Author | Meng Xiao

For more financial information | BT Finance Data

The main text totals 3,859 words, estimated reading time: 10 minutes

The ideal profit picture, yet a big secret hidden in the second-quarter report.    

As of September 7, all five newly emerged automakers that have gone public (including overseas listings) have disclosed their 2024 second-quarter reports. Among them, only Ideal has turned a profit, while the other four - XPeng, NIO, Leapmotor, and Zeekr - are all incurring losses.

Ideal's financial report shows that in the first half of this year, Ideal's revenue reached 57.3 billion yuan, an increase of 20.81% year-on-year. Net profit attributable to shareholders was 1.695 billion yuan, a decrease of 47.4% from the same period last year when it was 3.223 billion yuan. Earnings per share also dropped from 1.64 yuan in the same period last year to 0.85 yuan, a decrease of 48.2%.

The financial report also reveals that after an operating loss in the first quarter of this year, Ideal recorded another operating loss in the second quarter, amounting to 117 million yuan. The reason for Ideal's overall profitability of 1.695 billion yuan, according to the financial report, is due to interest income and investment income exceeding 1.4 billion yuan. Ideal's cash and cash equivalents began the period at a balance of 91.33 billion yuan, holding nearly 100 billion yuan in cash, allowing it ample room for maneuver in both financial management and investment.

On the day Ideal released its second-quarter report, its share price not only failed to show significant gains but instead closed down 16.12%, suggesting that capital markets may have doubts about its seemingly impressive performance. As an automaker, making profits not through car sales but through financial management may not be what investors want to see.

On the trading day prior to Ideal's second-quarter report release, its closing share price was $21.22. By the close on September 6, the share price had fallen to $18.31, representing a decline of approximately 14% over the seven trading days since the financial report was released. The real-time total market value was 19.43 billion yuan. Prior to this, Ideal's market value peaked at $50.61 billion, representing a decline of 62%.

Ideal's Hong Kong and U.S. stock performances are similar. On August 27, Ideal's Hong Kong share price closed at HK$83.95. By the close on September 6, it had fallen to HK$73.1, representing a decline of 13% during this period. Compared to its high of HK$185.5, the share price has dropped by 61%, with a Hong Kong stock market value of HK$155.1 billion and a loss of nearly 240 billion yuan in market value.

As the first profitable automaker among the newly emerged players, Ideal's share price decline has been relatively modest compared to NIO and XPeng. However, consecutive operating losses in two quarters have sparked concerns in capital markets. After an operating loss of 585 million yuan in the first quarter, the operating loss in the second quarter narrowed but was still significant compared to the operating profit of 2.031 billion yuan in the same period last year.

However, in Ideal's financial report, its net profit attributable to shareholders has been profitable for seven consecutive quarters, which is certainly commendable.

1

Significant Sales Advantage

According to public data, Ideal sold 189,000 vehicles in the first half of this year, far ahead of the other four newly emerged automakers. It led Zeekr, which ranked second, by 101,100 vehicles. Over the same period, NIO sold 87,400 vehicles, Leapmotor sold 86,700 vehicles, and XPeng, once a representative of the newly emerged players, fell behind, selling only 52,000 vehicles in the first half of the year, the lowest among the five, trailing Ideal by 137,000 vehicles.

In terms of sales growth, Ideal's 35.8% increase in the first half of the year was lower than Zeekr's 106.1% and Leapmotor's 94.8% over the same period but higher than NIO's 25.5% and XPeng's 25.6%. Public data shows that in China's new energy vehicle market with a price range above 200,000 yuan, Ideal had a market share of up to 14.1% in the first half of this year.

Specifically, in the second quarter, Ideal sold 108,500 vehicles, an increase of 25.5% year-on-year. Over the same period, NIO and XPeng sold 57,400 and 30,200 vehicles, respectively. Although NIO's sales increased by 143.9% and XPeng's by 30.2% (both higher than Ideal's), their combined sales totaled only 87,600 vehicles, still more than 20,000 vehicles behind Ideal's sales. Leapmotor sold 53,000 vehicles over the same period, an increase of 55.9%. Zeekr sold 54,800 vehicles, an increase of 100%, but both still lagged significantly behind Ideal in sales.

