Zero Run (09863) Eight Anniversary: Leading sales, record high market value, entering a new profit cycle.

"Boosting efficiency and setting off again" is the slogan proposed by the founder, chairman, and CEO Zhu Jiangming at LEAPMOTOR's (09863) seventh anniversary last year. This year marks the eighth year and the second year after the IPO, and the company has truly achieved quality and efficiency improvement, gradually entering a new profit cycle. It is understood that the rapid development of new energy vehicles, but the competition among brands is also very fierce. It is rare to achieve profitability in the industry. LEAPMOTOR stands out among many brands, not only ranking high in sales but also achieving gross profits. In 2023, the company's profitability improved quarter by quarter, with a gross profit margin of 1.2% in Q3 turning positive and strong sales in the first two months of Q4. The gross profit margin is expected to further increase. In the eighth-anniversary letter "Always Moving Forward"1, Zhu Jiangming mentioned that the company achieved the goal of positive gross profit in the third quarter, possessed the ability of self-generation, and emphasized the continuous reduction of costs, increasing efficiency, and technological innovation to improve the company's operational quality and market competitiveness, in order to ultimately outperform the automotive industry marathon. Furthermore, the company's performance in the capital market has been impressive. In the secondary market, the market value of the company surged in 2023, with a return rate for shareholders exceeding 20%. In the primary market, it gained favor from institutional investors and industrial capital. In October, it introduced multinational giant Stellantis as the second shareholder and reached a strategic cooperation, establishing LEAPMOTOR International and initiating a global layout. With the support of overseas giants, LEAPMOTOR's advantages in going global are evident. As LEAPMOTOR, entering a new profit cycle, can continue to lead in 2024? Ranked top three in monthly sales, with strong overall self-developed product capabilities LEAPMOTOR adheres to the concept of "fully meeting user needs and constantly surpassing user expectations", creating pure electric+extended-range "dual-power" models, emphasizing high-quality-price ratio, allowing users to enjoy luxury configurations worth over 400,000 yuan at prices ranging from 150,000 to 200,000 yuan, and gaining user recognition. From 2020 to 2022, the company's sales increased from 1.14 units to 111,200 units, an 8.75-fold increase. In the first 11 months of 2023, sales reached 125,500 units, exceeding the previous year's annual total and surpassing Xiaopeng Motors. In the automotive industry, sales volume is key. In the first 11 months, LEAPMOTOR ranked in the top three among new forces, only behind NIO and Xpeng. Looking at monthly sales, LEAPMOTOR has shown a potential to catch up. Since the second quarter of this year, LEAPMOTOR's monthly sales have shown strong growth, consistently ranking in the top three or even top two in the sales rankings among new forces for several months. Although Xiaopeng Motors made a push in Q4, their momentum was not enough. According to sales data released by a certain institution, LEAPMOTOR maintained its top three position in the first two weeks of December, while Xiaopeng experienced a setback. Data source: Data released by major car manufacturers In the third quarter of 2023, LEAPMOTOR's sales reached 44,300 units, a year-on-year increase of 24.5%, compared to increases of 318.3% and 30.33% in Q1 and Q2, respectively, setting a new quarterly sales record. Strong sales growth drove the company's performance to maintain a high growth trend. From 2020 to 2022, the company's revenue saw a compound annual growth rate of 443.06%, maintaining growth in the first three quarters of 2023. In the third quarter, revenue reached 5.656 billion yuan, a 31.9% year-on-year increase. In fact, compared to other new car-making forces, LEAPMOTOR focuses more on creating high-quality products. Currently, only three models, T03, C01, and C11, are available for sale, but sales remain at the forefront. On the other hand, competitors like Xiaopeng offer multiple models such as G3, P5, P7, G6, G9, and X7, each with several variants, making users feel they are selling the same product with different shells. The C11 model from LEAPMOTOR has a high sales ratio, reaching 61.8% in Q3, and the core reason for its popularity lies in its high-quality-price ratio. The C11 model comes in pure electric and super extended-range versions, with prices ranging from 155,800 to 209,800 yuan for pure electric and 149,800 to 175,800 yuan for super extended-range, comparing favorably with similar configuration models and becoming a best-selling model for the company. The C11 super extended-range is equipped with a large 43.7 kWh battery, achieving over 300 km of ultra-long pure electric range, while competitors achieve a maximum range of around 200 km with their extended-range vehicles. For example, the Deep Blue S7 achieves a maximum of 31.73 kWh power battery and 200 km of pure electric range. In addition to the range indicator, LEAPMOTOR has independently developed technology in all aspects, including three electric systems and intelligence. These technologies are at the industry's leading level, which is also why the C11 model sells well. According to the research report from Zheshang, LEAPMOTOR has achieved independent research and development and manufacturing of all core systems and electronic components of smart electric vehicles, self-developing and covering 70% of the entire vehicle cost, with five iterations of the platform architecture in five years. The company's "Four-Leaf Clover" central integrated electronic architecture uses one SOC chip plus one MCU chip to build the central supercomputer, achieving deep integration of hardware and software, decoupling software and hardware to achieve layered iteration. In terms of integration, it surpasses Xiaopeng's X-EEA electronic architecture, providing a superior intelligent driving experience. Zhu Jiangming stated that the company adheres to the route of comprehensive independent research and development of technology. In 2023, the company launched the "Four-Leaf Clover" central integrated electronic architecture, achieving the industry's first integration of the four domains. This laid a solid foundation for truly realizing software-defined cars and entering the LEAP 3.0 technology era. The company has formed a moat in terms of