Leapmotor: Sales target of 500,000 vehicles next year, gross margin of 10% (3Q24 conference call summary)
Leapmotor FY24Q3 Interpretation Meeting Summary:
The following is the summary of the Q3 2024 earnings call for $LEAPMOTOR(09863.HK) . For the earnings report interpretation, please refer to Leapmotor: Has it become the accelerated "leading little ideal"?
1. Core Information Review of the Earnings Report:
2. Detailed Content of the Earnings Call
2.1, Key Information from Executives:
1) Business Progress
① Overall Performance: In the third quarter, the delivery volume was 86,165 vehicles, a quarter-on-quarter increase of 61.7%, and a year-on-year increase of 94.4%; the C series accounted for 78.3% in the third quarter, with continuous optimization of the product mix.
② Sales Outlets: As of the end of the third quarter, there were 493 domestic sales outlets and 362 domestic service outlets; as of the end of October, there were 339 European dealer outlets, accelerating the global layout.
③ Product Mix: The contribution rate of the C series increased from 73% in Q1 to 75% in Q2 and 78% in Q3, continuously improving the product mix.
④ Order Volume:
- In October, sales reached 38,100 units, with net new orders exceeding 40,000 units, and the company achieved the offline production capacity of 500,000 units.
- In October, orders for the C11, C10, and C16 SUVs each exceeded 10,000 units.
- The sales of the three models continued to rise, making Leapmotor the only brand among new forces with over 10,000 orders for three SUVs priced between 100,000 and 200,000.
⑤ C Series:
- The company is launching new models of C10 and C16, as well as updated versions of C10 and C16, continuing the dual power layout of pure electric and range-extended.
- Based on maximizing platform sharing rates and incorporating the company's latest technological achievements, the overall layout of the company's C series products has been completed.
- The four models of the C series form a product matrix targeting different market segments in the 100,000 to 200,000 price range, including two five-seat SUVs, one six-seat SUV, and one five-seat sedan.
⑥ B10:
- The B10 is a compact SUV focused on the 100,000 to 150,000 market, expected to launch in China by the end of the first quarter of 2025
- Based on Leapmotor's new integrated intelligent 3.5 architecture, combined with AI large models and Qualcomm's 8650 autonomous driving chip, it achieves advanced autonomous driving and assisted driving in urban and highway environments.
- The B series will face a significant segmented market in China and will become a major growth driver for the company in 2025.
⑦ R&D Aspect:
- The company conducted an OTA in July for all upgrades to the intelligent cockpit.
- The C10 also launched an AI model, becoming the first company to introduce an AI model in this price range.
- After the launch of the C16, 39 new and optimized features were added.
⑧ Channel Aspect:
Continuing to expand and transform channels using the 1 + 1 channel model. As of the end of September, there are 493 channel stores and 352 service stores, with expectations to exceed 700 channel stores and 400 service stores by the end of the year.
⑨ Overseas Market:
- The T03 and C10 completed EU certification by the end of September and officially launched in Europe.
- Stellantis is helping Leapmotor's products enter the international market and providing support services to customers.
2) Financial Performance
① Operating Revenue: Third-quarter operating revenue was 9.86 billion, a quarter-on-quarter increase of 83.9% and a year-on-year increase of 74.3%.
② Gross Margin: The gross margin for the third quarter was 8.1%, with an average gross margin of 4.8% for the first nine months of 2024, and it is expected that the annual gross profit margin will exceed the average target of 5%.
③ Net Income: The net loss for the third quarter narrowed to 690 million, with a significant reduction in losses.
④ Free Cash Flow: The operating cash flow for the third quarter was 1.96 billion, with capital expenditures of 640 million, resulting in free cash flow of 1.32 billion, and cash on hand of 18.7 billion. It is expected that operating cash flow and free cash flow will continue to be positive and improve in the fourth quarter.
2.2 Q&A Analyst Q&A
Q1: What are the sales and gross margin guidance for the future, and is there any guidance for next year? After the launch of the B series, what are the plans for production capacity and CapEx guidance?
