With sales continuing to climb, Leapmotor might truly become the 'leading' car.

Just as November began, Leapmotor disclosed its sales data for October. The data shows that in October, Leapmotor delivered 38,177 vehicles, a year-on-year increase of 109.7%.

In the longer term, this is the third consecutive month that Leapmotor's sales have exceeded 30,000 units. In August, September, and October, Leapmotor sold 30,305, 33,767, and 33,767 units, respectively. With sales continuing to rise, Leapmotor's cumulative sales for the first ten months of this year have exceeded 210,000 units.

In terms of sales alone, Leapmotor has already entered the first tier of new forces. Taking September sales as an example, Leapmotor is currently only behind Li Auto, AITO, and GAC Aion.

However, despite rising sales, the stock price reaction of Leapmotor has been quite subdued.

After the sales data was disclosed, the stock price of Leapmotor only increased by 0.98% on the same day, and the significant sales growth did not significantly stimulate the stock price. As of the latest close, Leapmotor's stock price closed at HK$31 per share, with a total market capitalization of HK$41.45 billion.

It should be noted that XPeng, whose sales are far less than Leapmotor, has a market capitalization of HK$84.1 billion over the same period, twice that of Leapmotor; while Li Auto, which is Leapmotor's target, has a market capitalization of HK$206 billion over the same period, about five times that of Leapmotor.

Behind the surge in sales

2024 is the year Leapmotor truly "exploded."

According to statistics, Leapmotor sold over 30,000 units in August, September, and October, and its cumulative sales for the first ten months of this year exceeded 200,000 units, with a year-on-year growth rate close to doubling, far exceeding that of other domestic automakers.

It is worth mentioning that unlike in the past, when sales were mainly driven by the "Leapmotor T03," the sales structure of Leapmotor has undergone significant changes this year. About 21% of sales are from the Leapmotor T03, and the rest are from the Leapmotor C series; the products are not only positioned at a higher end but also priced above HK$100,000. It can be seen that Leapmotor's sales are not only growing but also becoming more "valuable."

However, even though the sales proportion of Leapmotor T03 has decreased and the proportion of the C series has increased significantly, the key to Leapmotor's surge in sales is still the three words - cost-effectiveness.

Taking the Leapmotor C11, which sold over 80,000 units in 2023, as an example, the 2024 Leapmotor C11 580 Prestige version, with a landing price of less than HK$150,000 under a series of preferential policies and subsidies, is equipped with a Qualcomm Snapdragon 8295 chip and a cloverleaf central integrated electronic and electrical architecture. The chassis uses a double-wishbone front and five-link rear suspension and is upgraded with an FSD variable damping shock absorber system. These configurations are generally only found in models priced above HK$200,000.

Admittedly, relying on a cost-effectiveness strategy, Leapmotor has successfully gained a foothold in the fiercely competitive new energy vehicle market. However, on the other hand, Leapmotor also bears the pressure of making it difficult to make money from selling cars.

In the first half of this year, Leapmotor generated operating revenue of RMB 8.85 billion, a year-on-year increase of 52.2%; its net profit was RMB -2.212 billion, a year-on-year increase of 2.83%. It should be noted that Leapmotor's sales have increased significantly in the first half of this year - in the first half of the year, Leapmotor delivered 86,696 units, a year-on-year increase of 94.8%, setting a new record for the first half of the year. Obviously, the substantial increase in sales has not led to a significant rebound in profitability.

In addition to still being in the red, Leapmotor's operating conditions are not optimistic when viewed from other financial data. For example, in terms of cash flow, Leapmotor's net cash flow was RMB -2.538 billion in the first half of this year, compared to RMB 4.773 billion in the first half of 2023; regarding asset-liability ratio, Leapmotor's debt ratio also increased from 56.08% in the first half of 2023 to 60.3% in the first half of 2024; moreover, from the perspective of cash reserves, which are crucial for automakers, as of June 30, 2024, Leapmotor's cash reserves decreased from RMB 19.39 billion at the end of 2023 to RMB 16.56 billion, a decrease of RMB 2.83 billion.

Obviously, due to its high cost-effectiveness strategy, although sales continue to grow, the help it brings to Leapmotor is quite limited. Of course, since sales in the first half of the year were still in an "upward trend," the scale effect of Leapmotor has not yet emerged, and perhaps in future annual reports, there may be some changes in Leapmotor's financial situation.

Difficulty in increasing valuation

In addition to performance and financial issues, Leapmotor also faces a major problem: its valuation has been low for years.

Leapmotor was listed in September 2022 with an issue price of HK$48. As of November 1, 2024, Leapmotor's stock price was only HK$31 per share, still below the issue price, indicating that it is in a "broken out" state.

Furthermore, Leapmotor has the lowest market capitalization among the four listed new force automakers.

As of November 1, Leapmotor's total market capitalization was HK$41.45 billion, while the Hong Kong stock market capitalizations of NIO, XPeng, and Li Auto were HK$84.43 billion, HK$84.13 billion, and HK$206 billion, respectively. The market capitalizations of NIO and XPeng are twice that of Leapmotor, and Li Auto's market capitalization is five times that of Leapmotor, indicating a significant gap between Leapmotor and the "NXP trio."

However, in terms of sales alone, Leapmotor has already far surpassed XPeng and NIO. Based on the latest sales data for October, NIO, XPeng, and Li Auto sold 20,976, 23,917, and 51,443 units, respectively, while Leapmotor sold 38,177 units. Although Leapmotor's sales are not as high as Li Auto's, they are significantly ahead of NIO and XPeng.

So, why can't Leapmotor's valuation be increased?

This may have a lot to do with Leapmotor's main selling point, "full-domain self-research." Leapmotor's core competitiveness lies in its self-research and development of most components. Leapmotor stated in its prospectus that it is the only emerging electric vehicle company in China with full-domain self-research and development capabilities. Simply put, Leapmotor handles all three major components of smart cars - intelligent driving, intelligent cockpit, and three-electric technology. The prospectus shows that Leapmotor produces and researches all components except for the battery cell, chassis, automotive electronics, and interior and exterior trim. Due to its "full-domain self-research" approach, Leapmotor is also known as the "little BYD."

Admittedly, taking the "full-domain self-research" route is a good direction, but there is a prerequisite - it must achieve scale.

According to media analysis, to achieve economies of scale and cost reduction, annual sales of 400,000 units is a critical point. However, Leapmotor sold only 144,000 units in 2023, and its sales target for 2024 is set at 250,000 to 300,000 units, which does not meet the baseline for economies of scale. In other words, it will take some time for Leapmotor to leverage its "full-domain self-research" capabilities.

Moreover, "full-domain self-research" does not have as much imagination as intelligence and high-end positioning. After adopting the "full-domain self-research" route, Leapmotor is almost confined to the cost-effectiveness route and can only rely on high cost-effectiveness to gain sales. However, as mentioned above, while cost-effectiveness can bring sales, Leapmotor also bears the pressure of making it difficult to make money from selling cars. Therefore, from this perspective, perhaps more data is needed to verify the quality of Leapmotor, but this process should be quite "painful" for it.