Rating: Cautiously Bullish | Target Price: HKD 40-50 | Current Price: HKD 31.22 (2026-10-30 close, 52-week low) | Margin of Safety: 28.1% (baseline fair value floor of HKD 40 vs. current price) | Time Horizon: 12 months
Leapmotor is the first Chinese EV startup to validate a path to "profitable scale in the RMB 100k-200k price band": it delivered 596,555 vehicles in 2025 (+103.1%), achieving its first full-year profit, and delivered approximately 773,000 vehicles cumulatively from January to October 2026, with monthly deliveries exceeding 100,000 for four consecutive months; its export target was met one quarter ahead of schedule. However, in 2026 the market applied a systematic valuation compression — the stock fell roughly 37% year-to-date and about 47% over the past year, closing at HKD 31.22 on 2026-10-30, a 52-week low — primarily due to the quality of earnings: the full-year net profit guidance was cut twice, from about RMB 5.0 billion to about RMB 3.0 billion, and the reported H1 2026 net profit of RMB 210 million was almost entirely supported by government subsidies (RMB 1.08 billion) and overseas carbon credit revenue; excluding these, the core business remained loss-making.
Our core judgment: the current price has already priced in "disproof of earnings quality" to an extreme — the HKD 44.39 billion market cap is roughly 1.04x net cash (HKD 42.68 billion), meaning the market is paying close to zero for the entire operating business (annual capacity of about 950,000 units, the export system, and the full-stack proprietary technology platform); this constitutes deep-pessimism pricing with favorable odds. But it must be candidly acknowledged: the precedent of Li Auto trading at roughly 1.0-1.1x net cash for several quarters without re-rating shows that such discounts can persist for a long time absent verification of earnings quality. This report therefore takes a cautiously bullish stance: the odds support entry, while realization depends on three verification lines — gross margin stabilization in 2026Q3 (disclosure in mid-November), no further downgrade to the full-year net profit guidance of about RMB 3.0 billion, and a narrowing share of carbon credits/subsidies in profits. We also flag two policy headwinds that are less discussed: from April 2027, the export VAT rebate rate for new energy vehicles will be cut from 13% to 9% (directly hitting the overseas curve that accounts for about 27% of revenue), and the demand-pull-forward cycle ahead of the expiry of the halved vehicle purchase tax in 2028.
Nature of the opportunity: a misalignment between price structure and operating reality. The current price implies the market is pricing the company at "net cash + operating business value ≈ 0," while deliveries, market share, and exports are all on an upward trajectory. The root of this misalignment is not that the market fails to see the sales volume, but a deep skepticism about "whether genuine profitability exists after excluding policy-driven revenue" — a skepticism with ample justification (see C3). This is therefore an odds-driven opportunity, not a verified value.
Marginal changes (past 6 months): ① The March 2026 annual report set the tone of "one million units + RMB 5.0 billion net profit" as the valuation anchor for the year; the August interim results briefing cut net profit guidance to about RMB 3.0 billion with a gross margin guide of 13%-14%, implying H2 needed to generate RMB 2.79 billion in net profit (versus only RMB 210 million in H1). ② Upgraded overseas model: the Zaragoza, Spain B10 production line began operations in 2026Q3 (first-phase localization rate above 40%), Malaysia is already in mass production, Brazil will start production in 2027H2, and Opel will launch a battery-electric SUV based on a Leapmotor platform in 2028 (target annual output of 50,000 units). ③ The combined RMB 6.744 billion private placement — FAW (RMB 3.744 billion, 5% post-expansion) plus Jinyi High-Tech (about RMB 3.0 billion) — received CSRC approval on 2026-09-16, pending settlement, at a subscription price of RMB 50.03 per share (approximately HKD 55.5 at the announcement-date exchange rate, and approximately HKD 59.0 at the 2026-11-01 rate, a premium of roughly 78%-89% over the current price).
Primary stock price driver: over the next 6-12 months, the first driver is the realization path of the full-year net profit guidance of about RMB 3.0 billion, with gross margin as the decisive factor (each 1pp of gross margin in H2 corresponds to roughly RMB 430 million of profit elasticity, about 14% of the full-year guidance); the second driver is achievement of the one-million-unit delivery target and the challenging 200,000-unit export target; the third is the new-year guidance in the March 2027 annual report.
Expectation gap and falsification conditions: the expectation gap is positive and large (the current price is at a discount of roughly 31% to the baseline fair value midpoint), but convergence has preconditions. Falsification conditions concentrate on two lines — "earnings quality" and "loss of scale momentum" — detailed in the tracking plan at the end of this report.
Interpretation and caveats: the sales leadership claim must be qualified — in 2025, the Huawei-backed HIMA multi-brand alliance delivered 589,107 units, only about 1.3% fewer than Leapmotor's 596,555; Leapmotor is first on a single-OEM basis; HIMA briefly overtook Leapmotor on a single-quarter basis in 2026Q1. Management's guidance track record must be viewed separately: volume-type guidance has been well executed (the 2025 target of 500,000 units was met 1.5 months early; single-quarter profitability in 2024Q4 came a year ahead of the original target; gross margin turn positive in 2023 was achieved ahead of schedule), but profit-type guidance was downgraded in 2026 — set at about RMB 5.0 billion net profit in March, cut to about RMB 3.0 billion at the August results briefing (SWS Research interim review, 2026-08-24), and Chairman Zhu Jiangming publicly stated in April 2026 that "scale matters more than profit targets." Cost leadership (65% self-development/self-manufacturing of core components, 88% platform commonality across four platforms, an approximately 10% vehicle cost advantage versus outsourced sourcing, per company figures) has so far translated more into share than profit — net profit per vehicle in 2026H1 was only about RMB 585, well below BYD's (about RMB 7,087 in 2025). This thesis fails if monthly deliveries fall below 100,000 units for consecutive months or the annual sales target is missed.