It is worth noting that while Ideal consistently ranks first among the newly emerged automakers in terms of sales, its year-on-year sales growth ranks last among the five automakers, which may be related to poor sales of the Ideal MEGA. As Ideal's first pure electric MPV model, the MEGA's sales after launch fell far short of expectations. Ideal originally planned for the MEGA to sell over 10,000 units per month, but in July 2024, only 654 units were sold, accounting for just 1.28% of Ideal's total sales and ranking relatively low at 32nd in the MPV market. This led Ideal to adopt a price reduction strategy, which may have affected its overall gross margin and profits.

Despite setbacks in Ideal's attempts in the pure electric vehicle segment, other models performed relatively well. For example, the Ideal L6 achieved excellent results with monthly deliveries of 20,000 units, which to some extent alleviated the pressure caused by poor MEGA sales. This also allowed Ideal to maintain a significant sales advantage over a certain period.

2

Decline in Gross Margin

Specifically, in the second quarter, Ideal's revenue was 31.7 billion yuan, an increase of 10.6% year-on-year and 23.6% quarter-on-quarter. Revenue from the automotive business was 30.3 billion yuan, an increase of 8.4% year-on-year, while other sales and service revenue was 1.4 billion yuan, an increase of 99.6% year-on-year. However, the automotive business remained the primary contributor to Ideal's revenue, accounting for up to 96%.

As mentioned above, Ideal's revenue growth was lower than its sales growth due to changes in its model mix and pricing strategy, which were directly related to the poor reception of the Ideal MEGA. Compared to the 108,600 vehicles sold in Q2, Ideal expects to sell 145,000 to 155,000 vehicles in Q3, with revenue ranging from 39.4 billion yuan to 42.2 billion yuan.

Ideal's significant decline in net profit is partly related to its declining gross margin. In the second quarter, Ideal's gross margin was 19.5%, a year-on-year decrease of 2.3 percentage points and a quarter-on-quarter decrease of 1.1 percentage points. This 19.5% gross margin represents a new low for the past six quarters. Specifically, the vehicle gross margin was 18.7%, a year-on-year decrease of 2.3 percentage points and a quarter-on-quarter decrease of 0.6 percentage points. Although Ideal's net profit margin of 3.48% in Q2 showed some improvement from the previous quarter's 2.31%, it was still down 4.58 percentage points from the same period last year when it was 8.06%. For the first half of the year, the net profit margin was 2.95%, a decrease of 3.89 percentage points from the same period last year when it was 6.84%. Since 2024, Ideal's gross and net profit margins have both declined significantly compared to previous years.

Even with a decline in its gross margin, Ideal's 19.5% gross margin still leads the other four newly emerged automakers. NIO's gross margin for the same period was 9.7%, XPeng's was 14%, Zeekr's was 17.2%, and Leapmotor's was just 1.13%. In terms of vehicle gross margin, Ideal led the pack at 18.7%, followed by NIO at 12.2%, XPeng at 6.4%, and Zeekr at 14.2%. Ideal's Q2 gross margin was also higher than BYD's 18.69%, although BYD's net profit margin of 5.30% was significantly higher. Tesla's gross margin of 17.95% was also lower than Ideal's, but its net profit margin of 5.86% was 2.38 percentage points higher.

Amid pressure on profitability in Q2, Ideal expects to gradually recover its profitability levels as new vehicle sales continue to increase and terminal incentives are adjusted. Li Tie, CFO of Ideal Auto, stated that in Q3, Ideal's vehicle gross margin is expected to rebound to above 19%, with the overall gross margin expected to return to above 20%.

3

Next Step: Cost-Effective Strategy?

