Leapmotor: The 'leading' momentum encounters obstacles, how to break through the blood path?

$LEAPMOTOR(09863.HK) released its Q3 2025 financial results after the Hong Kong market close on November 18th Beijing time. This earnings report was mixed, breaking Leapmotor's usual trend of beating expectations. Specifically:

1. Revenue performance was strong: Total revenue in Q3 was RMB 19.45 billion, significantly exceeding market expectations of RMB 18.33 billion. This was mainly due to the recognition of RMB 250 million in carbon credit revenue this quarter and a continued sequential recovery in the average selling price (ASP) of vehicles.

2. Vehicle ASP continued to recover sequentially: In Q3, due to the mass production and delivery of the lower-priced compact car B01, its proportion in the model mix increased sequentially to 18%. The overall model mix continued to shift towards lower-priced segments, so the market had expected the vehicle ASP to show a sequential decline.

However, the actual vehicle ASP was RMB 112,000, instead increasing by RMB 6,000 sequentially. Dolphin Research believes this may be due to: ① Promotional discounts for older models in the previous quarter, with no such impact this quarter; ② The proportion of export sales in the model mix continued to increase sequentially by 0.4 percentage points to 10% this quarter; ③ Recognition of carbon credit revenue in Q3.

3. Automotive gross margin also exceeded expectations: The automotive gross margin in Q3 increased sequentially by 0.9 percentage points to 14.5%, exceeding market expectations of 12.9%. This was mainly due to a. the sequential recovery in vehicle ASP; b. the recognition of pure-profit carbon credit revenue this quarter; c. a decline in per-unit depreciation and amortization costs due to the release of scale effects.

4. However, the three major expenses continued to increase, primarily due to ongoing investments in smart technology and channel expansion: This quarter, Leapmotor continued to increase investment in all three major expenses. R&D expenses were RMB 1.2 billion, up RMB 120 million sequentially, mainly due to continued investment in super extended-range models and smart technology. The company previously planned to achieve end-to-end urban NOA capability by year-end.

In terms of sales expenses, this quarter's sales expenses were RMB 950 million, up RMB 150 million sequentially, also exceeding market expectations of RMB 880 million. This was mainly because Leapmotor continued to expand its channel network and increase sales staff this quarter, along with increased marketing spend. Leapmotor added 60 domestic retail channels, bringing the total to 866. Channels are still expanding into lower-tier cities, preparing for volume increases from the B-series and the upcoming A-series models.

5. Net profit, however, declined sequentially and fell short of market expectations: Although automotive gross margin exceeded expectations this quarter, the significant increase in the three major expenses eroded Leapmotor's net profit. Net profit this quarter was RMB 150 million, declining sequentially and also falling short of the market expectation of RMB 200 million, dragging down profit performance.

Dolphin Research View:

Overall, Leapmotor's total revenue and gross margin performance in Q3 were good, showing continued sequential improvement and both exceeding market expectations. However, net profit was eroded due to the significant sequential increase in the three major expenses, showing a sequential decline and also falling short of the market expectation of RMB 200 million.

Looking ahead to Q4 and the 2026 outlook:

Leapmotor previously guided for full-year 2025 gross margin of 14%-15%, full-year 2025 net profit of RMB 500 million to RMB 1 billion, and full-year 2025 sales volume of 580,000 to 650,000 units.

Based on the current sales trend, despite the negative impact of the phase-out of local subsidies in Q4, Leapmotor is still taking various measures to boost orders and sales:

① Leapmotor increased promotional efforts in November: Specifically, an additional RMB 2,000 cash subsidy for the "B01" sedan, an additional RMB 2,000 cash subsidy each for the "C11" SUV and "C10" SUV, and an additional RMB 4,000 cash subsidy each for the "B10" SUV and "C16" SUV.

② Leapmotor also started pre-sales for the "Lafa5" hatchback in November.

Dolphin Research expects that driven by promotional policies and new model launches, Leapmotor's Q4 sales are projected to reach 218,000 units, a further sequential increase of 25%, corresponding to full-year 2025 sales of 613,000 units.

Regarding Q4 gross margin, although Leapmotor increased discounts in Q4, with the recognition of RMB 500 million in pure-profit carbon credit revenue and continued scale effects driving down per-unit fixed depreciation and amortization costs, Dolphin Research expects Q4 gross margin to continue improving marginally sequentially.

Looking at the 2026 outlook:

Leapmotor previously set a target of 1 million domestic sales and 100,000 to 150,000 overseas sales for 2026, representing nearly double the growth compared to 2025 sales, along with a 2026 net profit guidance of RMB 5 billion.

The current stock price 显然没有 price in this continued high-growth sales expectation. Dolphin Research believes this is mainly due to two core market concerns about Leapmotor:

① The negative impact of the purchase tax phase-out in 2026, and users in the price segment of Leapmotor's main models are price-sensitive;

② Leapmotor's brand upward movement may still face pressure, with concerns that sales of the three new D-series models may underperform expectations;

However, Dolphin Research believes that Leapmotor's core competitiveness can still support its growth logic:

a. Leapmotor has consistently strengthened its cost advantage through a high degree of vertical integration and a high proportion of in-house R&D, production, and supply. This enables Leapmotor to continuously launch models with higher cost-performance ratios compared to competitors, converting cost advantages into price advantages and consolidating its strategy of "lower price, larger space, higher configuration" to meet the demand for high cost-performance among price-sensitive users in the RMB 100,000-200,000 price range. Leapmotor expects to increase its in-house R&D and supply proportion to 80% next year, second only to BYD.

b. Through its cooperation with Stellantis, the certainty of its overseas expansion should be very strong among new automakers:

Leapmotor can leverage Stellantis's brand power, channels, and production capacity in Europe. Both shareholders have agreed that in the early stages of exports, volume rather than profit will be the fundamental goal, allowing Leapmotor to continue using its high cost-performance advantage to achieve initial accumulation and volume expansion in European sales.

The A-series models to be launched by Leapmotor in 2026, along with the currently launched B-series models, meet European demand for low-priced small cars (the A-segment, A0-segment, and smaller car market account for 60%-70% of sales in Europe). Currently, Leapmotor's overseas progress has 明显加快 significantly accelerated, with overseas orders reaching 27,000 units in October-November. It is expected that achieving the 2026 overseas sales target of 100,000 to 150,000 units should not be a problem.

Leapmotor remains a player in the electric vehicle sector with its own extreme cost-performance advantage + strong overseas expansion logic. However, the current stock price corresponds to a 2025 P/S multiple of only 1x, and the corresponding 2026 P/S multiple is already only 0.6-0.7x. Such a valuation is still not expensive.