ZEEKR: The EV dark horse "slumps," when will it rise again?

$ZEEKR Intelligent Tech(ZK.US) released its Q4 2024 financial report before the US stock market opened on March 20, 2025, Beijing time. Let's take a look at the important information:

1) Overall revenue is below market expectations: Q4 revenue was 22.78 billion, lower than the market expectation of 24.28 billion, with a discrepancy of nearly 1.5 billion. This was due to a decline of 1.3 billion in the battery and components business compared to the previous quarter (due to a decrease in sales of battery packs and electric drive units and a drop in unit prices). Although the R&D and service business increased by 800 million quarter-on-quarter (due to the acceptance of a series of R&D projects at the end of the year, confirming the peak period), the total revenue from these two businesses ultimately decreased by 500 million quarter-on-quarter. However, since these two businesses primarily serve the Geely system, the market will not pay special attention to them until external supply increases, so the core focus remains on the automotive business.

2) Core vehicle sales revenue is also below market expectations: This quarter, vehicle sales revenue was 19.3 billion. Although Dolphin Research did not see major institutions separately estimating revenue for the automotive business, assuming the market would estimate the other two businesses (battery and components business and R&D business) to be flat compared to the previous quarter, the market expectation of 24.28 billion for Q4 implies vehicle sales revenue of 20.3 billion. Therefore, in terms of core automotive business performance, ZEEKR did not meet market expectations, and the issue lies in the selling price of vehicles.

3) The selling price of vehicles continues to decline quarter-on-quarter, below market expectations: This quarter, the selling price of vehicles was 244,000 yuan, which is below the market expectation of 256,000 yuan, a decrease of 18,000 yuan compared to the previous quarter. Dolphin Research believes the reason for the shortfall in expectations is mainly due to the vehicle model structure and promotional discounts.

4) However, the gross margin for the automotive business continues to rise quarter-on-quarter, performing well: The gross margin for the automotive business in Q4 was 17.3%, continuing to rise by 1.5 percentage points quarter-on-quarter, mainly due to the release of scale effects leading to a decrease in per-vehicle amortization costs.

5) High increase in R&D expenses leads to operating profit and adjusted net profit below expectations: R&D expenses saw a significant increase this quarter (up 1.2 billion quarter-on-quarter). Although the gross margin exceeded market expectations, both operating profit and adjusted net profit ultimately missed expectations.

Dolphin Research believes that ZEEKR is still accelerating to address its shortcomings in intelligent driving and preparing for the launch of five new models in 2025, which is relatively understandable, but it still needs to show the market that it can achieve sales growth as a prerequisite.

Dolphin Research's Overall View:

Overall, in terms of fourth-quarter performance, ZEEKR's performance was mediocre, even falling short of market expectations. The main misses were due to the selling price of vehicles being lower than expected and a significant increase in R&D expenses, ultimately leading to operating profit and adjusted net profit also being below expectations.

However, compared to the fourth-quarter performance itself, the market is still clearly concerned about ZEEKR's plans and progress for 2025:

① Currently, due to increased market competition, the product cycle for ZEEKR's blockbuster models has noticeably shortened:

From the current weekly sales, ZEEKR's performance is relatively average. Although the first quarter is a sales off-season, ZEEKR's market share in the pure electric market is still declining, dropping from the original 3% to only about 2.6% in January- February 2025.

Similarly, the product cycle for blockbuster models is also shortening. Unlike the previous flagship ZEEKR 001, the ZEEKR 7X has only been on the market for about 7 months, but its sales have maintained around 10,000 units for only 3 months, subsequently dropping to less than 5,000 units in January-February this year. The previous flagship ZEEKR 001, after its update, is still performing relatively average, currently maintaining around 4,000 units, reflecting the increased competition in the new energy vehicle industry. Therefore, the market is still waiting for ZEEKR's next hot-selling product to drive a rebound in sales.

