In recent years, the electric vehicle landscape in China has seen explosive growth, characterized by a surge in new automotive firms entering the marketAmong the notable players are NIO, Li Auto, and Xiaopeng Motors, which have already made their mark as publicly traded companiesFollowing their lead, Leapmotor, another emerging Chinese automotive company, is now eyeing its initial public offering (IPO). The shift marks yet another step in the ongoing evolution of the electric vehicle sector in China.

On March 17, 2023, Leapmotor Technology Co., Ltd., based in Zhejiang, submitted its application to be listed on the Hong Kong Stock ExchangeProminent financial institutions such as China International Capital Corporation, Citigroup, JPMorgan Chase, and CCB International are acting as joint sponsors for this ventureThis marks a significant milestone for Leapmotor, signifying its readiness to gain traction in a competitive environment.

According to their prospectus, Leapmotor delivered around 8,050 electric vehicles (EVs) in 2020, ramping up to 44,000 in 2021, ending up with a cumulative total of 52,000 units deliveredDespite the increase in deliveries, the company has not yet reached profitabilityIn the previous year alone, it recorded revenues of approximately 3.13 billion yuan but faced a substantial loss of 2.84 billion yuan, summing a staggering total loss exceeding 4.8 billion yuan over the last three yearsLooking ahead, the company expects to continue incurring net losses in 2022.

The electric vehicle market is notoriously capital-intensive, and Leapmotor’s journey reflects this realityUnlike its predecessors, who benefited from opportune market conditions, Leapmotor is navigating a climate where valuations for new energy vehicles (NEVs) have declined compared to previous yearsThe crucial question for investors remains: how will the market evaluate Leapmotor at this juncture?

Founded in July 2015, Leapmotor is helmed by CEO Zhu Jiangming, who co-founded the security giant Dahua Technology and comes from a strong technical background

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This industrial pedigree offers Leapmotor a robust foundation as it embarks on technological innovations in the automotive field.

Interestingly, Leapmotor is reported to be the only emerging electric vehicle company in China possessing comprehensive independent research and development capabilitiesIt has made concerted efforts in modular and platform-based development for both software and hardware components, positioning itself uniquely among competitors.

Leapmotor has emerged from the successful incubator of Dahua Technology, which underscores its technical competenceThe company's operations stretch across smart electric vehicle design, manufacturing, intelligent driving, motors, battery systems, and cloud-based IoT solutions.

Market studies, such as those from Frost & Sullivan, predict that by 2026, NEVs priced between 150,000 and 300,000 yuan will account for nearly half of all electric vehicle sales in ChinaWith this trend in mind, Leapmotor has strategically positioned itself to tap into this burgeoning market segment.

The company primarily targets the market of electric vehicles priced between 150,000 and 300,000 yuan, offering models that have seen considerable popularityOver the past three years, Leapmotor has delivered three key electric vehicle models, the S01, T03, and C11, which have enhanced the company’s visibility and market reach.

In a significant shift, Leapmotor reported delivering over 43,000 vehicles in 2021, marking a staggering increase of 443.5% compared to 2020. Furthermore, quarterly deliveries first surpassed the landmark figure of 10,000 vehicles in the third quarter of 2021, which not only topped the total from 2020 but continued to rise in subsequent quarters, culminating in 17,045 vehicles delivered in Q4.

Leapmotor's ascent from annual deliveries below 10,000 units to achieving quarterly deliveries above that threshold in less than two years exemplifies its rapid growth trajectory

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According to Frost & Sullivan, Leapmotor stands as the fastest-growing company among emerging EV firms in terms of delivery volume.

However, it is essential to draw attention to the relative performance of competitors in the "new forces" automotive sectorEstablished competitors like NIO, Li Auto, and Xiaopeng have reached annual sales figures above 90,000 units, leaving Leapmotor’s annual deliveries at around half that number.

Looking toward the future, Leapmotor plans to launch eight new models by the end of 2025, with the intent of introducing one to three new models annuallyThis product line will span various vehicle sizes, including sedans, SUVs, and multi-purpose vehicles (MPVs). The latest model, a large sedan known as the C01, is slated for release in the second quarter of 2022, boasting a range of approximately 700 kilometers.

Similar to many new-energy automotive companies, Leapmotor has yet to turn a profit since its inceptionAs revenues grow, so too does the scale of its lossesFinancial data indicates that from 2019 to 2021, the company had revenues of 117 million yuan, 631 million yuan, and 3.12 billion yuan, with losses amounting to 900 million yuan, 1.1 billion yuan, and 2.84 billion yuan, respectively.

This trend of significant financial losses is reflective of the wider industry, where the competitive landscape demands substantial investments in technology and infrastructureOver three years, Leapmotor has accumulated losses of 4.8 billion yuan, with figures worsening year by yearThe adjusted losses were 810 million yuan and 935 million yuan for 2019 and 2020, respectively, escalating to a staggering 2.63 billion yuan in 2021.

The prospectus emphasizes that substantial expenditures on new model development, production facilities, and sales networks will continue to weigh on the company's financial resultsConsequently, Leapmotor anticipates incurring further net losses in 2022.

Improvement is evident in Leapmotor's gross profit margin: it shifted from -95.7% in 2019 to -50.6% in 2020 and further improved to -44.3% in 2021. The company attributes this improvement to the enhanced sales of higher-margin electric vehicles and reduced unit costs due to economies of scale.

Research and development expenditures over the past three years have been significant, totaling 358 million yuan, 289 million yuan, and 740 million yuan in 2019, 2020, and 2021, respectively

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As of the end of 2021, R&D staff constituted 33.9% of the workforce, underscoring the company's dedication to innovation.

Leapmotor has implemented an omnichannel strategy that combines both direct-to-consumer retail and partnerships with dealer channels, allowing for rapid expansion of its retail presenceBy the end of last year, the company boasted 23 direct-operated stores and 268 partner stores, a threefold increase compared to the same period in 2020.

As it expands its retail footprint, Leapmotor’s sales expenditures have risen significantly, from 155 million yuan in 2020 to 428 million yuan in 2021. This increased investment in sales infrastructure highlights the company’s commitment to establishing a robust presence in the market.

Throughout its journey, Leapmotor has attracted investments from notable firms, including Sequoia Capital China, Shanghai Electric, China CNR Corporation, GP Capital, Jiuzhi Capital, Yijing Capital, and China International Capital Corporation, demonstrating significant financial backing.

In its prospectus, Leapmotor indicates that proceeds from the IPO will largely be allocated towards R&D enhancement, production capacity expansion, business growth, improving brand visibility, and working capital.

Currently, the company’s facility in Jinhua, Zhejiang, produces smart electric vehicles along with their core systems and electronic componentsThis wholly-owned digital AI factory can manufacture up to 200,000 complete vehicles each year, showcasing a robust production capacity that supports its ambitious goals.

Leapmotor is also planning to establish a new production base in Hangzhou, Zhejiang, to further amplify its production capabilities and strategically seize opportunities in the growing NEV market.

However, the company’s profitability challenges are compounded not only by competitive price points but also by reliance on B2B clients, who exert considerable negotiating power

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