The electric vehicle maker impressed investors by reporting its deliveries doubled last year, as it achieved its first-ever annual profit

image credit: Bamboo Works

Key Takeaways:

  • Leapmotor recorded an annual net profit of 540 million yuan last year, as its revenue doubled and its other key metrics performed strongly
  • The electric vehicle maker led the field among China's new energy vehicle startups last year

The innovation road has never been easy to travel, despite Beijing's constant refrain calling on companies to innovate. But after a decade on a road stained with copious red ink, electric vehicle (EV) maker Zhejiang Leapmotor Technology Co. Ltd. (9863.HK), which once had trouble simply meeting its payroll, has finally crossed into the rare lane of profitability – something only a handful of its peers have done.

The company's 2025 results, released last week, contained multiple milestones. At the top of that list, Leapmotor achieved its first annual net profit of 540 million yuan ($78 million). Its full-year vehicle deliveries totaled 596,555 units, up more than 100%, making it the leader among China's new energy vehicle startups in terms of sales volume. What's more, the company was the only startup to achieve monthly deliveries exceeding 70,000 units.

All of Leapmotor's key metrics showed significant growth. Its revenue doubled year-on-year to 647.3 billion yuan, while its gross margin hit a record 14.5%, up 6.1 percentage points compared with 2024. The company's net operating cash flow reached 126.2 billion yuan, up by nearly 50% year-on-year.

Winning through affordability

Leapmotor's ability to outperform peers like Nio (NYSE:NIO) (9866.HK) and XPeng (NYSE:XPEV) (9868.HK) and to rapidly close the gap with Li Auto (2015.HK) (NASDAQ:LI), largely owes to its strategy of achieving big sales through competitive pricing. The company's main models are priced between 60,000 yuan and 200,000 yuan each, with an average price of around 150,000 yuan, or about $21,700. That approach helped Leapmotor, once considered a dark horse in a weak Chinese economy plagued with intense competition, to come from behind and sprint to the lead of the pack in terms of units sold.

Concurrently, Leapmotor achieved breakthroughs in its approach to technology. Using a "full domain in-house R&D + vertical integration" strategy and its self-developed Leap 3.5 architecture, the company managed to compress costs while still delivering enhanced efficiency and convenience to users.

Overseas growth also played a crucial role, as support from partner and shareholder Stellantis (STLA.US; STLAM.MI) paved the way for Leapmotor to make significant progress in Europe. As of February, the company's cumulative overseas sales reached 100,000 units. Last year, its battery EV sales ranked it third among Chinese passenger car brands across 29 European countries. And notably, it ranked second in the fourth quarter.

The latest financial report produced a groundswell of support for the company and its prospects. CICC said Leapmotor's steady stream of new model launches, upgrades to product specifications, and overseas expansion will help to boost the company's sales going forward. It rated the company an "outperform" with a target price of HK$60.80. CLSA was even more bullish, estimating that overseas carbon credit sales and technology licensing will allow Leapmotor to further boost its gross margin. It also rated Leapmotor as an "outperform," with an even higher target price of HK$80.

Profitability reliant on financial income

But beneath the veneer of strong results, Leapmotor still has some noteworthy issues under its hood. A further examination of last year's results shows the company's inaugural profit in no small part owed to 294 million yuan in finance income. Excluding that, the company's operating profit would have totaled just 1.77 billion yuan. When compared to its revenue of nearly 650 billion yuan, such performance hardly looks like cause for big celebration.

The company's inventory last year also surged to 4.55 billion yuan, representing a sharp 127.5% increase from 2024. Its trade receivables and notes receivable were even more alarming, skyrocketing by 163% year-on-year to reach 5.21 billion yuan.

In the debt department, Leapmotor's long-term liabilities surged by 108% to 2.3 billion yuan. Its short-term debt, trade and other payables, accrued expenses, and similar items combined totaled 40.83 billion yuan, up 81% year-on-year. The sole positive note was the company's cash, which totaled nearly 11 billion yuan at the end of last year, up by 72% year-on-year. But given the company's substantial spending — R&D alone consumed 4.3 billion yuan last year — that cash position doesn't look like a secure buffer.

Earning just 300 yuan per vehicle?

The low-pricing strategy behind Leapmotor's success last year doesn't seem to constitute a robust moat that others can't replicate either. The significant test lies in sustaining such low prices over the longer term. That could be hard as numerous automakers increasingly target the low-price segment with more entry-level models, posing a direct challenge to Leapmotor.

Delivering strong value-for-price necessitates increased R&D investment. Yet, Leapmotor's in-house R&D model requires continuous, substantial spending to maintain technological leadership. Sustaining low selling prices is also dependent on controlling raw material costs. In this case, a major factor is the cost of lithium batteries, whose core lithium price is notoriously volatile. Lithium carbonate prices reached a high of 180,000 yuan per ton earlier this year and, despite retreating to around 150,000 yuan, remain elevated compared to previous levels near 100,000 yuan. That's continuing to pressure automakers, especially ones focused on the lower end of the market.

Using low prices to generate profits via scale is inherently challenging. While Leapmotor has moved beyond losing money on every vehicle sold last year, its net profit margin was only 0.83%. Based on its full-year delivery volume, that equates to a profit of just 905 yuan per vehicle. And excluding its finance income, the profit per vehicle falls to less than 300 yuan. Any slight increase in costs could instantly wipe out such thin margins.

That said, the company could still boost its profits if it can continue to expand its scale. As founder Zhu Jiangming stated in an interview last year: "Over the long-term, I believe an annual sales volume of 1 million vehicles is the survival threshold; to move forward, achieving at least 2 million in annual sales is necessary; and to become a global automaker, annual sales must reach 4 million vehicles."

Leapmotor sold fewer than 600,000 electric vehicles last year. Its target this year is 1.05 million units, though whether it can achieve that goal remains far from certain. Reaching 2 million units appears aspirational but hard to attain, to say nothing of the 4 million target that looks out of reach for quite some time.

To subscribe to Bamboo Works weekly free newsletter, click here

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.