Leapmotor jumps to first-ever quarterly profit

Investors have grown bullish on the NEV maker after it delivered more than 40,000 vehicles last December

Key Takeaways:

• Leapmotor reported its first ever quarterly profit in last year’s fourth quarter, as its loss for the year narrowed by 33%
• The company’s newly launched B10 model will be a key product targeting the lower end of the new energy vehicle market

By Lau Chi Hang

The classic line “It was the best of times. It was the worst of times,” from Charles Dickens’ “Tale of Two Cities” rings especially true for Chinese new energy vehicle (NEV) makers these days.

The “best of times” comes from the breakneck adoption of NEVs, especially in China, which has become a powerhouse for global NEV sales thanks partly to strong government backing for the green energy transition. Meantime, the “worst of times” comes from the cutthroat competition that has turned the sector into a bloody battlefield filled with companies hemorrhaging billions of dollars in the fight for market share.

There are a few exceptions to the money-burners, such as BYD (1211.HK; 002594.SZ) and Li Auto (2015.HK; LI.US), which have found a road to profitability. More common is a road to insolvency, which has claimed the likes of WM Motors and Neta. Now, Zhejiang Leapmotor Technology Co. Ltd. (9863.HK) has joined the elite club of profitable companies, buoyed by surging sales following a landmark tie-up announced in 2023 with European auto giant Stellantis (STLA.US).

Leapmotor’s latest annual results, released earlier this month, show its annual revenue nearly doubled last year, rising 92% to 32.16 billion yuan ($4.44 billion), while its loss narrowed 33% to 2.82 billion yuan. It passed a major milestone by driving into the black for the first time in the fourth quarter with a profit of 80 million yuan. It delivered a record 293,724 vehicles during the year, up 103.8% year-on-year.

Strong market instincts

While its profit milestone is drawing the most attention, Leapmotor’s improving performance is underpinned by certain advantages, including strong market instincts that propelled it to profitability. Its surging sales were fueled by the success of its bet on range-extended SUVs. Launched in 2024, its C10 and C16 hybrid vehicles are targeted at young and middle-class families, becoming star products that drove up overall sales in the fourth quarter.

The company’s vehicle sales rose sharply toward the end of the year after a third quarter that saw 86,165 units delivered. From there the number accelerated to 38,177 units in October, then 40,169 units in November, and 42,517 units in December, giving a more than 120,000 for the fourth quarter. That brought Leapmotor’s annual deliveries to nearly 300,000 units, exceeding its 2024 target. Leapmotor’s new foothold in range-extended SUVs may give it a leg up on its rivals, paving the way for more market share gains down the road.

Technology is another Leapmotor strong suit. The company has insisted on keeping all key R&D in-house, covering over 65% of its most important components. It has also achieved full-stack self-development capabilities for its vehicle electronics. While such self-development is hugely expense in the beginning, sometimes even lethal, it can also generate huge returns if a company survives long enough to start generating major sales.

Once that happens, independent R&D becomes a major advantage by bringing high-quality, exclusive technology to set a company ahead of its rivals. Such technological foundation also provides more solid support for iterations, ultimately lowering costs. Leapmotor has created its own technology architecture, which it calls “Four Leaf Clover” to integrate four domains – the cockpit and intelligent driving systems, and the power and body domains.

Big backers at home and abroad

Expanding overseas is another must for NEV companies, though that’s often easier said than done. For Leapmotor, the task has become far easier since its 2023 tie-up with Stellantis, whose brands include Chrysler, Fiat and Citroen. Stellantis has assisted Leapmotor by helping it set up sales channels, after-sales service, logistics and spare parts networks, and even providing automotive financing in markets outside China.

With Stellantis’ help, Leapmotor established 350 outlets in Europe last year, providing functions like sales and after-sales service, giving it a considerable advantage over rivals that have no such connections and must do everything themselves.

With Stellantis backing it up, Leapmotor also recently landed another strategic tie-up at home with FAW, one of China’s leading domestic car companies. Under that agreement, the two sides will cooperate in development of both NEVs and their parts, and also explore the potential for capital cooperation.

The agreement will also give Leapmotor the opportunity to become a parts supplier for FAW’s own NEV development, providing a potential new revenue source while also bringing more economies of scale to reduce R&D and manufacturing costs. Potential future financing from FAW, in the form of investment or loans, could also help Leapmotor as it continues to spend money at a rapid rate.

Ambitious 2025 goal

In the current weak economic environment at home as consumers rein in their spending, especially on big-ticket items like cars, pricing for NEVs is becoming an important factor for manufacturers. Such affordable vehicles, typically priced in the 100,000 yuan to 150,000 yuan range, have become a bloody battlefield, with Leapmotor also taking aim at the market. The first model from the company’s B series, the B10, just hit the market this month, built using its latest architecture that boasts a higher level of integration and intelligence.

With all those factors working in its favor, Leapmotor is gradually gaining momentum, which is most evident in its recent move to the black. Founder Zhu Jiangming once said any NEV maker needs to sell 500,000 units annually to survive, 1 million units to be viable, and 3 million to make it to the finish line. With that in mind, he set a target of 500,000 vehicle deliveries for Leapmotor this year. Such growth looks like a big challenge, but the company’s latest trends are certainly moving in the right direction.

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