② The market is still waiting for the next generation of blockbuster models from ZEEKR and the actual progress of intelligent driving:

From ZEEKR's new car planning this year, it is clear that the next highly anticipated models, the ZEEKR 007 GT (pure electric shooting brake) and Lynk & Co 900 (plug-in hybrid SUV), will take on the responsibility of driving sales.

The Lynk & Co 900 will debut with the NVIDIA Thor-U chip, marking the time node for the rollout of intelligent driving features from parking space to parking space in ZEEKR's end-to-end route. The market is still observing the actual progress and performance of ZEEKR's intelligent driving.

③ Due to the acquisition of Lynk & Co, the market is still observing whether there are truly synergistic effects:

From the fourth-quarter performance, ZEEKR has not yet incorporated Lynk & Co's business into its financial statements, and it is expected that the first-quarter performance this year will be directly consolidated.

ZEEKR has also previously stated that ZEEKR and Lynk & Co's products will be re-planned. In terms of models: ZEEKR focuses on mid-to-large models, while Lynk & Co targets small-to-medium models; in terms of energy types, Lynk & Co focuses on pure electric for small cars and hybrid for medium cars; ZEEKR focuses on pure electric for medium cars and hybrid for large cars.

On the technical side: in terms of mechanical architecture, electronic architecture, cockpit, and intelligent driving, there will be a focus over the next 2-3 years to minimize the number of architectures. Currently, there are CMA/SPA/SEA architectures, which will be reduced in the future to gradually achieve unification. For intelligent driving, there will be a future unified self-research; the hardware of the cockpit and the underlying software will remain consistent, while the applications will still be Lynk & Co's Flyme and ZEEKR's ZEEKR OSAt the same time in the supply chain and manufacturing: through technological synergy, the capacity utilization of existing factories can be improved, procurement costs can be reduced through collaboration, further lowering costs; and in terms of channels: in the future, in channel construction, Lynk & Co will continue to maintain the dealer model, while ZEEKR is currently mainly in first and second-tier cities, and can quickly advance to third, fourth, and fifth-tier markets through the trend of Lynk & Co.

After the synergy, the combined procurement will reduce BOM costs by 5-8%, capacity utilization will increase by 3-5%, combined R&D investment will decrease by 10%-20% through R&D collaboration, and support department organizational optimization will reduce expenses by 10%-20%.

However, the market is still concerned that the synergy effect between ZEEKR and Lynk & Co is not as planned by the company, especially since Lynk & Co is still selling fuel vehicles, and the sales proportion of fuel vehicles is still increasing (the proportion of fuel vehicles rose from 40% in the fourth quarter to nearly 50% in January-February 2025). The market remains worried that the overall brand positioning of ZEEKR Group is unclear, which ultimately reflects the difficulty of increasing sales.

From this year's overall sales target of ZEEKR Group, the integrated ZEEKR Group (ZEEKR brand + Lynk & Co brand) plans to achieve sales of 710,000 units by 2025 (a year-on-year increase of 40%), with a target of 1 million units in 2026 (a year-on-year increase of 41%).

Among them, the sales target for the ZEEKR brand in 2025 is 320,000 units, a year-on-year increase of 44%. This year, ZEEKR will launch a mid-size sedan and two large plug-in hybrid SUVs, while the sales target for the Lynk & Co brand in 2025 is 390,000 units, a year-on-year increase of 37%, supported by two new plug-in hybrid vehicles.

Therefore, although currently, if we estimate based on the overall sales target of the merged ZEEKR Group (710,000 units), the current stock price corresponds to a ZEEKR 2025 P/S ratio of only 0.4-0.5 times (the Lynk & Co fuel vehicle business is not valued, only the Lynk & Co new energy vehicle part is valued), the valuation is still at a low level. However, overall in the first quarter, there has not been a clear catalyst for the stock price increase. The potential valuation turning point maybe after the launch and delivery of Lynk & Co 900 and ZEEKR 007GT in the second quarter, which will also be a market verification of whether the synergy effect between ZEEKR and Lynk & Co and the actual progress of intelligent driving can support the arrival of the next blockbuster model, thereby driving a rebound in low valuations.