Interpretation and constraints: the current price requires the company's future sustainable net profit to approach zero, whereas the reality is revenue +57% and guidance of about RMB 3.0 billion — on paper, a significantly positive expectation gap. But three constraints must hold simultaneously: first, the "distributability" of net cash needs a haircut — restricted cash of RMB 6.57 billion, negative working capital operations (book net assets only about RMB 14 billion), inventory of RMB 9.27 billion, and the fact that the company, while holding RMB 36.2 billion of net cash, raised RMB 6.744 billion via a dilutive (~8.66%) placement for R&D — behaviorally indicating the cash is operating fuel rather than a shareholder reserve. Second, "1x net cash" does not automatically trigger a re-rating — Li Auto traded at roughly 1.0-1.1x its RMB 80 billion net cash for several quarters, during which a USD 1 billion buyback and multiple bank buy ratings failed to reverse the trend until fundamentals stabilized. Third, sell-side target prices (current range HKD 58.85-100) were mostly set when the stock was above HKD 40 and guidance was RMB 5.0 billion, and cannot be taken directly as fair value. The anchor of HKD 40-50 baseline fair value is independent of the current price: 0.47-0.59x 2026E revenue on PS (between Geely's 0.34x and XPeng's 0.77x, below the peer median of 0.66x, with the discount reflecting earnings quality), cross-checked against EV/2027E net profit of 4-8x.
Exclusion estimate (this report): excluding government subsidies alone, 2026H1 would show a loss of about RMB 870 million; further excluding the gross profit contribution of policy-driven revenue such as carbon credits (services and other revenue of RMB 2.51 billion counted at near-full gross margin of about RMB 2.38 billion), the vehicle-only gross margin would be only about 5.5% and the operating loss would widen to roughly RMB 3 billion — of the reported 11.7% gross margin in 2026H1, about 6pp was supported by this line item. Triple pressures remain unresolved: ① raw materials (battery-grade lithium carbonate roughly double the prior-year level; automotive-grade memory chips up about 180% from March to June 2026, adding RMB 7,000-10,000 of cost per vehicle) and a rising mix of low-priced A-series models (ASP fell from RMB 116,100 in FY2023 to RMB 99,900 in 2026H1); ② carbon credit volume and price are in a structural downtrend (the EU's 2025-2027 three-year averaging buffer; Tesla's European credit revenue fell about 28% in 2025; the company's credit transfer revenue from Stellantis was RMB 1.11 billion in 2025, and this line item in 2026H1 alone reached 2.3x that amount — linear extrapolation is unsustainable); ③ two new policy headwinds — from 2027-04-01, the new energy export VAT rebate rate will fall from 13% to 9% (on a 2027E basis of 350,000-400,000 export units at an ASP of about RMB 100,000, if fully unpassed through, annualized profit erosion of roughly RMB 1.4-1.6 billion), and the expiry of the halved purchase tax in 2028 (5%→10%) will create a 2027Q4 pull-forward / 2028Q1 air pocket (industry precedent, 2025Q4→2026Q1: NEV retail once fell 23.8%). The full-year RMB 3.0 billion guidance requires a net profit of RMB 2.79 billion in H2, about 5.5x H2 2025, leaving minimal margin for error. If in the 2026 annual report "services and other revenue" plus subsidies still contribute more than half of gross profit, "profitability independent of policy-driven revenue" remains unverified.
Interpretation and discounts: overseas is currently the thickest source of profit — overseas gross margin of 18-20% is significantly above the company-wide 11.7% (management figures, not yet verified by segment reporting), and exports have risen to about 27% of sales; localized capacity (Zaragoza, Malaysia, Brazil) is the industry's most complete hedge against EU tariffs. On industrial capital: FAW's subscription price equates to about HKD 59 at current exchange rates, an ~89% premium to the current price, and the founders have cumulatively increased holdings by about HKD 1.7 billion since August 2024. But the discounts must be presented on equal footing: ① the 4pp export rebate cut will directly erode overseas margins (export-settled portions will be hit first, before localized capacity ramps); ② six rounds of founder share purchases have failed to stop the stock from making new lows — purchases are a confidence signal, not a buyout, and industrial-capital pricing (tied to procurement and powertrain cooperation) cannot be equated directly with secondary-market fair value; ③ the placement settlement will dilute about 8.66%. This thesis fails if Stellantis (holding about 20%, the exclusive export channel) curtails resources into or reduces its stake in Leapmotor International.
