upgraded model of C Series for instance, B10 has already been released. We enhanced its functions, but price has been reduced. Our range has been increased. We also realized the 800 voltage high-pressure charging. Our price has been reduced considerably. This is in line with our mission is we want to benefit to the customer while maintaining our gross profit margin. Do we want to keep our development philosophy as to annual gross profit margin?

This practice enhanced, we can achieve our annual gross profit margin, this price is based on our annual gross profit margin target. There is a certain cycle for gross margin, B10 was released several months ago in Q2, affected by the release of new models, gross profit margin may be lowered, but in the long term, the gross profit margin will be raised to the level we anticipate.

Okay. I hope that our gross profit margin will be better and better.

Our assistance will see what's the online question.

The call [indiscernible] from Citic Securities.

I have 2 questions. First is Mr. Qiang mentioned, whether Mr. Li Peng Fei can tell us more what's the strategic corporation, what's the content? Well, Q1 gross profit margin is much higher than our expectations, but what's the gross profit margin for exported cars?

Well, to your first question about our strategic cooperation what's the project specifically in Q1, we got feedbacks from the market. According to our strategic agreement, it's clear that at this stage, our strategic projects are jointly developing products with our partners, leveraging our distinctive advantages, building a more competitive product. So that's mainly our corporation projects, which have a positive impact on our gross profit margin in Q1. As to gross profit margin for exported business. According to our agreement in the early stage, we pursue higher sales volume, shareholders from both sides agree that we want to increase sales volume instead of gross profit margin. That's why gross profit margin in this early stage isn't very high, but we will maintain certain gross margin to share the burden of R&D investments.

Second is about smart driving. You mentioned greater investments will be made to smart driving. I also like to know the market feedback. Our competitors also offer more subsidies and discounts to smart driving function, whether we will update our version of smart driving in the future?

As to smart driving, we've got a large number of smart driving orders, customers are highly excited to our smart driving function. When we launch this model, we also said that our smart driving products will be released by the end of May, or the beginning of June. Right now, we don't get any feedback. As to smart driving used in our previous existing products, feedback are positive. Right now we need to ensure the safety and the maturity of smart driving. On top of it, we want to enable customers to use smart driving while ensuring safety. As to pricing, our strategy is consistent, we wouldn't be affected by our competitors. Well, of course, we will keep a close eye on the strategy of our competitors, but for the promoter, we uphold our logic and keep consistency in pricing. We don't have the intention of adjusting price of smart driving right now. Okay, next question.

I'm [indiscernible] Securities. First, I would like to know the product strategy B10, C11, C16 it has total advantage in SUV market, so how we can optimize the cost and enhance overall sales volume to the maximum level? That's my first question.

B10, C11, C16, in 2024, when C16, was launched to the market. And now there are 3 models in the market. We've seen certain feedback from the market. These 3 models in April 2024 monthly sales all exceeded over 10,000 units. We realized the performance of 1 plus 1 plus 1 plus 1 higher than 3 is the 3 SUV models. Our target audience is different. Our promotion, marketing, strategies, also are difference for these 3 models. Each model focuses on separate market. And 3 of them are leading one of the best-performing models in its respective market. And the sales of these 3 models rank among the top levels in each segment. So I don't think that's something we need to worry about.

Second question is about overseas market. I would like to invite you to progress in overseas products in the face of tariffs, please introduce briefly what's the price of overseas products? Right now, it's a little bit aggressive in 2025 and 2026, we can be more conservative because the priority for Leapmotor is to seize market first.

Sorry, I didn't hear you clearly due to poor Internet connection. Could you repeat your question? Your second question.

Yes. My second question is about your overseas factory? And how would you come back to the tariffs? With motor International, whether your priorities to seize the markets first?

