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

I'm your host, auto analyst from CICC. We are also joined by the Chief Analyst of CICC, Mr. Xue Deng with [indiscernible]. Welcome to the 2025 interim results conference call for Leapmotor. We're joined by CFO, Mr. Li TengFei, Joint President, Mr. Wu Qiang; and Board Secretary, Mr. Shen Ke from Leapmotor. Mr. Shen, read out the disclaimer, please.

Good evening, dear investors. I'm Shen Ke, Board Secretary of Leapmotor. The content of this earning call may contain certain forward-looking statements. Specifically, these include, but are not limited to statements regarding the company's future financial position, strategies, objectives, metrics and the future development of the market 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 assumptions made by the company regarding the future business. They inevitably involve certain known and unknown risks as well as uncertainties. Factors beyond the company's anticipation and control may cause the company's actual performance and the performance of the industry in which it operates to differ from the future performance expressed or implied in these forward-looking statements. Therefore, we hereby remind you that undue reliance should not be placed on the forward-looking statements discussed in this call. These statements reflect only the views of the company's management as of the date of this call. The company undertakes no obligation to update or revise any statements made in this call based on new information, future events or other circumstances. Furthermore, 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 mentioned in this call. Additionally, please note that nothing contained in this earnings conference call constitute any investment advice nor does it form basis or grounds for any contract undertaking or investment decision. Shareholders and potential investors are urged to exercise rational judgment and act with prudence when trading company shares. Back to you.

Thank you, Ms. Shen Ke. May I invite Mr. Li Tengfei to cover the interim result of 2025.

