LEAPMOTOR (09863.HK) recently released its financial results for the first quarter of this year.

The company's net loss attributable to shareholders for the quarter was 3.9 billion yuan, widening from a loss of 1.3 billion yuan in the same period last year. Gross margin fell to 9.4%, down 5.5 percentage points from 14.9% in the first quarter of 2025.

In terms of deliveries, overseas growth offset a domestic shortfall. Global deliveries in the first quarter reached 110,155 vehicles, of which 40,901 were exported, accounting for 37.13% of the total. Revenue reached 10.82 billion yuan, setting a new first-quarter record. Domestic sales were approximately 69,300 units, a 13.5% decrease from about 80,100 units in the same period last year.

After achieving profitability for the full previous year, LEAPMOTOR set a new quarterly sales record in a challenging domestic market, yet its loss widened year-over-year. Record-high overseas sales coupled with a significant drop in gross margin were defining features of the company's Q1 performance. Information from the earnings conference indicates the company does not intend to adjust its annual profit target of 5 billion yuan, but achieving this goal carries risks.

Overseas sales exceeded 50,000 units in the first four months of the year. LEAPMOTOR's total sales target for this year is 1 million vehicles, with overseas sales guidance set at 100,000 to 150,000 units. Overseas sales for the first four months reached 55,126 vehicles.

During the earnings conference, Li Tengfei, Vice President and CFO of LEAPMOTOR, stated that based on performance in the first four months, "we believe the possibility of achieving the annual overseas sales target of 150,000 units has significantly increased." He added that Q1 actual shipments were affected by shipping disruptions, and the figures could have been higher with improved logistics conditions.

Growth in overseas markets primarily came from Europe. LEAPMOTOR's new vehicle registrations in 16 European countries reached 23,300 units in Q1, a 726.5% year-on-year increase. Sales of pure electric models in 12 EU countries were approximately 17,000 units. Notably, Italy saw 11,637 cumulative registrations in Q1, and Germany recorded sales of 1,258 units in March.

LEAPMOTOR's rapid expansion in Europe stems from its joint venture with global automotive giant Stellantis, named "LEAPMOTOR International." As of the end of March, LEAPMOTOR International had established around 1,000 sales and after-sales service outlets in over 40 markets across Europe, the Middle East, Africa, and Asia-Pacific, with more than 850 located in Europe.

Recently, LEAPMOTOR secured its first dedicated production line for mass-market vehicles in Europe. On May 8, Stellantis announced an expansion of its strategic cooperation with LEAPMOTOR. LEAPMOTOR's technology architecture will be applied for the first time in a new Opel-branded all-electric SUV. The two parties are evaluating the establishment of a new production line at the Zaragoza plant in Spain for a new Opel C-segment all-electric SUV model. According to the latest information, LEAPMOTOR also plans to introduce its C-segment SUV model, the B10, for production at this plant, with production expected to start in the third quarter of 2026 to meet localization needs in the European market.

Li Tengfei stated that LEAPMOTOR will leverage Stellantis's production capacity and also aims to quickly establish its own production capabilities in Europe, potentially through methods like factory acquisitions, to facilitate rapid product introduction into the European market.

According to information disclosed by LEAPMOTOR, the South American market will also become a new growth area.

Li Tengfei noted that the Stellantis Group holds nearly a 30% market share in the broader South American region, which is placing significant emphasis on LEAPMOTOR's business. Since the official launch of LEAPMOTOR products in South America last October, sales progress has been very rapid. The company is already working with Stellantis to formulate corresponding plans for utilizing existing factories in Brazil to localize production of LEAPMOTOR products in South America.

LEAPMOTOR is also actively expanding into the Southeast Asian market. Despite intense competition in the region, the company is adjusting its overall competitive strategy and adapting. Currently, performance in the Southeast Asian market shows significant improvement compared to the same period last year.

Gross margin fell to 9.4%. LEAPMOTOR set a profit target of 5 billion yuan for this year, but based on Q1 performance, changes in the international landscape introduce numerous variables to achieving this goal.

Specifically, the company's Q1 net loss attributable to shareholders widened to 3.9 billion yuan from a loss of 1.3 billion yuan a year ago, primarily driven by a decrease in gross profit and rigid increases in R&D and sales expenses. R&D expenditure increased by 30% year-on-year to 1.04 billion yuan, and sales expenses rose by 11.5% to 680 million yuan, reflecting the company's continued investment in technology iteration and market expansion.

A notable signal is the significant decline in gross margin.

Financially, total revenue for Q1 2026 was 10.82 billion yuan, an 8.0% year-on-year increase. Gross margin was 9.4%, lower than the 14.9% in Q1 2025 and the 15.0% in Q4 2025, with both year-on-year and quarter-on-quarter declines exceeding 5 percentage points.

The company explained that the year-on-year decline in gross margin was mainly due to changes in the vehicle product mix, with an increased proportion of B-series models which have a lower gross margin than the C-series, coupled with a decrease in strategic business revenue from partners. The quarter-on-quarter decline was further impacted by reduced production and increased per-unit manufacturing costs due to the Chinese New Year holiday.

This gross margin level is the second lowest since the third quarter of 2024. LEAPMOTOR's gross margin was 8.1% in Q3 2024, remaining above 10% for the subsequent five consecutive quarters.

With the launch of the A10 and D19 models in the second quarter, Q2 sales are expected to reach a new high. Guidance provided during the conference call indicates expected total Q2 sales between 240,000 and 250,000 units. Gross margin for Q2 is anticipated to recover to around 12% to 13%, but it is unlikely to return to the 15.0% level seen in Q4 2025.

It is worth noting that changes in the international landscape and sustained increases in raw material costs make future profit projections more uncertain. The company stated that the annual sales target of 1 million vehicles remains unchanged, but the annual profit target of 5 billion yuan carries risks.

Li Tengfei stated that due to sufficient prior preparation, Q1 profit was not significantly affected by cost increases. However, starting in Q2, rising raw material prices will gradually be reflected in costs. If price increases for materials like lithium carbonate and memory chips persist, they will have a relatively large impact on gross margin in the third and fourth quarters. Some manufacturers in the industry have already begun adjusting prices. He added, however, that there are still many variables regarding raw material prices and overall automotive industry pricing trends in the second half of the year, making it difficult to judge at this time.

Li Tengfei revealed that LEAPMOTOR is planning a second brand, with the first product expected to launch in late 2026 or mid-2027, positioned to differentiate from the existing brand. For existing models, mid-cycle facelifts for the C10 and C16 from the C-series will be completed and launched in June, and the C11 will also receive an annual model update.

Regarding the profitability of overseas markets, LEAPMOTOR International achieved profitability in its first full fiscal year in 2025 and maintained a small profit in Q1 2026. Li Tengfei stated during the call that the joint venture model with Stellantis has allowed LEAPMOTOR to gain overseas channels and production capacity with relatively low capital investment. Building a network of similar scale independently could require investment several times higher. However, he acknowledged that exchange rate fluctuations have impacted LEAPMOTOR International's profitability, and shipping bottlenecks remain one of the factors constraining Q2 overseas sales. The company expects Q2 overseas sales to be between 40,000 and 50,000 units, with actual results depending on the smoothness of international logistics.