And your question basically covers the most important issue for our overseas business. I think as to our overseas factories in Malaysia, together with Stellantis, Malaysian factory project has already been initiated. Results will be seen by the end of this year in Europe, where projects are about to be initiated. It's expected that in the mid of next year, we will realize mass production in Europe. Thanks to our partner, Stellantis, localization overseas is far faster than our domestic competitors. Second, tariffs, how we handle increased tariffs. Well, that's not an issue faced by Leapmotor alone. All companies that export their engine based face the same issue. Well, we follow the rule of market based on fluctuations of market price, we determine our own price. Our price in Europe is basically based on Leapmotor's position in the overseas market based on how fierce competition is in the overseas market. On the one hand, we consider [indiscernible] Leapmotor profits, but also we want to expand our overseas market quickly and build our reputation, price overseas relies on our overall strategy and position. Price will be determined by Leapmotor's position overseas. In the beginning of Leapmotor International, we don't expect that we can make a lot of money in the early stage. What we want is we use the profit to further expand market to accelerate our efforts to take more shares and enhance our sales volume globally, enhance our awareness and reputation. This year and next year, return of investment of Leapmotor International to be significant. Next question.

I'm [ Song Tingting from Guotai Haitong ]. Congratulations on your greater performance in Q1. I have two questions about overseas business. First, in April, performance of Leapmotor International is also very strong. The sales is about 6,000 units. I would like to ask if you have any data about the end market. In April, the wholesale volume is about 5,000 to 6,000 units.

Well, it's impacted by certain factors. In April, our EV version of C10 was sold to overseas market. We have sales for other models. Globally, our end sales is about 3,000 units overseas. 3,000 I mean end sales and that's for April alone. The global auto market varies from country to country, infrastructure, users habits and other situations are different across different countries. So I would like to ask in several different markets, will we adjust our models to better adapt to the local environment. Yes, of course, there will be differentiated features in different markets. We face different rules and regulations in different markets. We are talking about the global model. It doesn't mean we only focus on the European market. We also look at markets in the Middle East, South Africa and Asia Pacific region, we will adjust our models according to the futures market. But there is no significant changes based on specific requirements of the local market and specific rules and regulations, we will make minor changes. For instance, in the Middle East, air conditioning efficiencies and effect will be adjusted according to the local gov. In Brazil, we will adjust our REEV, in terms of emissions to better meet the local regulations requirements. So there wouldn't be significant changes, C10 to B10. We already gained experience in developing global models. Therefore, we are more experienced in adjusting models to better adapt to the local environment. Thanks to Stellantis support, they are deeply rooted in different markets. In terms of R&D, Stellantis can tell us what the local requirements and demands. So they help us to better adapt to the local markets at a faster pace.

Next question.

I'm [indiscernible]. Congratulations on your strong performance. I would like to follow up our strategic partner. What type of products are jointly developed by your strategic partners? Can you tell us the products?

Due to confidentiality I'm not able to disclose too much information.

Okay, understand. We also see cooperation from competitors with a high gross profit margin. So can you provide a range of gross profit margin? You mentioned in the future, strategic cooperation will be enhanced at Leapmotor so we can benchmark with others good gross profit margin.

Okay. I don't think it's meaningful for us to benchmark with other strategic cooperation. Purchase methods of strategic cooperation are different, and that would significantly impact on gross profit margin yield from strategic cooperation. We intend to refer to competitors in this industry because we don't know what's the purpose of their strategic cooperation. We can only know our purpose and the directions of strategic cooperation. We choose Stellantis and some domestic partners. We make decisions in a cautious way. We believe that cooperation is a win-win. Only when it's win-win, our partnership can be long term, whether it's with dealers, contractors and developers, we must achieve win-win results. Probably gross profit margin yield from corporation isn't as high as you expect, which we focus on these in-depth and long-term cooperation with them and complement each other, leverage our distinctive advantages for better competitiveness. Therefore, our robust can better adapt to the market. Therefore, gross profit margin from the perspective of corporation isn't close to that from our competitors.

Next question.

[indiscernible] Congratulations on your strong performance in Q1. First question, what's your target of channel stores, what is significant improvement in sales and efficiency. Also you introduced how to develop your channels. I would like to ask more details about your management and encouragement of end channels. Second, production arrangements, C10 has a lot of sales we faced the supply pressure of batteries, et cetera. And I know there is details so you will release more models. So I would like to ask how you would arrange your production.

