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

[Audio Gap] Those forward-looking statements may be different. We remind all participants not to place undue reliance on the forward-looking statements discussed in this call. This discussion reflects the management's view only as of today, and the company assumes no obligation to update or revise them in light of new information, future events or other circumstances. The forward-looking events discussed may not occur due to various uncertainties and assumptions. While this disclaimer applies to all forward-looking statements mentioned in this call, I remind all shareholders and potential investors not presented in this earnings call constitute investment advice nor that they form the basis of any contract commitment or investment decision, please exercise independent judgment and caution when trading the company's shares.

Thank you. Next, I'm invite Tengfei to share the company's performance in the quarter 3 of 2025.

Good afternoon, I'm Li Tengfei. Next, I would like to report our performance in Q3. The net profit is CNY 150 million, I [indiscernible] CNY 180 million compare to the first 3 quarters [indiscernible] and gross profit margin is 14.5%, [ up ] 0.9 percentage points to Q2. Our delivery volumes rose to 170,000 and boosting the top line is [indiscernible] delivered over 70,000 units for [indiscernible] and our CNY revenue IS CNY 19.54 billion year-on-year [indiscernible] in Q3, gross profit margin is about 14.5%, year-on-year increase of about 8% compared to the 13.6% in Q2 is a significant improvement. In Q3, the net profit attributed to unitholders of company was CNY 150 million compared with the loss of CNY 690 million in the same quarter of 2024. The year-on-year increase in profit was mainly due to the increase in vehicle sales and the optimization of [indiscernible] revenue capacity. The complete analysis cash flow of CNY 4.88 billion from Operating activities in the third quarter and the cash flow was CNY 3.84 billion and the company has ample funds on hand. As of September 2025, cash and cash equivalents were restricted including financial assets measured at fair value through profit or loss. in Q3 2025, the company's sales [ ratio ] 173,000 units, a year-on-on increase of 101% and month on month increase of about 29%. The company's sales volume is down significantly in the third quarter reaching about [ 51,290 ] units in July, in August, there was 57,000 units sales sold; in September, it reached 66,657 units; in October, monthly sales exceeded 70,000, for the first time, reaching 70,289 units, the year-on-year growth of 84%, ranking first in sales for 8 consecutive months and it's the first new -- first company to launch a model with over 70,000 monthly sales. It's Cumulative sales exceeded 200,000 units in 18 months. In the first quarter of 2025, the average monthly sales volume reached 15,000 units; in October alone, the monthly sales volume exceed 20,000 units, the first product to reach a monthly sales volume of over 200,000 units. The model achieved explosive sales upon launch, with deliveries for 3 consecutive months. As of October 31, the cumulative sales exceed 64,000 units. And they have also achieved remarkable results with monthly sales exceeding 10,000 units. On September 25, [indiscernible] the historic moment of 1 millionth unit, especially the vehicles and [indiscernible] production line less than 1 year from the 500,000th unit to 1 millionth unit. This milestone not only records the company's remarkably development but also simplifies our systemic capabilities. On November 15, the company [indiscernible] its annual sales target of 500,000 units and half month ahead of schedule, is expected to have annual sales volume to exceed 600,000 units. Since its launch in 2021, C11 has accumulated sales of about 300,000 units, has become a market [indiscernible] product in the SUV segment. On July 10, the C11 [indiscernible] launched on a new market [indiscernible] achieving a comprehensive upgrade in styling, cockpit, [indiscernible] design and assisted driving [indiscernible] further consolidating its the benchmark status in C11 model in the mid-size SUV market. In October alone, the monthly sales volume exceeded 11,000 units and B01 model is positioned as a high intelligent design and it was launched on July 24. The 3 core elements of leading brands intelligence, comfort and safety are our core technologies based on the LEAP Motor 3.5 architecture. It adopts a combination solution of Qualcomm’s 8650 chip and Qualcomm’s 8295 intelligent chip. We support multiple ADAS functions with spacious design and comfortable feature reaching 86 points high accuracy rate and the interior is environment friendly and healthy with vertical [indiscernible] body for safety 48-hour thermal runway protection equipped with chassis jointly developed by China and Europe. Since the launch in April 2019, B01 has sold monthly 10,000 units. Since its launch, the all-around and fully equipped model has penetrated into compact sedan market. The Leapmotor, on 8th of September [indiscernible] Munich Motor show officially opened a new chapter and our LEAP 3.5 technology architecture, flagship intelligence platform with outstanding [indiscernible] and topnotch quality on November 7 and officially launched in China on November 27 to the global market for the second quarter of 2026. [indiscernible] D19 made it's debut in Shanghai attracting more market attention than expected. As the first model of the flagship, [indiscernible] bringing technology and experience to the CNY 300,000 from the flagship range intelligent driving control, safety, comfort and effective leadership [indiscernible] the shift in the value standard for full-size luxury SUV in the RMB 300,000 segment, truly making luxury accessible with