Leapmotor released its Q2 2026 financial report after the Hong Kong stock market closed on August 25 (Beijing Time). Overall, the financial performance was decent, with both revenue and profit exceeding expectations. However, due to factors such as rising raw material prices and changes in product mix, management lowered the full-year net profit guidance from RMB 5 billion to approximately RMB 3 billion. Key highlights include:

1. Revenue Exceeds Expectations, ASP Continues to Rise: In Q2, Leapmotor's total revenue reached RMB 27.3 billion, up 92% YoY, surpassing market expectations of RMB 25.9 billion, primarily driven by higher-than-expected sequential increase in average selling price (ASP). This quarter, Leapmotor's ASP reached RMB 111,000, up RMB 13,000 sequentially from RMB 98,000 in the previous quarter. Despite strong sales of the lower-priced A10 (priced around RMB 60,000-90,000), which drove the A-series' share in the model mix up by approximately 22 percentage points sequentially to 26.1%, the following factors contributed to the overall ASP increase:

a. High-priced D-series drives model mix upgrade: In Q2, led by the blockbuster D19 (a large SUV priced at RMB 219,800-269,800), the share of the highest-priced D-series increased by approximately 7.8 percentage points sequentially to 7.9%.

b. Accelerated overseas expansion drives carbon credit revenue growth: In Q2, Leapmotor's overseas sales reached approximately 55,000 units, up about 35% sequentially. The accelerated overseas expansion drove a sequential increase in carbon credit revenue this quarter.

2. Gross Margin Improves Sequentially, Meeting Market Expectations: In Q2, Leapmotor's gross margin reached 12.6%, up 3.2 percentage points sequentially. The gross profit per vehicle also increased by RMB 5,000 to RMB 14,000, primarily due to:

a. Release of scale effects: In Q2, Leapmotor's sales reached 246,000 units, up 124% sequentially from the low in Q1 and 84% YoY, driven by strong sales of the new A10 and D19 models, releasing scale effects.

b. Increase in high-margin carbon credit revenue: Due to continued accelerated overseas expansion, high-margin carbon credit revenue also increased sequentially, and this revenue is essentially pure gross profit.

c. Higher gross margins for high-priced D19/D99 models: The increased share of these models in the product mix in Q2 drove the overall gross margin improvement.

d. Continued rise in upstream raw material costs: In Q2, Leapmotor still faced impacts from rising upstream raw material costs (aluminum, iron, storage, batteries, etc.), but these were partially offset by the aforementioned factors, resulting in a continued sequential improvement in gross margin.

3. Operating Expenses Continue to Rise Sequentially, But Sales Leverage Effect Released: In Q2, Leapmotor's operating expenses continued to increase sequentially, including:

a. R&D expenses of RMB 1.28 billion, up RMB 240 million sequentially, primarily invested in: Architecture centralization – The Leap 4.0 central domain control architecture was first deployed on the D19, featuring dual 8797 chips and Extra large memory (super large memory), pioneering an integrated cabin-driving super collaboration, breaking down barriers between traditional cabin and intelligent driving systems, and enabling a single brain to control all vehicle intelligence; Intelligent driving – Urban navigation-assisted driving has been opened to all Leapmotor ABCD series models. In September 2026, a new platform technology and assisted driving solution will be launched, achieving a significant upgrade in the intelligent driving experience.

b. Selling expenses of RMB 1.31 billion, up significantly by RMB 630 million sequentially, surpassing market expectations of RMB 1.1 billion: Selling expenses increased sharply in Q2, primarily due to higher promotional investments for the dense (intensive) launch of new models and accelerated channel expansion. The number of domestic sales outlets increased by 71 to 1,064, while overseas channels reached 1,010, with approximately 90% located in Europe.

Finally, although total operating expenses increased by approximately RMB 1 billion sequentially, the expense ratio actually declined by 8.4 percentage points sequentially to 11.6% due to the release of the sales leverage effect.

4. Net Profit Turns Around: In Q2, Leapmotor's net profit attributable to shareholders reached approximately RMB 600 million (turning around from a loss of RMB 390 million in Q1), with a net profit margin of 2.2%, primarily driven by better-than-expected revenue and the release of the sales leverage effect.

Dolphin Research's View

Overall, Leapmotor's performance this quarter was decent. Revenue exceeded market expectations due to an upward shift in the model mix (driven by high-priced D-series models) and sequential growth in carbon credit revenue (accelerated overseas expansion). Gross margin also recovered from the low in Q1 (9.4% in Q1 to 12.6% in Q2), rising 3.2 percentage points sequentially to 12.6%, in line with Leapmotor's guidance of 12%-13% provided last quarter, thanks to strong sales of high-priced, high-margin D-series models, scale effects, and confirmation of high-margin carbon credit revenue.

However, due to the impact of rising raw material prices, Leapmotor lowered its full-year gross margin and profit guidance:

a. Full-year gross margin guidance lowered from 14%-15% to 13%-14%, with vehicle gross margin adjusted to 10%-11%.

b. Based on the lowered gross margin guidance, the full-year 2026 net profit guidance was lowered from RMB 5 billion to RMB 3 billion.

c. Full-year export sales guidance was raised: From January to July 2026, Leapmotor achieved export sales of 114,000 units (annualized at approximately 195,000 units). Leapmotor raised its 2026 export sales guidance from 150,000 units to 200,000 units, and to 350,000-400,000 units in 2027, continuing to achieve doubling growth.

In the short term, Leapmotor's lowering of its full-year net profit guidance from RMB 5 billion to approximately RMB 3 billion will require the market to digest the downward revision in profit expectations, and the stock price will likely remain under pressure in the near term. The profit downgrade is primarily due to rising raw material costs (power batteries, memory chips) and structural impacts from the increasing share of exports (currently, exported models have lower ASPs).

Based on current sales progress (356,500 units accumulated in 1H26, up 60.8% YoY) and referring to Leapmotor's previously set sales target of 1.05-1.10 million units, Dolphin Research conservatively expects Leapmotor to achieve 950,000-1,000,000 units in 2026 (up 59%-68% YoY, including 750,000-800,000 units domestically and 200,000 units overseas). Export sales reached 96,300 units in 1H26 (up 373% YoY), making the full-year overseas target of 200,000 units highly achievable.

Upward catalysts should not be overlooked: The D19's premiumization has shown initial success (sales exceeded 7,000 units in May, with a target gross margin of over 20% for the D-series); In September, the company will launch new platform technologies (next-generation autonomous driving architecture, battery, and electric drive technology upgrades), which are expected to enhance its intelligent valuation; Q4 is the peak sales season, and with the launch of the D99 (listed in June with a higher-than-expected pricing, the entry price was RMB 40,000 lower than the pre-sale price), sales may further exceed expectations.

In the medium to long term, Leapmotor's strong cost-reduction capabilities (full-stack in-house R&D, platform-based procurement) and scaling (scaled) overseas expansion (exports in 1H26 exceeded the full-year 2025 level, with export targets repeatedly raised) are core factors for stabilizing vehicle gross margins.

Once storage and commodity prices ease, combined with the cost-reduction effects of in-house developed battery cells, gross margins are expected to recover to the 14%-15% level in the long term. Additionally, smooth progress in localized cooperation with Stellantis in Spain (the Madrid plant is expected to be sold, with localized production of 50,000 units anticipated in 2027) and technology licensing revenue and component supply models (FAW Hongqi's G117 project entering mass production in Q4, STLA platform cooperation) all provide support for the company's value.

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