| Metric (RMB 100 million, unless noted) | FY2023 | FY2024 | FY2025 | 2026H1 | 2026Q1 |
|---|---|---|---|---|---|
| Revenue | 167.5 | 321.6 | 647.3 | 381.1 | 108.2 |
| Revenue YoY | — | +92.0% | +101.3% | +57.2% | +8.0% |
| Gross margin | 0.5% | 8.4% | 14.5% | 11.7% | 9.4% |
| Net profit attributable | -42.16 | -28.21 | +5.38 | +2.10 | -3.90 |
| Adjusted net profit (Non-IFRS) | -35.2 | -23.5 | +10.8 | +2.7 | — |
| Deliveries (units) | 144,155 | 293,724 | 596,555 | 356,487 | 110,155 |
| Per-vehicle ASP (RMB 10,000, est.) | 11.61 | 10.77 | 10.40 | 9.99 | — |
| Gross profit per vehicle (RMB, est.) | 558 | 9,173 | 15,777 | 12,470 | — |
| Operating cash flow | 10.8 | 84.7 | 126.2 | 21.7 | -66.1 |
| Free cash flow (company basis) | -3.2 | — | 78.2 | 1.4 | -74.0 |
| Capex | 13.1 | 21.5 | 48.0 | 20.3 | — |
| Cash + time deposits (period end) | 193.9 | 244.6 | 378.8 | 385.9 | 306.3 |
| Interest-bearing debt (period end) | 24.7 | 23.7 | 29.6 | 23.9 | — |
| Liabilities/total assets | — | — | 77.5% | 81.6% | — |
Note: the liability ratio includes substantial interest-free supply-chain payables; Leapmotor operates on a negative working capital model. FY2025 net cash was about RMB 34.9 billion; 2026-06-30 net cash about RMB 36.2 billion (cash + time deposits of 38.59 billion − borrowings of 2.39 billion), of which restricted cash was RMB 6.57 billion.
Reasons for metric changes (summary of YoY ≥ ±20%): ① FY2025 revenue +101.3% — the company attributed this to "an increase in vehicle and parts deliveries"; ② FY2025 other sales (carbon credits, etc.) +507.7% — "substantial growth in overseas vehicle sales drove the increase in related carbon credit trading revenue"; ③ 2026H1 government subsidies of RMB 1.08 billion (+111.6%) — "mainly comprising government subsidies for the Group's R&D expenses, interest expenses on borrowings and capacity, plus amortization of deferred government subsidies" (2026 interim report, Note 3); ④ 2026H1 gross margin -2.4pp — "impact of rising raw material costs and changes in vehicle product mix"; ⑤ inventory rose from RMB 4.55 billion to 9.27 billion (+103.8%) — "increased procurement spending due to strategic pre-stocking," which drove 2026H1 operating cash flow down 24.1% YoY; ⑥ 2026Q1 operating cash flow of negative RMB 6.61 billion — "larger maturing payables from payment-cycle timing" combined with "reduced operating cash inflows due to lower deliveries."
2026Q1 (disclosed 2026-05-15) was the turning point of this round of valuation compression: revenue of RMB 10.82 billion, up only 8.0% YoY (January-February were hit by demand pulled forward ahead of the purchase-tax reduction, with monthly delivery growth once falling to +11%); gross margin plunged to 9.4% (versus 15.0% in 2025Q4, a 5.6pp single-quarter swing); net loss attributable of RMB 390 million (versus a loss of RMB 130 million in the same period of 2025); operating cash flow of negative RMB 6.61 billion. The stock fell nearly 10% intraday on the announcement day. The company attributed the margin decline to changes in vehicle product mix (ramping low-priced A-series models) and lower strategic cooperation revenue; raw material cost increases became more visible in subsequent quarters.
2026H1 (disclosed 2026-08-24) turned positive on paper but with weak quality: revenue of RMB 38.11 billion (+57.2%), deliveries of 356,487 units (+60.8%), net profit attributable of RMB 210 million (versus RMB 30 million in the same period of 2025), adjusted net profit of RMB 270 million — but adjusted net profit fell 18.2% YoY (from RMB 330 million in the same period of 2025); i.e., despite deliveries growing 60%, profit excluding share-based payments actually contracted. Q2 single-quarter gross margin recovered to 12.6% (+3.2pp QoQ), with single-quarter net profit attributable of about RMB 600 million (Soochow Securities basis), showing the restorative force of scale effects and rising export mix; but cash flow weakened: H1 operating cash flow of RMB 2.17 billion (-24.1%), free cash flow of only RMB 140 million (versus RMB 860 million in the same period of 2025), and inventory doubled in six months to RMB 9.27 billion. At the results briefing, management cut the full-year net profit guidance from about RMB 5.0 billion to about RMB 3.0 billion, and the stock fell about 5% the next day. On the sell side: SWS Research, Soochow, and others cut 2026E profit forecasts alongside the interim report (Soochow down to RMB 2.4 billion); market concerns over "further guidance downgrades" constitute the main pressure on the current price.
Business model: Asset-heavy vehicle manufacturing + vertical integration of core components (self-developed and self-manufactured for the ~65% of vehicle cost covered) + asset-light overseas expansion (Leapmotor International, which leverages Stellantis' channels, is an equity-method associate, with nearly 1,000 outlets across 45+ countries). Revenue comes almost entirely from vehicle sales (vehicles and parts accounted for 95.8% in FY2025); no recurring subscription revenue, no pricing power — ASP declined continuously from RMB 116,100 in FY2023 to RMB 99,900 in 2026H1. The company's strategy is "good and affordable" — value for money plus scale-driven cost reduction, with gross margin improvement relying on a downward cost curve rather than rising prices.