the first model of the A-Series A10 will be unveiled at Guangzhou Auto Show on November 21. Positioned as an intelligent premium, long-range SUV, the A10 brings LIDAR and other exclusive performance that's exclusive and premium within CNY 100,000. For the first time [indiscernible] shift the competitive landscape of the mainstream commuting vehicles becoming a new benchmark for global compact SUV. We offer an attractive design philosophy and affordable price. With the launch of D series and A series, we will complete the comprehensive rollout of [indiscernible] targeting multiple market categories such as sedan, SUV, and complete automatic. In terms of R&D, new flagship technologies were released on October 16, the first enterprise loyalty enhancement version equipped with a large battery capable of delivering 500 kilometers of pure electric range of about 30 Celsus degrees. The vehicle innovatively adopts the intelligent 4-wheel drive system with the first launch of flagship model powered by dual electricity at 1000 kilo volt is [indiscernible] super hybrid battery pack and 1000 volts power system throughout the vehicle, is also equipped with the dual Qualcomms 8797 chip offering 1,280 TOPS computing power enabling ADAS, assistant driving the observation and is equipped with a flagship architecture with the 2.0 system featuring high-speed dual wheel higher and stable [indiscernible] videos higher, it's more functional and it's not only featured ultra-high-strength steel and 10-layers of battery safety protection and ADAS configurations. It also offer safety, flagship comfort features such as leather seats and 120-degree zero power seats. It's also the first time in the industry to integrate the vehicle-grade oxygen generator into the car. In 2025, in our summer test, we completed and passed over 2,900 various tests. It covers key items such as the charging speed in extremely hot environment and performance at high temperature air conditioners, extreme temperature 100 kilometer acceleration capacity and extreme temperature, explosion resistance parameters, other the conditions of high temperature and complex conditions with cumulative test mileage reached 1.15 million kilometers, truly reproducing the users' driving scenarios in extremely hot environment and comprehensively verifying environment. Since 2025, the company has brought the leading edge technologies to new users and upgrading 5 models, and safety features have been added and optimized, including commuting navigation [indiscernible] roadside driving recorders, et cetera. We also offer many other advanced packages such as commuting navigation assistance [indiscernible]. 2021 model and other older models, C11 and C01 series had undergone 4 OTA upgrades adding and optimizing [indiscernible] including mobile integration, bluetooth key strategies. As of September 30, 2025, the company's sales and service network has expanded to 292 cities, an increase compared to the same period of last year. A total of 866 sales stores and 493 service stores has been deployed. In terms of channel development, we have focused on introducing and expanding high quality resources [indiscernible] business clients for cultivating high quality investors and the new introduced ideas. From January to September 2025, our state operators and local strong players jointly established 120 new stores significantly driving improvements in sale and quality of various distribution channels. Year-on-year growth, it's growth reaching about 30% in retail in the first half of the year based on the folding digital marketing and service system of the previous year. The third quarter continued to deepen on the user integrated operation system achieved a significant improvement in terms of user efficiency and conversion quality to ensure seamless integration from online investment to offline experience which provides users with an integrated and valuable brand experience. And our onsite test-drive rate for the entire fleet has increased by 8.4 percentage points in terms of service. In 2025. The company continues to implement the service concept of Three quicks and Two Saves in vehicle maintenance relying on our globally developed technological advantages. We have launched the intelligent cloud diagnosis, providing proactive services to achieve fault diagnosis within seconds and service preparation, such volume increased by 4.8 percentage points in terms spare parts supply by establishing 1+7 warehouse distribution network and applying an intelligent inventory forecasting model, the 48-hour delivery rate was increased to about 92%, year-on-year increase of 25 percent points. In terms of globalization, we exported a total of about 3 17,397 units in the third quarter with cumulative export from January to September, reaching about 33,000 units, leading the new [indiscernible] segment with shipment volumes in September achieved the lead in the automotive market in several European countries such as Germany, Italy and France, ranking among the top 3 in terms of sales volume for Chinese new energy brands. In October, the number of overseas end customers signed contracts increased by over 100% compared to September. As of September 30, we led the international market with over 700 outlets both the sales and after sales and aftersales services functions have been established in international markets. We have about 30 countries, including Europe, Middle East, Africa and Asia Pac regions, has already [indiscernible] In October, over 1,000 European users placed orders highlighing the globalization efforts in 2026 [indiscernible]. In ESG, in September, the [indiscernible] automotive circular manufacturing was officially launched and put into operation. The center will effectively reduce resource consumption and carbon emissions. okay, let's go to Q&A.

