Leapmotor sees Q2 gross margin turn positive, prioritizes volume

Despite improved gross margin, Leapmotor’s losses continued to widen in the second quarter as it saw record quarterly R&D investments.

Chinese electric vehicle (EV) maker Leapmotor saw gross margin move back above zero last quarter, while net losses widened as R&D investment increased.

Leapmotor reported revenue of RMB 5.36 billion ($747 million) in the second quarter, up 22.62 percent year-on-year and up 53.73 percent from the first quarter, according to its unaudited financial report released yesterday.

Leapmotor delivered 53,286 vehicles in the second quarter, up 56.76 percent year-on-year and up 59.49 percent from the first quarter, previously published data showed.

The company’s gross margin was 2.76 percent in the second quarter, up 7.96 percentage points from -5.20 percent in the same period last year and up 4.16 percentage points from -1.40 percent in the first quarter.

Leapmotor first saw gross margin turn positive in the third quarter of 2023 and maintained that trend in the fourth quarter of last year. However, in the first quarter of this year, the number went back below zero.

Despite the gross margin improvement, Leapmotor’s losses continued to widen in the second quarter, which the company blamed on more investment in research and development.

Leapmotor reported a net loss of RMB 1.2 billion in the second quarter, a new high since the fourth quarter of 2022. That was up 4.87 percent year-on-year and 18.35 percent from the first quarter.

The company invested a record RMB 701 million in research and development in the second quarter, up 70.72 percent year-on-year and up 34.87 percent from the first quarter.

During an earnings call last night, Leapmotor’s founder and chairman Zhu Jiangming said that the company will continue to increase its investment in manpower, computing power and equipment in the field of intelligent driving next.

Leapmotor established an intelligent technology research institute in 2024 and plans to expand the current team from about 200 to a size of around 500 or so, focusing on developing algorithms and technologies related to smart driving, Zhu said.

The company aims to achieve NOA (Navigation on Autopilot) and end-to-end large model algorithms for urban areas by 2025.

As of June 30, Leapmotor had 10,844 full-time employees, of which 3,823, or 35.3 percent, were in research and development, and 47.2 percent were in manufacturing.

For Leapmotor, sales are more important than gross margins and gross profits, Zhu said on the earnings call.

Leapmotor’s strategy is to improve gross margins on a year-by-year, planned basis, aiming for an average gross margin of 5 percent this year, or even a little better, he said.

The company’s goal is to get gross margins toward 10 percent in 2025, and long-term stabilized gross margins should be around 15 percent, Zhu said.

Leapmotor reiterated its unchanged sales target of 250,000 units for the full year of 2024, which would mean an average of 28,200 deliveries per month for the remaining five months of the year.

The company delivered 22,093 vehicles in July, up 54.12 percent year-on-year and up 9.83 percent from June.

($1 = RMB 7.1718)