Cash conversion of earnings: FY2025 operating cash flow was RMB 12.62 billion and free cash flow RMB 7.82 billion, superficially far exceeding net profit (OCF/net profit 23.4x, FCF/net profit 14.5x) — but this is mainly explained by an extremely small net profit base (RMB 540 million) and supply chain financing (accounts payable expanded +75% with sales volume; notes payable were pledged against restricted cash/time deposits), not by high cash conversion of profit. In 2026, the dual nature of this model began to show: in Q1, with concentrated payables maturities plus a delivery off-season, quarterly operating cash flow was -RMB 6.61 billion and free cash flow -RMB 7.40 billion; H1 inventory of RMB 9.27 billion (+103.8% in six months) due to "strategic advance stocking" further tied up cash. Recurring earnings test: 2026H1 net profit attributable to shareholders of RMB 210 million vs. government subsidies of RMB 1.08 billion and carbon-credit-driven revenue of RMB 2.51 billion — excluding these, the core business was loss-making (see calculation in C3); the gap between attributable profit and recurring earnings far exceeds the ±15% warning threshold. In the opposite direction, it must also be noted that the company's self-reported adjusted net profit adds back share-based payments in full (RMB 540 million in FY2025, exactly equal to 100% of that year's attributable net profit), a loose accounting treatment.
Return on capital: FY2025 operating margin was only 0.27% (about 0.3% in 2026H1); true profitability is still ramping. Book net assets are roughly RMB 14.0 billion (net cash of RMB 36.2 billion > net assets), so ROIC is distorted and not meaningful for reference for now.
CapEx quality: Capital expenditure rose from RMB 1.31 billion in FY2023 to RMB 4.80 billion in FY2025 (CapEx/D&A from 2.17x to 4.04x); capital commitments reached RMB 7.76 billion in 2026H1, directed to new plant equipment and production line introduction (including overseas localization) — growth-oriented spending in an expansion phase. The company does not disclose a maintenance/growth split, nor capacity utilization, so the level of maintenance investment cannot be determined.
Red flags: ① Earnings are highly dependent on government subsidies and carbon credits (FY2025 other income of RMB 591 million ≈ that year's net profit of RMB 538 million; 2026H1 subsidies of RMB 1.08 billion vs. net profit of RMB 210 million); ② Sharp rise in customer concentration (2026H1 largest customer — Leapmotor International's European channel — accounted for 23.29% of revenue; in FY2025 no single customer exceeded 10%); ③ Inventory and receivables both doubled (inventory RMB 9.27 billion; trade receivables and notes RMB 8.73 billion, of which RMB 7.469 billion due from Stellantis subsidiaries, unsecured and interest-free).
Consistency of words and deeds — pragmatic on volume, aggressive on profit guidance. Positive record: the 2025 target of 500,000 units was achieved one and a half months early (actual: 597,000 units, 119%); quarterly profitability turned positive one year ahead of the original target (2024Q4); the 2023 gross profit breakeven was achieved ahead of schedule; and the IPO option performance condition of "positive net profit in 2025" was also met. Negative record: the March 2026 annual report guided to net profit of about RMB 5.0 billion, which was cut to about RMB 3.0 billion by August (-40%); in April 2026 Zhu Jiangming publicly stated that "intense competition is the norm for the next two to three years" and "what we are considering recently is how to scale up, which matters more than profit targets." Overall judgment: volume and cost-reduction commitments are highly credible; profit guidance should systematically be discounted by 20%-40%.
Shareholder friendliness — slightly below neutral. No dividends and no buybacks since listing; continuous equity financing: Stellantis' HKD 8.509 billion in 2023 (@HKD 43.80), RMB 2.6 billion domestic share subscription in 2024 (@RMB 40.80), and pending delivery of RMB 6.744 billion from FAW + Jinyi Gaoxin — total share count expanded from 1.337 billion shares to a proposed 1.557 billion within three years (+16.5%). Mitigating factors: all rounds were premium strategic placements (Stellantis at ~19% premium to market price, FAW at ~11% premium to pre-signing close), not dilutive discount raises; the founder's cumulative ~HKD 1.7 billion of share purchases since August 2024 is a positive signal.
Risk signals: The Chairman also serves as CEO (deviation from the Corporate Governance Code C.2.1), with governance highly concentrated in the founder; the relationship with Stellantis is dual — shareholder and counterparty as the exclusive export channel (RMB 7.469 billion receivables, interest-free and unsecured); related-party transactions with the dealer controlled by Fu Liquan's son are small in scale (RMB 36.5 million for Jan-Aug 2026, annual cap of RMB 250 million), with pricing the same as other dealers — manageable.
| Segment | FY2025 Revenue | Share | YoY | Business Logic |
|---|---|---|---|---|
| Vehicle and parts sales | RMB 62.013 billion | 95.8% | +96.0% | Vehicles + spare parts; A/B/C series as the mainstay; self-development and manufacturing for cost reduction |
| Other sales (carbon credit trading, etc.) | RMB 2.585 billion | 4.0% | +507.7% | Carbon credits driven by overseas volume; policy-driven, high-volatility revenue |
| Services provided | RMB 134 million | 0.2% | +20.1% | Extended warranty / connected-car services, growing with fleet size |
| Of which: Europe revenue | RMB 5.610 billion (FY2025) → RMB 8.875 billion (2026H1) | 8.7% → 23.3% | 2026H1 +379.7% | Exports via Leapmotor International (Stellantis JV / associate) |
The profit engine is not the largest revenue segment — vehicles — but carbon credits: services and other revenue (mainly carbon credits) reached RMB 2.51 billion in 2026H1; at near-full gross margin, this contributed gross profit of roughly RMB 2.38 billion — more than half of total gross profit of RMB 4.46 billion for the period, contributing over half of gross profit on only ~6% of revenue. The gross margin structure gap (carbon credits near 100% vs. vehicles roughly 5.5%-10%) far exceeds 10pp, rooted in fundamentally different business attributes: vehicles are a fully competitive manufacturing business (suppressed by price wars), while carbon credits are a policy-driven scarce good under the EU compliance framework (prices tied to regulation, buyers concentrated within the Stellantis system). This means consolidated gross margin is highly sensitive to carbon credit prices and EU regulation — the key to reading Leapmotor's income statement. Geographically, Europe's revenue share rose from 8.7% to 23.3%; overseas is the fastest-growing segment.