Hello, I'm the host for today's session. And analyst from the [indiscernible] asked 2 questions. well, this year, we've seen that our cumulative deliveries in the market has exceeded 5000 units target for 2025 ahead of schedule. If we look ahead to the next year, which new products will launch and which products will be further enhanced to strengthen our capacity? My second question is about overseas. In 2025, you saw concurrent increase in the penetration rate of the new energy vehicles in Europe. The company sales volume in European export this year has also been very impressive. So I would like to ask whether the growth trend in exports can continue in 2026. 2 last year, the company's sales target for overseas markets, including the sales guidance and profit target. Well, there are many -- that's my 2 questions. So do you think you have launched a new product in 2026. In fact, one of them has already made, which is our platform for the [indiscernible] first model product [indiscernible] another product launched in 2026, the flagship products for the [indiscernible] will introduce in 2026. I mentioned that we will launch the first product of our A10 that also will be another flagship product next year. And A10 will be launched in the first half of next year in 2026. [indiscernible] model will be launched in 2026 and next very we will have 2 new A Series products. And with this, we'll also have new products into service. So our new products will be going to very soon [indiscernible] 2026 [indiscernible] leading products in March. [indiscernible] product which is our [indiscernible] launched at the end of this month. So there will be upgrades to existing products and the emergence of new products and this product will further enhance our capacity. The second question on overseas sales. As I mentioned, overall overseas sales in quarter 3 saw a significant increase compared to second quarter. I'm very pleased to inform that we achieved overseas sales in October and November and explosive growth. In October, our overseas sales order reached 12,000 units. In November, we expect to another -- to exceed 15,000 units as we roll out our entire C10 platform and continue to see new brand awareness in Europe, whether it's the continent as a whole or the individual regions after [indiscernible] familiar with and after our product launch, we will continue to achieve better sales. Looking ahead to 2026, we believe that based on the good momentum right now, we will continue to make progress -- good strides [indiscernible] progressing in this new markets such as countries in South Africa and the gradual rollout of products in other countries such as Middle East and Central Asia will also give us new momentum. So in the fourth quarter of this year, we expect hybrid growth. We expect the company's current sales target for overseas market to be between 100,000 and 150,000 units. That's our projection for the next expectation for next year.

[indiscernible] analyst from company asked first 2 questions So first is about confidentiality of the model [indiscernible] and also after the launch of the service, will there be any changes in our marketing and channel strategy and [indiscernible] approach rather is [indiscernible] high-end on attributes of our platform. That's my second question -- My first question. My second question is about the overseas platform and plan next year and the progress of our domestic market to help us to go out. And regarding the volume, we always have doubts about the entire overseas profitability. So could you share us more insights in those regards?

Thanks for your question. Well, the first question regarding our gross profit margin. As I mentioned, our company aim to maintain the gross profit margin of vehicle products of about 15%. And as we enter the high-end market, we want to achieve a higher gross profit margin, [indiscernible] products are currently priced at higher than the existing model. We not aim for even higher gross profit margin. And now [indiscernible] 50% and this level will fluctuate around -- fluctuate according to the market conditions and the overall type of the vehicle. Regarding the overall gross profit margin, we're considering how to finalize the level our -- responsible person stated that our leadership and management will always adhere to a high benchmark pricing, but we don't pursue particularly high gross profit margin for products with such attributes based on our current estimation. So the gross profit margin will range between 15% to 20%. To how to build our B platform. Well, by far, we think that the performance of the service is excellent since the launch in the Shanghai Auto Show. [indiscernible] successful And we also invite our Ke Shen to please our representatives. By far it has reached great success. So both with the industry and among our user community Mr. Ke Shen collaboration has received a high level of attention and that's an innovative manifestation on the B series, which we also understand to be our most advanced and most expensive product at present. Whether it's the brand promotion, channel strategy or the end-to-end process, we always have some ideas and approaches that go beyond what is currently on sale and that enable us to connect with the users.