The following is the main text:

1. ZEEKR's automotive business revenue this quarter fell short of expectations, but the automotive gross margin remains good and continues to rise month-on-month.

From the revenue side, ZEEKR's business is mainly divided into three major segments: automotive sales, battery and other component sales, and technical service revenue.

Among them, automotive sales are the core of ZEEKR and account for the largest share of revenue. Let's first look at the financial performance of ZEEKR's automotive business this quarter:

This quarter, the car sales business generated 19.3 billion, although Dolphin Research did not see major institutions separately estimating revenue for the automotive business, Dolphin Research assumed that the market would estimate the other two business segments (battery and component business and R&D business) to be flat compared to the previous quarter. The market expectation for total revenue in the fourth quarter of 24.28 billion implies a car sales revenue of 20.3 billion. Therefore, in terms of core automotive business performance, ZEEKR fell short of market expectations, and the fundamental issue lies in the selling price of the However, in terms of overall automotive business gross margin performance in the fourth quarter, the gross margin for the automotive business was 17.3%, continuing to rise by 1.5 percentage points quarter-on-quarter, mainly due to the release of scale effects leading to a decline in per-vehicle amortization costs.

From the perspective of per-vehicle economics:

a) Average vehicle price: Model structure + promotional impact resulted in a price lower than expected

This quarter, the selling price of vehicles was 244,000 yuan, lower than the market expectation of 256,000 yuan, a decrease of 18,000 yuan compared to the previous quarter. Dolphin Research believes there are two reasons for the lower-than-expected performance:

1. Model structure impact: The proportion of the previously high-priced primary model, ZEEKR 001, decreased by 21 percentage points quarter-on-quarter to 25.4% in the fourth quarter, while the newly popular model, the mid-size SUV ZEEKR 7X, saw its sales proportion increase by 31.4 percentage points to 41% this quarter, but the overall pricing of ZEEKR 7X is lower than that of ZEEKR 001.

2. Promotional impact: Although ZEEKR did not directly reduce prices for models, it launched a financing plan for all models with a "20% down payment and 2 years at 0% interest."

b) Per-vehicle cost: A quarter-on-quarter decrease of 20,000 yuan, driving the selling gross margin to continue rising

This quarter, the per-vehicle cost was 200,000 yuan, down by 20,000 yuan quarter-on-quarter, mainly due to the explosive sales of ZEEKR 7X launched in September, which drove overall fourth-quarter sales to increase by 44% quarter-on-quarter to 79,000 vehicles this quarter, leading to a decline in per-vehicle amortization costs and the release of scale effects.

c) Per-vehicle gross profit: Cost reduction-driven per-vehicle gross profit continues to rise quarter-on-quarter, improving automotive gross margin

This quarter, for every vehicle sold, the gross profit was 42,000 yuan, continuing to rise by 1,000 yuan quarter-on-quarter, still driven by cost reduction.

The selling gross margin also rose from 15.7% in the previous quarter to 17.3% this quarter, an increase of 1.5 percentage points quarter-on-quarter.

2. Fourth-quarter sales increased by 44% quarter-on-quarter, mainly driven by the popular model ZEEKR 7X

In the fourth quarter, although 24 models 001/007/009 began to be delivered and it was a complete delivery season, despite being a mid-term facelift product with significant upgrades in motor power, intelligent driving hardware, and 800V high-voltage platform fast charging, and continued price reductions compared to the 24 models, it still faced competition from rival Xiaomi SU7.

The previously dominant two pure electric sedans, 001/007, saw their sales decline by 20%/38% quarter-on-quarter despite significant upgrades and price reductions.

However, the newly launched model ZEEKR 7X (pure electric SUV) took on the responsibility of boosting sales. Due to its leading advantages in three electric systems and strong cost performance, its proportion in the model structure increased by 31 percentage points to 41% this quarter, driving overall fourth-quarter sales to rise by 44% quarter-on-quarter to 222,000 vehicles, although still below ZEEKR's previously set sales target of 230,000 for 2024

Having discussed the main automotive business of ZEEKR, let's take a look at the performance of other businesses:

3. Revenue from battery and component business continues to decline month-on-month

In the fourth quarter, revenue from the battery and component business was 3.25 billion, a decrease of about 1.3 billion compared to the previous quarter, mainly due to the decline in sales volume and unit price of battery packs and electric drive systems.