Accounting red flags: ① Abnormal growth in related-party receivables — amounts due from related parties rose from RMB 3.515 million (FY2023) → RMB 1.050 billion (FY2024) → RMB 4.343 billion (FY2025) → RMB 7.605 billion (2026H1), far exceeding revenue growth, without specific explanation from the company; counterparties are concentrated in Leapmotor International (Stellantis system); ② Non-GAAP adjusted net profit adds back share-based payments in full (FY2025 SBC of RMB 540 million = 100% of attributable net profit; after adding back, profit doubles to RMB 1.08 billion) — transparent in reconciliation, but the treatment is loose.
Cross-period consistency: ① Gross margin trajectory 0.5% → 8.4% → 14.5% → 11.7%; after three years of improvement, it turned down in 2026, consistent with management's explanation (cost management + mix optimization vs. raw material increases + mix shift downward); ② Government subsidies/net profit ratio has kept rising (RMB 0.89 → 1.75 → 5.91 → 10.80 billion... i.e., 0.89 → 1.75 → 5.91 → 10.80 in absolute terms), a trend the company has not explained; ③ Inventory 17.19 → 20.23 → 45.48 → 92.70 (RMB 100 millions), explained in 2026H1 as "strategic advance stocking" but not specifically explained in the FY2025 annual report; ④ Earnings seasonality: Q4 2025 net profit of RMB 360 million accounted for 67% of the full year — profit highly concentrated in the year-end peak season (concentrated carbon credit recognition + peak-season deliveries). Based on the financials extracted for this report, no obvious signs of revenue recognition manipulation or expense capitalization were found (R&D expensed, no goodwill, intangibles only 0.74% of assets); the main concerns are related-party receivables and the sustainability of policy-driven revenue.
The profit formula for vehicle manufacturing is "volume × ASP × gross profit per unit − fixed costs," with the three variables constraining one another: cutting prices to drive volume pressures ASP and per-unit gross profit, while holding prices loses share. Leapmotor's path sacrifices price and bets on scale:
| Year | Volume (units) | ASP (RMB 10k) | Gross Profit per Unit (RMB) | Net Profit per Unit (RMB) |
|---|---|---|---|---|
| FY2023 | 144,155 | 11.61 | 558 | -29,248 |
| FY2024 | 293,724 | 10.77 | 9,173 | -9,604 |
| FY2025 | 596,555 | 10.40 | 15,777 | +903 |
| 2026H1 | 356,487 | 9.99 | 12,470 | +585 |
(This report's calculation: vehicle and parts revenue / deliveries; per-unit gross profit includes carbon credit contributions; excluding them, FY2025 vehicle-segment gross margin was about 10.99%.)
Peer benchmarking (latest comparable periods): BYD's 2025 net profit per unit was about RMB 7,087 (ASP ~RMB 134k); Geely's per-unit gross profit about RMB 19,000 (ASP ~RMB 105k × 17.95% gross margin); Li Auto's per-unit gross profit fell from about RMB 52,000 in 2025 to about RMB 24,000 in 2026H1 (ASP RMB 263k — the high-ASP route hitting obstacles); XPeng's per-unit gross profit, including technical services, was about RMB 41,000. Leapmotor's per-unit gross profit of RMB 12,500 sits in the low range of "cost leadership in exchange for scale," meaning its earnings are far more sensitive to every percentage point of gross margin than high-ASP peers — both upside elasticity and downside risk are amplified.
Product cycles and capacity: The lineup on sale covers the full RMB 60k-300k+ price band (A05 at the RMB 60k level → B/C series RMB 100k-180k as the mainstay → D19/D99 pushing up to RMB 220k-300k+); BEV + EREV dual powertrains, with the MM-i PHEV electric drive unveiled at the September 2026 tech day adding a third powertrain route; 7 new models on the LEAP 5.0 platform to debut in 2027. Capacity utilization is undisclosed; FY2025 capex was RMB 4.8 billion, and 2026H1 capital commitments RMB 7.76 billion, with expansion focused on new plants and overseas localization. Watch points: capacity headroom implied by the one-million-unit target (monthly average of 83,000 vs. current monthly sales of 106,000), ASP dilution from the rising share of the A series (RMB 60k level), and whether D-series volume can hold up structural gross margins.
Current market data (close of 2026-10-30): Share price HKD 31.22 (52-week low; 52-week range 31.22-58.95; YTD -37.0%, 1-year -47.0%); total shares 1.4218 billion (2026-09-30 monthly return sheet, excluding the pending 134.8 million FAW/Jinyi Gaoxin shares), market cap HKD 44.39 billion. PE(TTM) ~52-54x (profit only turned positive in 2025 and includes policy-driven revenue — a distorted reading, not used as a headline signal); PS(TTM) 0.48x, PS(2026E) ~0.37x; PB 2.69x (~9th percentile since listing, but book equity is small due to negative working capital, so PB is naturally elevated); market cap/net cash 1.04x — versus Li Auto's spot ~0.78-1.1x, the HK-listed EV newcomers have broadly entered a "priced on cash" zone.