Okay. And we will like to ask what's your outlook [indiscernible] overseas operations in 2026.

Well, we will have about 2 overseas projects [indiscernible] in 2026 and one project will be in Malaysia. [indiscernible] half of 2026 with localization projects soon will be set up. Our projects in Malaysia [indiscernible] localization product which is a [indiscernible] and in Malaysia our plan to further develop and we have made plans about what kinds of models should be exported to different markets. In terms of overseas, the profitability in 2026, friends who are familiar with this model know that it was [indiscernible] to our international markets. In the first 3 years going global we will maintain a relatively low gross profit margin. Once it expands, the international markets first, in 2026, our overseas gross profit margin will be very similar to the margin this year.

Okay. I hope that Leapmotor will achieve greater success and better performance.

Let's welcome the user with the ending numbers 2110 to ask questions.

I have 2 questions. First the new energy tax has been reduced [indiscernible] 5 questings. To subsidies, the trading subsidies for new energy vehicles also got reduced. In the segment of vehicles around CNY 200,000 are generally sensitive to subsidies. So I would like to how you would adjust to these changes to maintain or to reach your target of 1 million domestic users? And also I would like to ask in the future, whether you will focus on the domestic or the overseas market. You also mentioned in the overseas market when you will launch your first model.

Okay. You mentioned changes in the whole industry. It's expected that next year, there will be changes such as changes in the subsidies in purchase tax, et cetera. But at this point, we don't see for sure how changes will look like next year. So on the other hand, from my perspective, I don't think there will be significant changes next year. Next year in China, I believe that overall sales in urban areas [indiscernible] compare to this year. We can refer to the situation in 2022 and 2023. In 2023, the natural subsidies also changed and [indiscernible] subsidies will be phased out but the number of total sales hasn't changed significant compare to 2020 in China. For us, the China's new energy vehicle significantly and rapidly, whether there are subsidies or not Chinese new vehicles will go global and users will purchase it. And when all products are put together, it's for us to compete. In the long run, I think what matters is how to turn customers demand into real sales. At Leapmotor, we will closely follow up with the latest policy changes and to closely monitor our competitors measures. we will launch coping Strategies. On one hand, we want to enhance -- improve our own products to optimize our configurations and advance our technology and to develop our [indiscernible] advantages. That's how we can maintain our competitiveness. So don't have concerns whether we can achieve the 1 million sales target. We think we are confident that this 1 million sales target can be realized by next year. And at Leapmotor, we will make all efforts to realize this 1 million sales target. [indiscernible] tell the markets our sales target next year is 1 million so we have no use of [indiscernible] so we have to achieve it. We already the market target next year is we have no room. So we have to achieve it. You also mentioned our cooperation. We actually, this March, we announced a memorandum of understanding with our partners. So the overseas model is expected to be launched in the second half of next year. Mass production and sales will follow up after that. So the 2 partners now are currently working together advancing the progress of the new models and we rely on each other's strengths to offset weaknesses, to overcome difficulties together, whether it's in China or in overseas market, I believe the market is a [indiscernible] new car company, has its advantages but also faces challenges. We need to learn from traditional car makers and by working with FAW China, we can learn from a traditional company so they have strength in technology, in R&D production in creation and supply chain. So by working with WAF we can achieve joint progress and now we conduct in-depth exchanges and [indiscernible] in many areas, I believe that it's a good start and very soon, you will see our cooperation results.

next, the user with ending number 5006.

[indiscernible] I have 2 questions. The first question is could you tell more your sales in [indiscernible]. What's your sale revenue [indiscernible] in quarter 3. The first model has been sold very well in [indiscernible] sales ally continue to expand. And how do you expect the European market increase.

we work with Stellantis and in Europe, we have revenues from carbon credits in quarter 3. the number is about CNY 250 million. And we expect that in this quarter 4 -- this figure for quarter 4 will be either higher, since we expect the overall sales volume in quarter 4 will be greater than that in quarter 3 and And those carbon credits are directly linked with our sales and with our revenues. So it's expected that in quarter 4 the revenue cost by carbon credit will be about CNY 500 million. And your second question is about the inventory in Europe, well basically, our inventory is in line with the overall order as our new inventory is currently value lowed. And today -- by the end of October, I just finished the meeting this afternoon. So we are working with our dealers to see how we can further reduce the inventory to -- right now, the dealer's inventory is only between on 1,000 to 1,500 units. And you regarding our models with exports, there are also impacts on [indiscernible] including maritime trending and the customs clearing and many other issues. So overall, the inventory in Europe is quite low.

