Leap Motor Reveals Third Quarter Performance

On October 16th, Leap Motor released its financial report for the third quarter of 2023. The announcement indicates that in the third quarter of 2023, Leap Motor achieved an operating income of 5.656 billion RMB, a year-on-year increase of 31.9%. During this quarter, Leap Motor transformed the awkward situation of gross profit loss, with a single-quarter gross profit margin turning positive at 1.2%.

However, despite aggressively raising the value of each vehicle, this new energy vehicle company still reported an operating loss of over 1 billion RMB in the third quarter. In the first three quarters, Leap Motor's total operating loss amounted to 3.359 billion RMB, with a per-vehicle loss of 37,800 RMB.

Single-vehicle operating loss remains at 37,800 RMB

The financial report shows that Leap Motor's third-quarter revenue in 2023 was 5.656 billion RMB, an increase of 31.9% compared to the same period in 2022 and a 29.4% increase compared to the second quarter of 2023.

The significant growth in revenue in the third quarter was due to the substantial increase in vehicle deliveries. According to the announcement, the total number of vehicle deliveries in the third quarter of 2023 was 44,325 units, a 24.5% increase compared to the same period in 2022. The third-quarter delivery situation was almost on par with the first half of the year.

In the first half of this year, Leap Motor's delivery performance was not ideal, with 44,502 units delivered, a 14.4% decrease compared to the same period last year.

As of the end of the first three quarters, Leap Motor has delivered a total of 88,000 units. Leap Motor founder Zhu Jiangming set a full-year sales target of 200,000 units at the beginning of the year and admitted, "If we don't reach the sales target in 2023, there's not much hope ahead."

Currently, it appears that Leap Motor has only achieved 44% of its year-end target, and to meet this goal, it needs to achieve monthly sales of over 37,000 units for the remaining three months, which is a considerable challenge.

It's worth mentioning that Leap Motor reported a positive gross profit margin for the first time in the third quarter. Data shows that Leap Motor's gross profit margin in the third quarter of this year was 1.2%, a significant improvement compared to -8.9% in the same period in 2022 and -5.2% in the second quarter of 2023.

This was due to the company's full efforts to change its sales structure. Specifically, the models in the price range of 150,000 to 200,000 RMB have made a significant contribution. The two models, C01 and C11, with prices ranging from 150,000 to 200,000 RMB, accounted for 80.55% of the total deliveries. In contrast, the T03 model with a price below 100,000 RMB saw a decrease in deliveries by 51.5%.

It is well known that Leap Motor has been emphasizing "cost-effectiveness" since its brand was established. Its main models include the T03 (compact car, 59,900-99,500 RMB), C01 (C-class sedan, 149,800-286,800 RMB), and C11 (B-class SUV, 149,800-239,800 RMB). The T03, priced around 100,000 RMB, has always been a major contributor to sales, while the C11 and C01 models have struggled to gain traction.

The result of selling more is losing more. In 2022, Leap Motor's cumulative sales reached 111,200 units, with a monthly peak sales of over 12,000 units, once entering the top three in the new energy vehicle sales ranking and briefly joining the top tier of new car manufacturers.

However, it was also the year when Leap Motor incurred the most losses, with a net loss of a staggering 5.109 billion RMB (losses in 2020 and 2021 were 1.1 billion RMB and 2.846 billion RMB, respectively), accumulating a loss of 9.055 billion RMB over three years.

Despite the positive gross profit margin, Leap Motor has not changed the embarrassing situation of net profit losses. Leap Motor's operating loss in the third quarter was 1.025 billion RMB, compared to 1.361 billion RMB in the same period in 2022 and 1.174 billion RMB in the second quarter of 2023. From the perspective of the first three quarters, Leap Motor's operating losses have already reached 3.359 billion RMB. Based on this calculation, Leap Motor's per-vehicle operating loss remains at 37,800 RMB.

At the same time, Leap Motor's net loss in the third quarter was 986 million RMB, compared to 1.34 billion RMB in the same period in 2022 and 1.143 billion RMB in the second quarter of 2023, with a slight narrowing.

How to Face Intense Competition in the Mid-Range Market?

What needs attention is that although Leap Motor's third-quarter losses have narrowed, its cash flow situation has worsened compared to the previous quarter. Data shows that Leap Motor's net cash flow from operating activities in the third quarter was 1.4 billion RMB, while this figure was 2.762 billion RMB in the second quarter.

In addition, in terms of free cash flow, Leap Motor generated 1.018 billion RMB in the third quarter. This number represents a significant decline from the second quarter when free cash flow was 2.502 billion RMB.

However, its cash position improved in the third quarter. As of the end of the third quarter, Leap Motor's cash and cash equivalents, restricted cash, and bank time deposit balance calculated at fair value in profit and loss amounted to 11.63 billion RMB. In the middle of this year, the total amount of these liquid assets for Leap Motor was 10.178 billion RMB.

To boost sales, Leap Motor initiated significant price reductions in August. On August 1st, Leap Motor announced price cuts for some models in its C series, including two highly anticipated C11 models and three C01 models, with the largest price reduction reaching 20,000 RMB.

Regarding the changes in demand after the price reduction, Leap Motor stated at the time that it aimed to increase the sales of high-end models and optimize product structure. The company claimed that because high-end models have a larger profit margin, price reductions would not impact the improvement of Leap Motor's subsequent gross profits.

The company believes that looking ahead to the second half of the year, the price fluctuations in July and August are indicative of ongoing market competition. In reality, competition in the price range where the Leap Motor C11 and C01 models are situated is fierce, with not only the Tesla Model 3 but also the highly successful BYD Han, BYD Dolphin, as well as other new energy models like NIO ET5 and XPeng P7.

During the third-quarter performance conference, Leap Motor announced that it would soon release hybrid versions of the C11, with plans to launch the C01 hybrid next year. This emerging automaker envisions introducing a total of 7 new vehicle models by the end of 2025, at a pace of 1-3 models per year, in a bid to expand its presence in the high cost-performance market.

At the Munich Car Show held in September, Leap Motor unveiled its first globally-oriented model, the C10, and introduced four technological licensing models: electronic and electrical architecture, electronic and electrical architecture combined with batteries and electric propulsion, vehicle platform (comprising the complete set of electric systems), and comprehensive vehicle development and manufacturing cooperation.

It's worth noting that Leap Motor plans to introduce five new vehicles to the global market in the next two years, targeting Europe, the Asia-Pacific region, the Middle East, and the Americas.