Peer benchmarking (market cap dates 2026-10-31/11-01; multiples calculated by this report):
| Company | Market Cap (HKD bn) | PS(TTM) | Gross Margin (latest) | Growth (latest) |
|---|---|---|---|---|
| Leapmotor | 44.39 | 0.48 | 11.7% (2026H1) | Revenue +57.2% |
| BYD | 62.22 | 0.66 | 18.5% (first three quarters 2026) | Revenue +0.7% |
| Geely | 14.93 | 0.34 | 17.95% (first three quarters 2026) | Revenue +13.1% |
| Li Auto | 8.299 | 0.67 | 9.5% (2026H1) | Revenue -13.4% |
| XPeng | 6.822 | 0.77 | 20.6% (2026H1) | Revenue -3.8% |
Leapmotor's PS is ~28% below the peer median (0.66x), while its revenue growth (+57%) is the highest of the five — the discount corresponds to earnings quality and its dilution history.
Market-implied expectations: Back-solving from "market cap − net cash," the price paid for the entire operating business is HKD 1.7 billion (full net cash basis, ~1.4% of 2026E revenue) to HKD 9.45 billion (conservative basis excluding restricted cash, ~7.9%); if the business were priced at 10x PE, the current price implies sustainable net profit of only about RMB 140-800 million — the current price requires the company's future net profit to approach zero, whereas the reality is revenue +57%, management guidance of ~RMB 3.0 billion, and sell-side consensus of RMB 2.4-4.8 billion. But this reading must be read alongside C3: the market is pricing a scenario of "earnings going to zero after policy-driven revenue fades," and that skepticism has not yet been falsified — hence this is favorable odds, not a certain mispricing.
Three-layer value (EPV): Asset value (conservative net cash, excluding restricted cash of RMB 6.57 billion) is about HKD 24.6/share — 79% of the current price, forming a reference floor (note: under negative working capital, book net assets are only ~HKD 11.6/share; in extreme scenarios this floor needs a further discount); EPV with zero growth (2026 normalized basis: ~RMB 2.2 billion attributable profit as the neutral assumption; after deducting after-tax interest income, adding back D&A and deducting maintenance capex, FCFF ~RMB 1.45 billion; WACC 10.5%) is about HKD 41.4/share, ~33% above the current price; the growth option residual is negative — on this report's unified basis it computes to about -33% of the current price: the zero-growth value (EPV ~HKD 41.4/share) already exceeds the current price by ~33%; the market is not only paying nothing for growth, it prices the business itself at a discount of about one-third to its zero-growth value. In other words, options such as export volume ramp-up, PHEV as a new category, and platform technology licensing (Opel O3U) are nearly free in the current price — but whether growth should be paid for is answered by scenario math:
Three scenarios and odds (12 months; fair value ranges in HKD per share; probabilities are this report's judgment):
| Scenario | Probability | Fair Range | Core Assumptions | vs. Current Price |
|---|---|---|---|---|
| Bear | 22% | 15-21 (mid 18) | Price war worsens + carbon credit/subsidy fades; 2026 net profit <RMB 1.0 billion, back to losses in 2027; market prices at 0.5-0.7x net cash (cf. Li Auto 0.78x spot; Hozon/WM Motor liquidation extremes) | -33% ~ -52% |
| Base | 53% | 40-50 (mid 45) | 2026 net profit of RMB 2.1-2.7 billion delivered (slightly below guidance); 2027 growth 25%-30% (net profit ~RMB 3.0 billion) + 200,000 export units; anchor PS 0.47-0.59x 2026E revenue (between Geely 0.34x and XPeng 0.77x), EV/2027E net profit 4-8x | +28% ~ +60% |
| Bull | 25% | 65-75 (mid 70) | One-million-unit target achieved; 2027 net profit RMB 4.0-4.5 billion (partially eroded by the 4pp export tax rebate) + European localization volume; anchor 10-12x 2027E net profit + net cash (on 1.557 billion shares post-delivery) | +108% ~ +140% |
Basis for the base-case exit multiple: PS of 0.47-0.59x sits between the profitable, low-growth leader Geely (0.34x) and loss-making XPeng (0.77x), below the peer median of 0.66x, with the discount reflecting unproven earnings quality and dilution history; EV/net profit 4-8x versus Geely's TTM PE of 7.2x and BYD's 16.9x. Probability-weighted expectation is about HKD 45.3, implying an expected return of ~+45%; downside to the bear-case midpoint is about -42% — odds roughly 1:1 to 1.3:1, with the current price sitting toward the left of the distribution; this is why the stance is "cautiously bullish" rather than "bullish": expected return is positive, but the triggers on the left tail (gross margin, guidance) are not sparse.
Our own earnings forecast (alongside guidance and sell-side):
| Basis | 2026E Revenue | 2026E Attributable Net Profit | 2027E Revenue | 2027E Attributable Net Profit |
|---|---|---|---|---|
| This report | RMB 98-105 billion | RMB 2.1-2.7 billion | RMB 120-138 billion | RMB 2.8-3.8 billion |
| Management guidance | One-million-unit volume basis | ~RMB 3.0 billion | No quantitative guidance (35-40 million... exports of 350k-400k units mid-term basis) | — |
| Sell-side consensus | ~RMB 103.8 billion (Huachuang) | RMB 2.4-4.8 billion (in a downward revision channel; latest 2.4-2.8 billion) | ~RMB 146-148.5 billion | RMB 4.1-7.6 billion |
This report's 2026E net profit is ~10%-30% below guidance: H1 was only RMB 210 million with a Q1 loss; hitting guidance requires concentrated Q4 carbon credit recognition plus a better-than-expected gross margin recovery. The 2027E is below the sell-side floor, mainly due to the 4pp export tax rebate erosion and conservative carbon credit price assumptions. Method note: extrapolated from the actual deliveries of 667,000 units in the first three quarters of 2026 and estimated Q3 revenue of ~RMB 32.1 billion as the base; the biggest uncertainties are carbon credit volumes and prices, and Q4 price-war intensity.
