Leapmotor: Competing with real strength, the chaotic new energy market has its 'irresistible charm'!

$LEAPMOTOR(09863.HK) released its Q1 2025 earnings report after the Hong Kong market closed on May 19 Beijing time. The performance remains very strong, beating market expectations for three consecutive quarters. Key highlights:

1. Gross margin continued to rise sequentially during the off-season, reaching a record high: Typically, NEV automakers see gross margin decline in Q1 due to promotional discounts on older models (Leapmotor was no exception). The market expected Leapmotor's Q1 gross margin to drop, with optimistic institutional forecasts projecting a 1.3 ppt decline to 12% (Bloomberg consensus: 10.6%).

Surprisingly, Leapmotor's overall gross margin improved sequentially compared to last year's peak sales period, hitting a record 15%.

2. Strategic partnership income was the main driver of revenue and gross margin beat: Leapmotor recognized ~¥300M in technical service fees from partnerships in Q1, contributing ~¥200M gross profit, which significantly boosted overall performance.

3. Underlying performance still exceeded expectations after adjusting for partnership impact: Excluding partnership contributions, Q1 gross margin was ~13.3%, flat QoQ. Despite a 28% QoQ sales decline, stable ASP and cost reductions drove the beat.

4. Strong Q2 delivery guidance: Leapmotor guided for 130k-140k vehicle deliveries in Q2. With April deliveries already at 41k, this implies average monthly sales of 44k-50k in May/June, supported by new B10 and refreshed C10 models.

While Q2 gross margin may dip slightly due to model transitions, breakeven remains achievable.

Dolphin Research's view:

Leapmotor delivered another strong quarter, beating expectations for three straight quarters while gaining NEV market share since Q3 2024.

The beat was primarily driven by high-margin partnership income (¥300M revenue, ~60-70% margin). Even excluding this, underlying performance exceeded expectations through cost reductions despite off-season challenges.

Q2 guidance of 130k-140k deliveries (implying 44k-50k monthly run-rate) appears robust. While model transitions may pressure margins slightly, breakeven remains achievable.

Current valuation at ~1.3-1.4x 2025 P/S (implied 550k deliveries) leaves limited upside unless:

① Overseas expansion outperforms (current guidance: 50k-80k units)

② Technology licensing becomes recurring revenue (similar to XPeng-Volkswagen partnership)

Short-term momentum remains positive given execution strength, but further re-rating requires catalysts beyond current expectations.

Detailed analysis:

1. Record 15% gross margin defies seasonal trends

Automotive gross margin improved to 15% (13.3% ex-partnership), beating consensus by 2-4 ppts despite:

- Heavy discounts on older models (6-8% price cuts)

- Product mix shift toward lower-priced B10/C10 (+12 ppt mix)

Cost reductions (-¥400/vehicle) offset lower utilization, demonstrating operational resilience.

2. Q2 guidance implies accelerating momentum

130k-140k delivery guidance suggests 48-60% QoQ growth, supported by:

- B10/C10 ramp-up

- Overseas expansion (15% of April sales)

Management maintains full-year guidance of 500k-600k deliveries (~2x 2024) and ~10% gross margin.

3. Ramp-up in Europe and tech licensing are key upside drivers

- European channels reached 500 in Q1 (90% of international network)

- B-platform models better suited for European preferences

- Potential recurring tech licensing income could rerate valuation

While current valuation reflects solid execution, further upside requires delivery on these growth vectors.