Good evening. I'm Li Tengfei. I'm now going to take you through Leapmotor's interim results in 2025. First of all, operational highlights. In the first half of 2025, the net profit in the half year was RMB 30 million. For the first time, we have net profit in the interim and becoming the second company in the EV start-up company to have interim profitability. In the first half, the GP margin was 14.1%, which is a historical new high since the foundation of the company. In the first half this year, the total delivery of the vehicles of company is at 221,664, which is #1 in the start-up brands in China. In July, the delivery hi another new high to 50,129 vehicles, becoming #1 for 5 consecutive months and also the only one, who deliver more than 50,000 units in 2025. In terms of financial, as of end of June, the income was RMB 24.25 billion. And the monthly GP margin was 14.1% -- Sorry, we're having some difficulty with the connection. Well, the growth of margin was really because of the economy scale from rising sales and also, we have continued to do cost management, thirdly, optimization of product mix, and also, fourthly, is revenue from other business. As of end of June, the attributable net profit was compared to the same period last year was a negative RMB 2.21 billion. So as of end of June, the attributable net profit was RMB 330 million compared with negative RMB 2 billion same period last year. So end of June, the operating net cash was RMB 2.86 billion and net cash compared with RMB 270 million net cash the same period 2024. As of end of June this year, the free cash flows are RMB 860 million compared with negative RMB 480 million same period last year. So our cash hand is abundant. As of end of June, the cash and cash equivalent recorded by fair value as well as the financial assets and bank deposits was RMB 29.58 billion. In terms of sales, in the first half 2025, the total sales were 221,664 units, which #1 in Chinese start-up EV brands and which is up by 155.7% compared to same period 2024. In July, we hit a new high with 50,129 units. For 5 consecutive months, we are #1 in the EV start-ups in China and the only one that delivered more than 50,000 in a month in 2025. And also in June, we have marked the delivery of 800,000 vehicles accumulatively as a milestone. Since the IPO was 13 months, the global delivery has been over 100,000 units. The monthly delivery was more than 14,000. So in June, C11 accumulated sales reached more than 250,000 and C16 for 8 consecutive weeks, they have been ranking top and mid- to large SUVs and C10, we have also -- has been really the first one to be the fast to deliver more than 10,000 a month, that really speak to the sales and brand capabilities. And B01 since launching 24 in June -- July. Within 72 hours, we have more than 10,000 orders. And within -- and also we're going to see some even new sales in terms of the B10. So in terms of new product launch out of the B platform, we have been performing facelifts of the 3 models under the C platform, further enriching the product matrix to deliver diversified demand. All these models are based on the LEAP 3.5 architecture providing most cutting-edge technology and also -- we are also achieving end-to-end assisted driving in SUV for RMB 120,000 with LiDAR and Qualcomm 8650. Since the launch in a month, we have actually achieved awards in 18 awards and also in terms including the latest standards awards, the Comfort Star, EV [ copic ] energy efficiency award and also the first to get the Green Design Award in the national CMS Design and was the first to have the American Design Platinum Award and also the first want to get the platinum at the Golden Award for French Design. Leapmotor is also launching on the 24th of July, a high-quality sedan facing young individuals and young family with the leading 650-kilometer super long range, super luxury with multiple features, including the flat tire control, stability control and also a comprehensive capability to make its way into Class A sedans with disruptive productivity. The new model -- Well, we have launched in the 15th of May and attaching 800V high-voltage lighter end-to-end assist driving and also the chassis technology that is only seen in a middle class million class kind of vehicle and make it in the way the RMB 140,000, which is the only product that gives you 600-kilometer range with the 800 volts fast charging, retuning the chassis with 220-kilowatt high voltage. We're better driving pleasure and experience. And C10 has been getting 5-star safety in China, Europe and Australia and getting multiple design awards internationally. And also, we have the only one that are using CTC2.0 and 800V products, which is a brand-new 6-seater and 5-seater SUV. And also the C11, based on the milestone of 250,000 unit sales, we have a new face leap on the 10th of July compared with the original C11 is actually we have over 110 new experiences with 125 spec upgrades. And also by the end of month, we're also going to hit the midsize SUV market with RMB 150,000 to RMB 200,000 vehicles fitted with LiDAR and 800-volt charging. In terms of R&D, on the 10th of March, the company launched LEAP 3.5 architecture used in Qualcomm 8650 and Qualcomm 8295 smart topic portfolio, redefining the assisted-driving placing domain controller under total controllers so that we have the highest concentration of central mobility where also the battery thermal management and chassis upgrade. In the first half 2025, we continue to invest in R&D. We have increased the size of competing resources 100% and we have deployed end-to-end algorithm city NOA navigation, and also, we are also developing the LEAP 3.5 with Qualcomm 8650 assisted-driving solution. It took us only 6 months to deliver this application and make it available on the platform Bs. So we're going to continue to invest in R&D and in 2025, we're going to completely really achieve the urban assisted driving. So our full domain natural AR-HUD has been fitted on the brand-new C11 with a maximum 60-inch VR hood supporting 3 modes switching and urban -- smart urban management that in the future is going to cover the main models under the C platform. And also based on our advantage in optical imaging technology, we are leveraging the start-up team with experience in the surveillance and security industry. We're making sure we get high-quality imaging and cost advantage. And also, we have the full domain in-house R&D in terms of VR algorithm integrating