XPeng ranked last among the five newly emerged automakers in terms of sales in the first half of the year, achieving just 18% of its target. The difficulty of achieving its sales target in the second half of the year is significant. However, with the recent launch of XPeng's MONA M03, the company is confident in boosting sales. The fundamental reason lies in MONA M03's cost-effective strategy, with a starting price of less than 120,000 yuan, effectively avoiding direct competition with Ideal and NIO, whose product portfolios partially overlap.

MONA M03, a new card held high hopes by He Xiaopeng, has entered the fiercely competitive 100,000-200,000 yuan automotive market with a fresh approach, directly targeting BYD and penetrating its rear flank. Due to cost constraints, new energy vehicles in this price range may not be equipped with high-level intelligent driving capabilities, which is a core differentiator for MONA M03. XPeng hopes to achieve high sales volumes in the low-end market, with a monthly sales target of over 10,000 units.

NIO, positioning itself as a premium brand, has also embraced a cost-effective strategy. While its main brand adheres to a price floor of 300,000 yuan, its second brand, Letao, has set a pre-sale price of 219,900 yuan for its first model, the L60. Li Bin has also revealed that the price of the L60 will drop further by the time of its official launch, aiming to boost sales through price reductions and deliver 10,000 units per month by December. In addition to Letao, NIO's third brand, "Firefly," is expected to launch in 2025, expanding NIO's coverage to the 140,000-800,000 yuan price range. Using low prices to boost sales volumes may become a killer strategy for XPeng and NIO.

Leapmotor, which previously had a product strategy similar to Ideal's, has also ventured into the sub-200,000 yuan market, with prices reaching as low as 150,000 yuan. According to the 21st Century Business Herald, Leapmotor plans to replicate its C-series strategy next year by launching three B-series models in the 100,000-150,000 yuan price range. However, Leapmotor has yet to achieve economies of scale, and lower product prices significantly impact its gross margin. In the first half of this year, Leapmotor's gross margin of 1.13% was the lowest among the five newly emerged automakers.

Since the beginning of the year, BYD has seen astonishing price cuts, with the BYD Han EV recently experiencing price reductions of up to 74,000 yuan, highlighting its cost-effectiveness.

With major domestic new energy automakers almost universally cutting prices in the face of relentless price reductions by competitors, the question arises as to whether Ideal will follow suit. As early as April, Ideal unusually announced price reductions across its entire lineup, with the Ideal L6 marking the first time the company has brought a product line below 300,000 yuan. While this move aimed to boost market share, it also lowered the average selling price, which may have contributed to the decline in Ideal's gross margin in the first half of the year.

Ideal has been profitable for seven consecutive quarters, and except for the second quarter of this year, its gross margin has consistently been above 20%. However, Ideal's consecutive operating losses in two quarters have become a source of concern for some investors. The failure of Ideal MEGA and the postponement of Ideal's pure electric SUV launch to the first half of next year may drive Ideal's R&D expenses up sharply from 4.278 billion yuan last year to 6.076 billion yuan, an increase of 42.04%.

It is worth mentioning that according to the financial report, Ideal had a total of 30,899 employees during the reporting period, a decrease of 692 from the 31,591 at the end of the previous year. Despite a surge in R&D expenses, the number of R&D personnel decreased by over 1,300 during the reporting period, a decline of over 20%.

Overall, Ideal Auto's performance in the first half of the year was remarkable, fully demonstrating its strong competitiveness and forward-looking layout in the new energy vehicle sector. Facing a complex and ever-changing market environment, Ideal Auto has won widespread recognition and favor from consumers through innovative product design, excellent performance, and precise market positioning, leading to continuous sales growth and a steadily expanding market share.

In particular, its unremitting investment in technological research and development and intelligent exploration has not only promoted product iteration and upgrading but also laid a solid foundation for sustainable development in the future. As the traditional peak sales season of "Golden September, Silver October" approaches, the newly emerged automakers are sprinting to meet their annual sales targets. During this critical period, it remains to be seen how Ideal will respond.

The article represents the author's personal opinions. For any questions or feedback, please leave a comment directly in the comment section.