A: October's performance was impressive, with 42,000 orders received, and significant sales growth is expected in the fourth quarter. The gross margin for the third quarter was 8.1%, continuing to improve, and a better performance is expected for Q4 gross margin. The gross margin is expected to be 10% next year, with an annual sales target of 500,000 vehicles. The B series will be a focus, continuously setting new highs in cost, performance, and reliability, and will make a significant contribution to sales next year. Regarding production capacity, consideration is being given to building a third factory in Jinhua, with a production capacity plan of 1 million units for next year.
Q2: How is the sales situation in Europe, how to convert potential customers, and how to make European consumers recognize Leapmotor? Given the geopolitical relationship between China and Europe, will the long-term goals in Europe remain unchanged, and is there still a commitment to localization in Europe?
A: In Europe, the company was established in May, and two models passed EU certification in September. With the help of the Stellantis dealer network, it is rapidly developing, and the network and backend service system are taking shape. The C10 sells 10,000 to 12,000 units per month domestically and is the flagship model in Europe; the T03 is a small car with market potential in Europe. Users have a high acceptance of the models. Given the high tariffs in Europe and geopolitical factors, localization will be accelerated, leveraging Stellantis's local manufacturing advantages to deploy localized production, which has unique advantages in the dealer network and localized production.
Q3: There has been some performance decline in Europe during some months this year. Does the company have any forecasts? Is there any change in demand for new energy extended-range vehicles in Europe?
A: The entire European new energy vehicle market is declining. Leapmotor is very confident in its target of 8,000 to 12,000 units this year. Due to EU tariffs, the current goal is still to maintain sales volume, with domestic sales remaining the focus for the next two years while continuously promoting localization to quickly gain advantages; there is a strong demand for extended-range vehicles overseas, with significant demand for long-distance travel. The charging infrastructure in Europe is not well-developed, and Europe has high requirements for driving control, which is a unique advantage of electric vehicles, providing a better driving experience.
Q4: What is the contribution ratio of economies of scale and cost structure to the improvement in profit margins? What are the R&D investment and launch plans for intelligent driving next year?
A: The improvement in profit margins comes from continuous cost reduction, economies of scale (such as the high commonality of parts between the C10 and C16 leading to scale effects), and product mix improvement (the proportion of T03 is decreasing, and all models are profitable). In terms of intelligent driving, a team was formed in 2021 focusing on algorithms, and after restructuring, it is close to industry-leading levels. In Q4 of this year, OTA will be opened to achieve point-to-point commuting, and in Q2 of next year, it is expected to be on par with Tier 1 suppliers in autonomous driving. The B10 model will be the first to adopt the Qualcomm 8650 chip, enhancing the advantages of autonomous driving hardware.
Q5: What is the production capacity limit of partners, and when is the earliest possible time for localized manufacturing? How cooperative are European suppliers? When will the three models be launched in China and Europe next year?
A: Production in Europe must meet local requirements, and Stellantis has multiple factories to choose from, which will help with localization and parts support. Localized production is expected to start by the end of next year. The B10 was globally unveiled at the Paris Auto Show in October, with the first delivery, and will start deliveries in China in Q2 next year, with another sedan expected to be delivered in Q3.
Q6: What is the expected overseas market share and profit margin in next year's sales target? What are the strategies for intelligent driving costs and localization in overseas markets?
A: The sales target for next year is 500,000 units, with overseas market share and profit margins similar to those in the domestic market. Currently, the profit margin overseas is relatively low, and cost balance needs to be considered before localized production. In terms of intelligent driving, more competitive solutions will be launched to achieve higher integration, using more competitive chips to make intelligent driving more widespread. In the overseas market, the C10 and T03 are currently being sold in Europe, with plans to start deliveries in September, and more models will be launched based on market demand, while also considering market expansion in regions like the Middle East, with future localized assembly based on market conditions
Q7: What is the ratio of the C10 and T03 models in the overseas orders? Besides Europe, which markets is the company focusing on more, and what is the forward-looking layout?
A: The ratio is approximately 20/80 or 30/70, varying by country, and it will stabilize in three to five months; in the future, South America, Australia, and the Middle East may be relatively good markets.
Q8: What are the quantifiable advantages of the platform in terms of cost reduction? How do you view the B platform, and does it have an impact on gross margin? What are the sales plans?
A: The B platform has extremely competitive costs, utilizing its own intelligent driving platform and 8650 chip, which provides cost advantages. It is expected that the sales of the B platform will exceed those of the C platform in the next two years, with high expectations