efficient ADAS, smart cockpit and HUD systems, we are able to deliver the product with a shortened development cycle, enhancing interaction experience. In the first half of this year, we are improving comprehensive efficiency by about 1% by optimizing the process, components, cooling system, electric motor, battery, control and other dimensions. We continue to leading the industry by our professional and comprehensive efficiency. The new generation compressor is the volume production and optimizing NVH, reaching the best level of performance in the industry. Our battery was the first to be recognized to meet the new national standard for Power EV. We have got accreditation with the most stringent national security certificate ahead of the schedule by 1 year and also based on the most rigorous standard, our battery has surpassed 1,029 safety tests and also 128 stringent performance tests. And also with all the models on the Leapmotor, we are now developing over 250,000 sets of C4 -- CTC2.0 batteries setting new standards with ultra safety, ultra faster, ultra intelligence, ultra performance and ultra intelligence. In terms of sales as of end of June, we are covering 286 cities in the sales network, which is 88 cities more than last year. We are deploying 806 sales outlets. So we are building different core distributors with the financial programs in the first half, the same shop performance has been ceded by 82%. In the second half of the year, we'll continue to deploy Tier 1, Tier 2 cities. And also, we're going to penetrate in the city where we are not present -- represented so that we can improve the coverage, quality and performance of the channel. Expected by the end of 2025, we're going to cover another 60 cities as the coverage of the cities in the country will improve to 90%, improving brand coverage. We'll continue to deploy our central store and urban showroom deployment to penetrate into core retailers. In terms of retail, we're deploying a full-chain digital marketing service system, building a user-centric operating system, integrating online, offline servers data points to provide seamless coverage of the full scenario experience based -- the smart tools based on DMP, we are actually delivering the full-life cycle, full-chain, full-scenario application, driving business practice with data and standardized procedures. And also the 360 system solution provide full data visibility in the process and also establish industry benchmark in operational efficiency. In the first half of the year, we comprehensively enhance our core leadership metrics and also we are seeing a 5% improvement from the operational efficiency. The outlet operation efficiency improved at 27%. And in terms of services, in the first half of the year, we continue to get excellent results. Our fast response rate within 15 minutes was 99.5%, which is 9 percentage points higher year-on-year and also the onetime repair rate or the maintenance of vehicle rose to 98.3%, which is up by 4.4 percentage points month-on-month. And also the spare parts supply within 48 hours, that ratio was 91.5%, which is also up by 14.3% compared to last period. In the second half, we'll continue to focus on the service philosophy, building systematic performance, enhancing customer services. In terms of capital strategy, we actually signed strategic collaboration with the China FAW. We're going to play out our advantage and technology to jointly develop the NEV passenger vehicle and components and parts. Actually, the -- our new model has been launched. We are now present with the subsequent work with the joint model with FAW. We are also exploring feasibility of capital collaboration so that we can achieve the full industrial resources synergies. On the 26th of March, the CSRC has issued approval for the Zhejiang Bank technology company to issue a Leapmotor to issue a private placement of stocks. The bank is proved to submit the private placement on the 25th of June. The bank's AGM has passed revised Article of Association so that the capital registration can be increased, and that was in progress. In terms of globalization in the first half 2025, the company exported 20,370 units at export vehicle, which is #1 in startups. In June, Leapmotor's market share in Germany is over 1%. In July, more than 4,000 European users has placed orders for Leapmotor products with just a historical high. The first B10 has been launched in June. And also they are being shown in September. And also, our -- we are continuing to expand our brand influences overseas. And also, in terms of the German satisfaction survey, we're actually #1 as a new brand in terms of the automobile satisfaction in Germany. In June 12, multiple work, the overseas version of C10 and TO3 has been launched in Hong Kong, leading the world. And also the 1,500 Leapmotor Center was located in Hong Kong, further improving our global sales network. Hong Kong becomes an important hub connecting to Europe and Southeast Asia. As of end of June, Leapmotor International have over 600 outlets in Europe, Middle East, Africa and Asia Pacific, including 550 in Europe and 50 in Asia Pacific. We're quickly moving along international in the April 14 (sic) [April 16]. We announced with Stellantis to kick off the Leapmotor factory in Malaysia for the local assembly project, on the 7th of August. The first C10 was completed to be rolling off the line. And we plan that before the end of next year, 2026, we're going to build a localized production in Europe, further deploying global market landscape. In terms of ESG in the first half, we released the third report demonstrating our latest technology in sustainability. And in January this year, the company has received MSCI ESG AA rating for the second year in a row. That rating goes to show Leapmotor's leadership in environmental protection, social responsibility and corporate governance. In terms of technology for good, we continue to dedicate our technology innovation to social value creation. On the 26th of March, we donated RMB 5 million to the disabled foundation of Zhejiang Province, helping the province to support the public good projects to improve the quality of life and social participation for persons with disabilities, so that technological advancement can truly become an important force to promote social justice and achieving economic and environment benefits. Thank you. Again I leave the time for the audience for questions. Operator, how do you do questions?