Okay. A follow-up question. Since the electronic parts from upstream have become more and more expensive, and we see the tighter supply chain, do you negotiate with the battery supplier to see if they can give us certain discounts and whether that will impact on your gross profit margin in 2026.

Well, yes, the raw materials for battery has become more and more expensive. I also heard about that from the media. We also talked with our suppliers and the leaders. According to the feedback from our suppliers, the price of the battery raw material fluctuates slightly, not significantly. So this wouldn't have a significant impact on the procurement price of the entire battery sales. And Leapmotor sales volume continue to increase and we have the scientific planning for the battery sales, we have a great variety of battery sales. And overall, our chip and battery platform is developed very well. Therefore, although our sales volume for this year is expected to be around 600,000 units, actually, the variety of our battery sales is much smaller than that of our competitors. Since the variety of our battery sales is low, it's good for our suppliers to produce and to supply. That's very good news for our battery suppliers. And we expect that the battery production line will be operating at full speed. So the capacity wouldn't be our concern. And we also have the manufacturing cost advantage in batteries. So on the basis of this year's good foundation, the overall cost of battery is expected to be even lower next year.

[indiscernible] auto analyst. I have several questions. You mentioned, maybe I heard it not correctly, but I remember you mentioned your income from carbon credit is about CNY 250 million. I would like to ask are there any other types of income, for instance, the revenue by authorizing or licensing to WAF? And the second question is your R&D expense, in which area you will further develop R&D and invest R&D expense. The first question is in the pure electric vehicle market, your competitors also [indiscernible] and cost competitive [indiscernible] to them.

First question in Q3 in addition to revenue from carbon credit other, we have revenues from other resources or from other business. for Your second question about our R&D expense, while we mainly focus on the first electric motor batteries and electronics [indiscernible] the tell too much details about where we invest in terms of R&D but here I would like to invite [indiscernible] and to experience our flagship. We also invest in 2 new products and next year, we will launch 4 new products . In 2027, we also have new products. So each year invest a lot to modify the existing products and launch new products that our R&D we will invest in future technologies We invest a lot to modify the investing production and ot launch low products and that where our our R&D investment goes. Third, we will invest in future technologies and to reserve the future technologies, especially technologies related to intelligent driving, in high tech electronics. We want to have fully self-develop the technologies. We want to upgrade the Leapmotor platform 3.5 to 4 or even higher versions. That also require a last month of R&D investments. The scale and the depth of our R&D also got expanded. As to your third question that's related to industrial competition, for instance, what's Leapmotor's competition strategy. Well, as you mentioned, the new energy market is now quite competitive. At Leapmotor, we also build the sales competition from the whole industry. But from the beginning to today, Leapmotor has got used to such fierce competition. If we don't face a promising market, so do our competitors what we should do is to focus on ourselves to improve our own products in the long run only when we can have fully self-developed technologies and the full stack, we can control cost and really establish outstanding capacities. Compared to our competitors, we will have a better platform-base capacity and the we'll be able to roll out new technologies and apply them in our products. We want to offer the most cost effective products the offer the best value for money, whether it's our A series or the most premium C series. Our attitude is always the same, attitude is always the same, which is to leverage our competitive advantages in cost effectiveness and to leverage technologies and us in our series models. Our advantages in cost and efficiency will continue to create high-value products. that's our principle as always, whether it's our A series, B series, or D series when faced with fierce competition and our competition strategy will be flexible according to the specific market conditions. We will adopt a more targeted approach based on different user group in our respective markets. But overall, we want to benefit our users. So the Leapmotor users will fill our capacity where they buy our products at 100,000 or 300,000, all of them, all of our users can still be most [indiscernible] products from the bottom of our hearts.

[indiscernible] This question is about the management fee, whether the management fee will increase year-on-year or quarter-on-quarter.