IPO of Leapmotor ends up being 2019’s worst-performing new stock in HK, with a fall of over 39% on its debut.

Author: Sun Mingzhi

Editor: Wu Xianzhi

On September 29th, Leapmotor (09863.HK) was officially listed on the Hong Kong Stock Exchange. However, it immediately fell below its offering price, with a drop of more than 39% at one point. The closing price was HKD 33.55, a decrease of 32.29%, making it the worst IPO performance of new stocks in Hong Kong this year.

It can be said that Leapmotor did not catch the good times. It happened to debut during the low point of Chinese new car stocks. On the same day, XPeng Motors set its historic lowest stock price, while NIO and Ideal Motors were also in a low stock price trend for the past few months.

When Ideal Motors and XPeng Motors completed their IPOs in the summer of 2020, the capital market was extremely optimistic about new energy vehicle companies. Both companies’ stock prices skyrocketed on their first day of trading. But as time passed, the capital market’s view of this field has returned to rationality. Leapmotor’s IPO means that its C-round investors are likely to lose money.

Of course, compared with new energy vehicle companies such as WM Motor, Xpeng Motors, and Jiahe New Energy Automotive, Leapmotor at least provides an exit channel for investors through IPO. If the stock price rebounds, previous investors can still withdraw.

Relying on Low Prices to Steady itself as the Second-tier Players.

In January 2019, Leapmotor launched its first car model, the S01, which was positioned as a pure electric sports car. After subsidies, its price was between 109,900 and 149,900 yuan, but it came equipped with frameless doors, face recognition, and vein unlocking, high-end configurations that could not be found for less than 200,000 yuan at the time. The purpose was to highlight product value with differentiation and to reveal the company’s identity as a “price butcher”.

Tesla and Xpeng’s first car models were similarly positioned like the S01. The only difference is that these two automakers introduced the sports coupe to showcase their brand’s strength, and they did not have high sales goals. S01, on the other hand, is Leapmotor’s vehicle that genuinely intends to sell well by offering high value.

Before the launch of the S01, Leapmotor CEO Zhu Jiangming was confident, setting a sales goal for the first year of 10,000 vehicles. But the S01 did not sell well. By the end of 2019, Leapmotor had only delivered slightly over 1,000 cars. Until the end of 2021, the total delivery of S01 was only 2,708 units. Leapmotor sold a high-end product with excellent value, but low sales volumes.

Zhu Jiangming had admitted that he had underestimated the difficulty of producing a car, but the failure of the first vehicle model S01 did not dissuade Leapmotor.In May 2020, the second model of LI, T03, was launched. This micro electric vehicle still adheres to the strategy of high cost-performance ratio. Compared with other products in the same level, T03 has certain advantages in vehicle system, intelligence and endurance, and was launched two months earlier than Hongguang MINIEV.

Thanks to its own strength and early launch time, T03 sold well, with sales exceeding 1,000 within two months. By the end of 2020, the car’s cumulative sales reached 10,266 units, completing the KPI not achieved before S01. By August 2022, the cumulative sales of T03 exceeded 40,000.

However, the sales growth brought by the T03 model is only temporary. The profit of selling micro cars is very low, and there are more and more competitive models in the market. LI needs to launch a new model to increase its profit and tell the investment market that it is OK not to buy my car, but don’t miss my stock. Therefore, on September 28, 2021, LI launched its third model, C11, in the new energy vehicle market with a price range of 100,000 to 200,000 yuan.

According to the data of China Passenger Car Association, LI sold 12,525 cars in August 2022, up 179.1% year on year. Among them, C11 sold 6,277 units, accounting for 50.12% of the monthly sales, surpassing half of the monthly sales. C11 gradually replaced T03 and became another main model of LI.

Although LI’s first model, S01, did not perform well, with the relatively outstanding performance of T03 and C11, it gradually became known to the public. However, compared with “Tesla China,” LI’s sales are not high, and their popularity is not high enough.

On September 28, C01 was officially launched as the second sedan product of LI after S01. Officially positioning it as a fully intelligent and multi-scenario electric sedan, Zhu Jiangming evaluated C01 as the ceiling of 200,000 yuan level electric cars to attract attention.

As a model under LI, C01 also has significant advantages in cost performance. The lowest starting price of this car is 183,800 yuan. In the new energy vehicle market around 200,000 yuan, the main competitors of C01 are NETA S, BYD Dolphin, and Changan Blue Core SL03.

For those strong competitors, Zhu Jiangming is very confident. He once said that the standard configuration of C01 can be comparable to luxury cars over 400,000 yuan. In terms of configuration, C01 is fully equipped with front double wishbone and rear five-link suspension, Qualcomm Snapdragon 8155P chip, 28 high-precision sensing hardware, frameless doors, seat ventilation, heating and massage, etc. Almost everything that can be added is added, but the post-subsidy price of C01 was below 200,000 yuan, which is a touchstone to test the product and brand power.

C01

C01 is positioned as a mid-to-large-size sedan, featuring the CTC technology. With the integration of the power battery and chassis, the C01 enhances the strength against torsion of the chassis, improves battery safety, reduces weight, and extends the range of the car. Moreover, the C01 boasts a smartphone and smartwatch connected system, the Android virtual machine function built-in, a novel single-chip control of triple-screen mode, and the BMS and AI cloud platform monitoring battery system technology.

Leapmotor has vertically integrated the industrial chain through self-research to reduce costs. Meanwhile, the company also received some technical support from Dahua, which gave the C01 more ammunition, making it a highly cost-effective product. However, this also reveals the anxiety and helplessness of Leapmotor.

The C01 has important significance for Leapmotor as a high cost-effective car, as it brings two benefits. First, it brings tremendous sales growth to the company. Second, climbing towards a high-end market helps improve the company’s brand image.

Leapmotor positions its brand in the mid-to-high-end segment, and the sale price is between RMB 150,000 and RMB 300,000. Currently, T03 and C11 are the main models on sale, but limited by pricing and product cycles, they bring a limited profit benefit, making it difficult to bear the profit task.

Moreover, Leapmotor’s brand power is still somewhat insufficient in the high-end market competition, and even has the label of “cars for old people.” In order to change this label and penetrate the middle-to-high-end new energy vehicle market, the C01 needs to shoulder this responsibility and improve the company’s financial situation.

From 2019 to 2021, while Leapmotor’s annual revenue is growing rapidly, its loss speed is also accelerating. In three years, the accumulated loss exceeds RMB 4.8 billion.

Vertical integration of the industrial chain can indeed reduce some costs, but the company needs to invest a lot of capital in the initial R&D and production. The investment amount is higher than the revenue amount, and the profit of the product is low. This also makes it difficult for Leapmotor to make ends meet and expand the annual loss.

However, Leapmotor does not have that much money. Since its inception, Leapmotor has raised funds eight times and only raised RMB 11.86 billion. It is not enough for a car manufacturer, so Leapmotor focused on the C01.

On September 21, Leapmotor announced that the C01’s order volume exceeded 100,000. However, the premise of obtaining 100,000 orders for the C01 is that Leapmotor can set the price to zero. Leapmotor wants to attract attention and generate buzz by allowing pre-orders at zero cost.Due to the phenomenon of free pre-orders, some customers may place orders without certainty, which results in a high degree of uncertainty in the number of orders. It is possible that there will be a significant reduction in actual delivery volume for C01 after delivery, as well.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.