Conclusion: Undervalued, but a "odds-type undervaluation under deeply pessimistic pricing." Target price HKD 40-50 (base-case fair value); margin of safety 28.1% (base-case fair floor of HKD 40 vs. current price HKD 31.22). Quality and price assessed separately: quality = strong volume delivery, weak earnings quality; price = net cash supporting 96% of the current price, the business essentially given away. The precondition for entry is accepting the scenario that the "cash trap may persist for a long time," with rolling calibration via three verification lines (Q3 gross margin, guidance wording, carbon credit revenue share).
Industry Space: China's NEV sales reached 12.866 million units in 2024 (40.9% penetration) and are projected at 16.49 million units in 2025 (+28.2%, 47.9% of new car sales), with exports of 2.615 million units (doubled) (CAAM, 2026-01). The latest monthly data for 2026 show intensifying structural divergence: September NEV passenger car retail penetration hit a record 67.0% (+9.1pp YoY), but total passenger car retail for January-September fell 21.7% YoY—policy phase-down (from 2026-01, purchase tax shifted from full exemption to a 50% reduction to 5%, with a cap of RMB 15,000 in tax savings per vehicle; trade-in subsidies changed from fixed amounts to 12%/8% of vehicle price) triggered a Q4 2025 pull-forward, leaving volume contraction coexisting with rising electrification rates. CAAM forecasts 2026 NEV sales of 19 million units (+15.2%) with total auto market growth of only +1%; CPCA expects 2026 domestic passenger car retail to fall 11%. This implies an industry CAGR of roughly 12% for 2025-2028 (assuming growth decelerating year by year from 15% in 2026); the industry has transitioned from high-growth into its late-growth/early-maturity phase. Global perspective: EV sales reached 20.7 million units in 2025 (+20%, 25% of new car sales), with Chinese automakers supplying roughly 60% of the global total; the IEA projects around 23 million units in 2026 (IEA Global EV Outlook 2026). Key implication for Leapmotor: the sub-RMB 150,000 price segment where it operates is precisely the hardest hit by the policy phase-down (CAAM has warned that sub-150k model sales "may decline markedly" in 2026, and the scrappage subsidy for RMB 100,000 cars was cut from 20,000 to 12,000)—industry beta no longer provides growth; market share and exports are the only incremental drivers.
Value Chain and Profit Distribution: The profit pool skews markedly toward upstream batteries and chips—CATL posted 2025 revenue of RMB 423.7 billion with a 17.0% net margin and 39.2% global power battery share, while the Chinese vehicle manufacturing industry's revenue margin for January-August 2026 was just 3.6% (a historic low). OEMs' bargaining power over upstream is constrained (high concentration in batteries/chips; the new 60-day payment rule compresses OEM payment float), and their bargaining power over downstream consumers is weak (overcapacity: ~47.5 million units of domestic capacity in 2025 vs ~34.4 million units produced and sold, utilization below 73%). Leapmotor's breakthrough path is to internalize upstream profits through "full-stack in-house R&D": self-developing and self-manufacturing core components accounting for 65% of vehicle cost (powertrain, EEA, cockpit and ADAS chip solutions), with a platform component commonality rate of 88% (company figures), yielding roughly a 10% vehicle cost advantage over outsourced sourcing, and per-vehicle R&D costs about RMB 3,000 lower than Geely and RMB 4,000 lower than BYD (company figures, unaudited by third parties)—the trade-off is weak terminal pricing power; when raw material prices rise (lithium carbonate roughly doubled in 2026, automotive memory +180%), it chooses not to raise prices and gross margin passively compresses. Overseas business carries fatter margins: overseas gross margin 18-20% (management guidance) vs ~10% domestic; exports have become a profit haven (cf. BYD's overseas gross margin of 19.46% vs 16.66% domestically).
Supply-Demand and Competitive Landscape: On the demand side, ICE-to-EV substitution has crossed the tipping point (September 2026 ICE vehicle retail -43%); replacement purchases exceed 60% of sales, and exports are the strongest engine (September passenger car exports of 917,000 units, +73.7%, NEVs at 60.8% of exports). Competitive landscape: September 2026 narrow-definition passenger car retail CR5 = 41.3%—BYD 15.3%/Geely 10.9%/Chery 5.3%/Changan 5.0%/Leapmotor 4.8% (CPCA)—Leapmotor is the only top-five player with positive growth (+30.8%), and in July-August domestic brands for the first time swept the retail top five. Within new-energy startups, 2025 deliveries: Leapmotor 596,600 (No. 1 on a single-company basis) > HarmonyOS Intelligent Mobility alliance 589,100 > XPeng 429,400 > Xiaomi 411,100 > Li Auto 406,300. The RMB 100,000-200,000 price band is the main battlefield with extreme intensity: BYD Dynasty & Ocean, Geely Galaxy (1.236 million units in 2025), and XPeng MONA clash head-on with Leapmotor's A/B/C series; Xiaomi's 2026 EREV launches (Pengcheng N70/N90) and planned 2027 Europe entry pose longer-term pressure. Entry barriers have risen systemically: multi-billion-RMB R&D per platform, scale breakeven thresholds (Leapmotor needed 597,000 units to post its first profitable year), full-stack technology capability, channel and export tariff barriers (EU anti-subsidy duties on Chinese BEVs up to 45.3%; proposed 17%-38% duties on PHEVs in 2026). Substitution threats: reverse substitution by ICE vehicles has disappeared; within the segment, HEVs (September +25%) and EREV/BEV cannibalize each other. "Anti-involution" regulation (pricing compliance guidelines, ban on selling below cost, 60-day payment terms) is marginally curbing disorderly price cuts; the industry is shifting from a price war to a technology- and globalization-driven elimination round (Zeekr merged into Geely, GAC swinging to losses, JVs retrenching).