[Operator Instructions]

Maybe I can start with a question -- 2 small questions. First of all, we have seen that this year Leapmotor sales was excellent. To our knowledge, the order was also pretty good. So just to ask you, first of all, regarding the sales. And what's the outlook in August and September in terms of sales? And for the long term, are you going to update your full year sales guidance? The second question is also the GP margin remained high in the first half -- a new high actually in GP margin. So what about the subsequent quarters, any outlooks?

Okay. So the first question regarding sales. A lot of people have seen like Mr. Zhu has posted yesterday. They said -- he said in the last weekend in 2 days, the order -- net order was over 6,200 over 2 days. So the sales was -- the momentum was excellent. So we expect the August and September sales will have a significant growth. The August sales compared with July, which was 50,000 units, we believe there's going to be a sharp rise compared with July. So in Q3, we expect the Q3 sales will be 170,000 to 180,000 units. Now when it comes to full year sales guidance, we have guided 500,000 to 600,000 units. Based on the performance of the first half, which was an excellent performance and based on our outlook in Q3 and in Q4, we believe the sales guidance will be adjusted to 580,000 to 650,000 units as a range. So that's the first question regarding sales. Second question regarding GP margin. Now overall GP margin in the first half maintained at a high level, 14% -- above 14%. So for the full year, we believe the first half, there is some seasonality. So second half should be better than first half. And also in the first half, we have had some older models where they are switching over to new models. So we believe the first half, the GP margin -- well, we believe second half does have potential to improve compared with the first half in terms of GP margin.

Okay. Just to follow up. What's the latest sales guideline? How much was the export and how much was domestic sales?

Well, the beginning of the year, we guided overseas sales, well, the -- we believe the guidance was not changed that much. So the new additional guidance was mostly was from the international market.

Okay. Can we take the question from the audience. Okay. Phone number ended 9350, you have the floor, please.

I'm Kang Kai from Citic Auto. Congratulations, strong earnings and also great results in the first half. I have 2 questions. First of all, we have seen like in the annual report, you said in the first half the year, the sales revenue growth was coming from the carbon credit trading. So my question is, the non-auto sales revenue, which is about RMB 1.1 billion. How much from the RMB 1.1 billion was actually -- how this is a split in the Q1, Q2? And how do you break it down?

Well, in terms of the carbon trading, indeed, in the first half, we have monetized some of the carbon trading, which fully demonstrated Leapmotor's collaboration with the Stellantis and advantage because the Stellantis in Europe has a lot of familiarity with the carbon trading operation. So this is really helping us to get to this trading level. So in the first half of the year, some of the transaction was about RMB 200 million to RMB 300 million in terms of amount, as I mentioned, RMB 1.1 billion of the non-auto sales revenue. So the carbon trading business are not entirely non-auto sales because this is only from a financial basis because the trading is also coming from the sales of cars. So there is some actually -- there is a collaboration coming from the collaboration, some come from the direct operation, which brought about some of the non-auto sales revenue.

I'd like to ask like the auto industry is now in the process of anti-evolution by the regulator. I think with that background, what is your pricing strategy and competition strategy? Would you revise them? Are you also going to use this opportunity of anti-evolution to get ready for better capabilities?

Yes, thank you for the question. Leapmotor is a Chinese carmaker. We highly support the government's and national policy. So we are fully supportive of the government's intention to correct some of the chaos of the industry. So Leapmotor, we are not going to go ahead with the evolution. We are not going to compete that is beyond the scope. So from the competitive angle, our sales, if you look at the pricing and the strategy, our GP margin was massively higher. So the model's GP margin has been very well protected. We are doing this with our own technical capability. Our capability of cost control and also to develop the pricing based on the strategy and our strategy for competition. So the overall strategy, I think we are nowhere near evolution. So we talk about supporting the 60-day payment terms in the industry. We talk about it in open venues that we have always been doing this 60-days payment principles. We don't really need the government to tell us to do this because as always -- what we have always been doing. So in terms of competition, we believe when it comes to anti-evolution, we are very supportive. We are fully in favor the government's intention to crack down evolution. It doesn't change our strategy because we were never on the side of the evolution.

Next question from phone number ended 1175.

Hello. This is Ming from BOFA Securities. I have 2 questions. First of all, regarding -- has the company guided any guidance -- latest guidance on expenses rates? Because you can see you have higher revenue rising fast, but your expense rate was dropping. So I wonder, based on the lasest sales guidance, can you update us on the expenses?

Well, here's a thing. We never guided -- we never openly guided the expenses rate. That's because as the sales expand quickly, the sales revenue is increasing and expenses and expense rate is actually dropping very fast. Like you said, we believe in the first half of the year, as the company sells overall performing better, the sales revenue continued to grow. As a result, the overall expenses -- well, in terms of absolute expenses is rising, but the expenses ratio will be dropping really fast.

Understood. My second question is about the overseas going global. Just to confirm, so like next year, you're going to start to produce vehicles locally in Europe. Is there any expectation of the sales contribution next year or the year after next? And what's more is Stellantis. They are still going to buy -- are they still going to purchase carbon credit for you next year or the year after next?