However, the gross profit margin of the battery and component business reached 18.9% this quarter, up 5.5% from 13.5% in the previous quarter, but there is significant quarterly volatility, and it is an internal business of Geely.

Dolphin Research previously discussed the significance of this part of the business for ZEEKR in the in-depth article "ZEEKR: Is the doting of the biological father toxic or beneficial?." Since this part of the business mainly involves related party transactions, and the sustainability of the gross profit margin is unknown, the revenue side still depends on whether Geely's new energy vehicles can perform well and whether ZEEKR's sales can break through, ultimately realizing value through the vehicle manufacturing segment.

However, Dolphin Research acknowledges that ZEEKR's innovation and iteration speed in the battery business is relatively fast. The production factory for the first-generation golden brick battery, Quzhou Jidian, was only completed in the fourth quarter of 2023 and was equipped in the 2024 models. The second-generation golden brick battery will be released in August 2024, with a faster charging speed (maximum charging power can reach 5.5C, taking only 10 minutes to charge from 10% to 80%), enhancing the competitiveness of the ZEEKR 007 model.

4. Revenue and gross profit margin of the R&D service business are highly volatile

In the fourth quarter, revenue from R&D services was 1.55 billion, an increase of 830 million compared to the previous quarter, with a gross profit margin of 39.4%, up 4.2 percentage points from the previous quarter.

However, similar to the battery and component business, ZEEKR's R&D services are mainly provided to ZEEKR's internal and related party companies under the Geely system. Unlike the battery and component business, which generally maintains stable growth with sales, the revenue of the R&D service business is highly volatile, and the fourth quarter is typically a peak for concentrated acceptance of R&D projects, leading to a month-on-month increase in revenue.

5. Significant Increase in Operating Expenses Due to High R&D Costs

1) R&D expenses this quarter reached 3.2 billion, a substantial increase compared to the previous quarter

In the fourth quarter, ZEEKR's R&D expenses were 3.2 billion, an increase of 1.2 billion compared to the previous quarter. The R&D investment also significantly exceeded the guidance of 8 billion for 2024. Dolphin Research believes that ZEEKR is still addressing its shortcomings in intelligent driving and investing in the development of new models for 2025.

Compared to new forces, ZEEKR has a comprehensive layout in the three electric systems due to its self-research and production, especially starting in 2023 with the core battery cells and 800V electric control. This comprehensive layout gives ZEEKR models advantages in long range and strong power performance compared to competitors (including the second-generation golden brick battery with faster charging speeds, which is equipped in some versions of the 25 models 007).

However, in terms of intelligent driving, the previous use of Mobileye's solutions has shown significant shortcomings, especially as it has already entered the second half of the competition in intelligent driving by 2025. ZEEKR has recognized this shortcoming and is accelerating R&D and investment in end-to-end routes, expecting to launch parking-to-parking functions in April to keep pace with new forces.

2) Sales and administrative expenses this quarter reached 2.8 billion, an increase of 550 million compared to the previous quarter

In the fourth quarter, sales and administrative expenses were 2.8 billion, an increase of approximately 550 million compared to the previous quarter's 2.27 billion, mainly due to the expansion of domestic and overseas sales channels and the marketing activities for the launch of the new model ZEEKR 7X.

This quarter, the operating loss was -1.4 billion, lower than the market expectation of -800 million, while the adjusted net profit was -900 million, also below the market expectation of -700 million. Although the overall gross margin this quarter exceeded market expectations, the significant increase in R&D expenses resulted in both operating losses and adjusted net profits falling short of market expectations.

Risk Disclosure and Statement of this Article: Dolphin Research Disclaimer and General Disclosure

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