intelligent electric vehicle technology, continuously reducing costs and increasing efficiency, and offering users products with high-quality-price ratio and superior configurations. Under comprehensive independent research and development, technological advantages drive LEAPMOTOR's leading sales, and cost advantages drive continuous optimization of profitability, entering a positive profit cycle and standing out among competitors. Profit improvement surpasses competitors, entering a new profit cycle It is understood that LEAPMOTOR continued to accelerate and improve in 2023, with its profitability continuously increasing quarter by quarter. In fact, this year's price war is intense, with major car companies, especially new forces, significantly lowering prices or offering discounts in order to gain market share, sacrificing profits for growth. The impact of price wars on profits is significant. Taking a brand in the same sales tier as an example, its gross profit margin was 13.53% in the third quarter of last year, but it continued to incur losses in Q2 this year. However, LEAPMOTOR has been able to defy this trend.Maintaining profit growth, the gross profit margin has increased from -8.9% in Q3 of last year to 1.2% in Q3 of this year, achieving profitability for the first time. The company's increasing profits are on one hand due to its self-developed products having higher competitiveness compared to its peers, and with cost advantages, it offers better value for money. On the other hand, when the company celebrated its seventh anniversary, it proposed improving efficiency and starting anew. Focusing on this goal, the company has been vigorously promoting cost reduction and efficiency improvement, and has achieved tangible results.Data Source: Company Financial Report It is worth mentioning that Lixiang's various expenses are also trending towards optimization. In Q3 of 2023, the three expense ratio (sales, administrative, and research and development) was 19.9%, a decrease of 3.7 percentage points year-on-year, and compared to Q1 and Q2 this year, it decreased by 48.4 and 4.2 percentage points respectively. In Q1, the sales volume of major car companies was quite bleak, leading to relatively high expense ratios, but they have since decreased. Comparatively, Lixiang has stronger cost control ability, with the expenses ratio in Q3 and the first three quarters of the year being 15.2 and 21.16 percentage points lower than a certain brand of new energy vehicle. The most significant characteristic of most new energy brands is that their operating cash flow is generally negative, requiring continuous financing to support investment expansion. Lixiang underwent a qualitative change this year, achieving a net inflow in operating cash flow due to improved profitability. In Q3 of this year, there was a net inflow of 14 billion yuan, along with a total net inflow of 41.62 billion yuan in Q2. If this trend continues, the company will be able to break free from financing dependence by 2024, meeting capital expenditure needs through operating cash flow. Data Source: Company Financial Report Note: The three expense ratio refers to the combined sales, administrative, and research and development expense ratio Ample cash flow meets the company's technological research and development, production capacity expansion, and overseas market development needs. Considering the average net investment outflow of the company over the past two years, even without considering operating cash infusions, the company can meet net investment needs for nearly a decade. Collaboration with Stellantis to expand global markets and drive valuation adjustment through high growth performance The competition in the new energy car industry is fierce, and the trend of cross-border cooperation in new energy technology and sales is accelerating. In the rapidly changing market environment, forming strong alliances to seize the global market becomes crucial. The cooperation between Volkswagen and Xiaopeng, as well as Lixiang and Stellantis Group, confirms this trend. Compared to Volkswagen and Xiaopeng, Lixiang's collaboration with Stellantis is deeper. Firstly, Stellantis Group has become its second largest shareholder, playing a more significant role in the company's development. Secondly, the scope of cooperation is broader, as Volkswagen and Xiaopeng mainly focus on launching models in the domestic market, while Lixiang and Stellantis aim at the global market and have jointly established "Lixiang International," with the endorsement of Stellantis Group, making Lixiang significantly stronger in overseas markets. Zhu Jiangming stated that in the future, relying on Stellantis' global business network, Lixiang is expected to quickly open up international markets and build an international brand globally. (Below: Stellantis Group Global CEO Carlos Tavares Right: Lixiang Technology Founder, Chairman and CEO Zhu Jiangming) According to the plan, Lixiang International is responsible for overseas sales of existing mass-produced models and multiple upcoming models. Stellantis has disclosed plans for over 10 models for Lixiang in the mid-term, with a focus on the European market initially, expanding to the global market after 2025. The first model under the LEAP 3.0 technology architecture, the global model C10, is the industry's first intelligent electric vehicle to use the Qualcomm Snapdragon 8295 chip, with a vehicle torsional stiffness of up to 42500N.m/deg, surpassing some million-dollar luxury cars. It has participated in exhibitions both domestically and overseas and is scheduled for domestic delivery in the first quarter of 2024, with plans to enter the European market in the third quarter. This will be key to its overseas expansion. Overall, Lixiang's sales, growth, and profitability are all leading in the industry. This year has seen comprehensive quality and efficiency improvements, entering a new profit cycle in Q3, with expectations of maintaining profitability in Q4 and 2024. Self-developed capabilities ensure product strength, and self-owned production capacity is steadily expanding. The strategic cooperation with Stellantis Group will open up the global market landscape for Lixiang, facing vast opportunities for continuous high growth performance. In the capital market, investors hold an optimistic attitude towards the company's development, driving continuous increase in market value. However, compared to other new car companies, Lixiang is significantly undervalued. With the release of performance, its valuation is expected to be further adjusted.