Well, as to your first question, our target of channel, our sales channel, the number will exceed 1,000 stores. In Q1, there are about 800 stores very close to our target of 1,000. In terms of channel, Leapmotor, of course, the idea of win-win, we must achieve the win-win rate outs with dealers -- profit of dealers is one of our priorities. We must ensure that, in Q1 profit for dealers are at a leading position in the industry. Our dealership is also very active. We also need to consider the layout of channels and the quality. That's why we didn't speed up very fast. We ensure speed and quality at the same time, we will definitely achieve the targets of having 1,000 stores. Well, to the production arrangement, we are going digital. And right now, we also have a four live tracking from getting customers online, to test drive, to experience it in stores, et cetera. Right now we leverage digital tools to help us track the whole process and enhance our end retail service quality. We achieved some significant progress. Performance of new stores is very good and their sales volume enhanced very quickly. For your second question about the production, you also mentioned C10, there is certain pressure of battery supply, but this will be addressed by the end of May. Also the production arrangement issues, all of them will be addressed by the end of May. In June, there will be sufficient supply of batteries. You also mentioned B10, due to supply of materials, batteries and other spare parts. Right now, there is no concern. All those supply is sufficient. I would like to ask if the sales are very different in Tier 1, Tier 2, Tier 3 cities. Well, overall, it's very similar. Our channels right now concentrate on Tier 3 and Tier 4 cities or above. We are also penetrating into lower-tier cities. Well, relatively sales are -- sales volumes are very similar. Performance of store in different tiers of cities is also very good. Our purpose is making profit in each dealership. That's our target.

We have two -- we also have two online questions. The last two questions from online audience. [Operator Instructions]

[indiscernible] I would like to ask on the regulations and rules in Europe, whether it is launched or not.

Well, we don't get a paper document about this law in Europe due to U.S. and China, U.S., EU relations, any things are changing? We -- pay a lot of attention to related rules and regulations. Our partner, Stellantis has professional team in EU -- in Europe. They have professional teams responsible for legal issues. If there is any update, they will tell us and we will launch strategies accordingly, it will impact on parts produced in China. It will impact not only Chinese brands, but also European companies who produce in China and export overseas. We can get support from our partners. Therefore, we can get related information better and faster. We believe that when we enter the overseas market, whether it's Europe, Asia Pacific or South America, the final solution is localization. That's our overseas strategy, something we will uphold in the future. Whatever the changes, localization is a master choice when we enter the overseas market. Together with our partners in the joint venture, we've achieved this consensus. As you can see from our layout of overseas business and our arrangement of localization, we are making more efforts to realize localization.

Next question.

I would like to ask the LEAP 3.5 architecture compared with LEAP 3.0, how much cost can be saved?

LEAP 3.5 architecture has higher integration, which can reduce the number of parts required 3.5 architecture also offer better driving assistance and smart driving. We use 8650 chip in 3.5 architecture, realizing more robust functions cost has been lower -- cost has been reduced by about 30% to 40%.

And also Leapmotor International, I would like to ask what's the gross profit margin and the R&D investment.

Leapmotor International is a sales company. At this stage, it's a sales company. In the future, Leapmotor International may integrate sales and manufacturing. It's not an R&D company. Business model of Leapmotor International can be referred to domestic joint ventures such as Volkswagen joint venture in China. It's more about manufacturing and sales, not include R&D. Gross profit margin of Leapmotor International in September last year, as we started selling our margin maintained positive. We have -- our gross profit margin is small but maintained positive. Our gross profit margin has achieved a certain level at Leapmotor International. We want to use the money and the profit we make to invest in marketing and helping us to get more market shares. We don't expect to earn a lot of money from Leapmotor International. We hope that Leapmotor International can help us to promote our reputation and we can have a sharp increase in our global sales raising a high point in global, in EV market. That's our first strategy and target. If we can realize, I think high gross profit margin, you can see a problem in the long run. Thanks very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]