Cycles and Regulation: 2026 is in a "post-phase-down downturn-bottoming" stage: Q1 pull-forward, weak recovery from Q2, and a lackluster peak season in September. Leading indicators to watch: monthly penetration, trade-in application volumes, export volumes, lithium carbonate prices, and new model pre-orders (Leapmotor A10 secured 40,000+ pre-orders in its first month; D19 reached 15,000 units within 15 days of launch). Five regulatory lines: ① Purchase tax halved for 2026-27, with full restoration (10%) proposed for 2028—expect a pull-forward-then-bleed cycle in Q4 2027; ② proportional trade-in subsidies disadvantage low-priced vehicles; ③ anti-involution pricing regulation provides a floor; ④ ADAS regulation standardizes marketing claims while L3 pilots open (favoring leaders with in-house ADAS); ⑤ export barriers (EU tariffs plus the 2026-10-12 announcement cutting export tax rebates from 13% to 9% effective 2027-04, and US bans on Chinese connected-vehicle software/hardware)—local production has become mandatory; via Stellantis capacity (Zaragoza/Malaysia/Brazil), Leapmotor is among the best-hedged players, but the rebate cut directly erodes margins on export-settled sales.
Company Positioning in the Industry: The challenger has overtaken most new-energy startups and is upgrading from a "niche cost player" into a "mainstream mass-market leader." Share trend is upward (September retail share 4.8%, the only positive growth in the top five; consecutive monthly sales wins among startups); its moat derives from cost (full-stack in-house R&D + platform commonality) rather than brand premium—a critical validation period for the "scale-for-profit" model; its second curve, overseas expansion, has upgraded from vehicle exports to "manufacturing + supply chain + platform technology licensing" (Opel O3U marks the first mass-production licensing of a Chinese automaker's platform to a European brand). Clarification: the company itself and third parties including CCTV and China Securities Journal all confirm it as the 2025 startup sales champion, but that is on a single-company basis—HarmonyOS Intelligent Mobility, as a multi-brand alliance (589,100 units), trails Leapmotor by only 1.3%; the two bases differ and should be presented side by side.
Conclusion: Cautiously bullish, 12-month horizon, confidence 0.58. Leapmotor's scale, share, cost capability, and cash reserves have been proven; what remains unproven is "profitability independent of policy-related income." At the current price, the market is valuing only the net cash—operations are essentially free—so the odds structure is favorable (expected ~+45%, base case +28% to +60%, bear case -33% to -52%). Yet the Li Auto precedent suggests the repair of such discounts is not a function of time but of earnings quality. Strategically, the Q3 results in mid-November 2026 are the first validation point: if Q3 gross margin ≥13% and full-year guidance of ~RMB 3.0 billion is reaffirmed, the re-rating path opens; if Q3 gross margin <12% or guidance is cut a second time, the bear case gains weight and the current view needs re-examination.
Key Risks: ① Earnings quality—CNEV credits and subsidy phase-down directly puncture reported profit (core operations ex-credits lost roughly RMB 3.0 billion in 2026H1); ② Gross margin—dual squeeze from lithium carbonate/memory chip price rises and rising A-series mix; ③ Price war—BYD/Geely pressure in the RMB 100,000-150,000 band and the pull-forward cycle from 2028 purchase tax restoration; ④ Single-channel dependence—the Stellantis system (RMB 7.469 billion of interest-free unsecured receivables, largest customer at 23.29% of revenue), while Stellantis itself is in a cost-cutting phase; ⑤ Share count—FAW settlement dilutes ~8.66%, and the company has raised capital continuously since listing without ever paying dividends; ⑥ Inventory of RMB 9.27 billion—if Q4 sales miss, impairment and cash flow pressures would compound.
Monitoring Plan: Key milestones over the next 6-12 months—Q3 voluntary results announcement in mid-November 2026 (gross margin/net profit/guidance wording); monthly delivery releases around the 1st of each month (November-December require ~113,500 units per month to hit the one-million target; Q4 exports need ~16,700 units per month toward the 200,000-unit goal); settlement announcement of the RMB 6.744 billion private placement to FAW and Jinyi High-Tech (approval valid until 2027-09-09); FY2026 annual report and 2027 guidance in mid-March 2027 (one-million-unit milestone; whether 2027 net profit guidance is ≥ RMB 4.5 billion); local capacity ramp-up and responses before the export tax rebate cut takes effect (2027-04-01); and signals from industrial capital such as further founder share purchases and changes in Stellantis's stake.
This report is based on Leapmotor Auto's HKEX announcements (FY2023-FY2025 annual results announcements, 2026 interim results announcement and interim report, 2026Q1 voluntary results announcement), industry data from CPCA/CAAM, public news, and sell-side research (CLSA, Soochow, SWS Research, Guoyuan, Huachuang, Guotai Haitong, Citi, J.P. Morgan, etc.). Financials are denominated in RMB and valuation in HKD (exchange rate 1 CNY = 1.1791 HKD, 2026-11-01); the price anchor is the 2026-10-30 close of HKD 31.22. This report does not constitute investment advice.