Okay. First of all, for overseas sales. In terms of overseas sales next year, we expect we're going to achieve a localized production in Europe next year. So the B-Series model will be the first to be localized in Europe. So we expect overseas sales will quickly rise. We expect that next year in Europe, the overseas sales is going to achieve doubling growth compared with the sales this year. And also, we hope we're going to double the growth next year because the overall speed of growth has been done in China. We believe in overseas, we can do it the same. So specifically, the overseas sales guidance, we still have to give it some time. We have to see the overseas sales performance in the second half of the year. As I said, last month in Europe, our sales was over 4,000 units. In Europe, the sales are growing really fast in Europe -- was faster than our expectation. So at this moment of time, I can only say what we are planning at this moment in terms of sales. However, based on the actual sales performance in the second half of the year, maybe we're going to update the market or revise our guidance later on in the second half of the year. In terms of credit purchase, the overall credit purchase in Europe was pursuant to some of its own rules. So our credit pool -- based on the credit pool as a rule, there was a 3-year term limit. And right now in Europe, now when it comes to carbon emissions, we believe in the next year or 2, the Stellantis Group included the main OEMs in Europe, they all need to purchase credits. That's our view.

Next question is from phone number ended 9915.

Hello, I'm [ Zhao Jain ], auto analysts from [ Guotai Tong ]. Congratulations to the company for outstanding results. Now Mr. Li Tengfei, you just said your full year sales will be revised to 580,000 to 650,000. So under this new sales target, what is the guidance of GP margin in the second half of the year? I didn't catch what you said just now because the line was unclear.

Well, in the second half of the year, GP margin, we believe is going to maintain the overall GP margin in the first half of the year, and we hope there could be a slight increase in GP margin because when we get to a certain size, we do expect a GP margin at around 15%. We hope to get close to that target.

Understood. Now for the full year, let's say, 15% GP margin, if that's the outlook. Are you talking about full year 15%?

Well, yes, that's probably the case. With the full year GP margin, we hope to be like 14% to 15% full year GP margin-wise.

Understood. Okay. My second question is for B05 and D-series product plans and the launch schedule, can you help us to sort it down?

Yes. For B05, Mr. Zhu next month is going to go to Germany in a Munich car show with the global debut of B05 in Munich. So in November this year, B05 will be launched in China. Now regarding the D-Series models -- well, this year marks the tenth anniversary of Leapmotor. So D-series is going to be the model that celebrates the 10-year anniversary that really put together all the experience and capability of Leapmotor that we built up in the last decade. It's going to be a heavyweight product. It's going to be launched soon. Probably by October this year, we're going to have the first public debut of D-Series models.

Understood. So you talk about you have revised the sales target this year. What about next year's sales guidance? Any rough guidance for next year?

Well, right now, in terms of the company, we are entirely confident to challenge the target of 1 million sales next year, 1 million units next year.

Okay, understood. Previously, there was a question when you answered that question you said next year, you're going to produce in Europe, starting with the B-series, just confirm that detail?

Yes, that's the plan. That's the plan. Next year, we're going to have B platform to be localized in Europe to be the first for localized production in Europe.

Okay. Next question is phone number ended 7074.

I'm Guosen [indiscernible]. My name is [indiscernible]. Just a follow-up with the previous question from other investors. While next year, you're going to challenge 1 million sales. Can you break it down for us the 1 million sales target? I mean the A-series, D-series and the current models, what is the rough split?

I apologize. Today is the 18th of August. It is still quite a distance from next year. Even though we do have some internal plan, but we still have to deal with any changes that might happen in the second half of the year. So there's no way for me to give you a breakdown of any sales of older models next year. Let me begin by talking about the current models. Those has been like B-series that has been launched and the C-series, we hope they're going to have some growth in sales next year. And secondly, next year, we're going to launch A platform, A platform and D platform. Now based on the tempo and the habit of Leapmotor, we hope A platform and D platform once launched, they're going to meet our expectation of sales. So A,B, C and D, the 4 platforms are going to contribute to the 1 million sales together. Specifically, the breakdown might not be available until later. We're going to talk to the market regarding any specific information.