Rising Protectionism Will Sabotage International EV Prospects

Key Takeaways

• Global trade barriers and fierce EV competition threaten Leapmotor's international growth, pressuring margins amid limited brand strength and product differentiation.
  
• Heavy reliance on carbon credit sales and high investment needs create earnings volatility, with sustained profitability dependent on achieving ambitious sales targets.
  
• Rapid sales growth, international expansion, and smart technology investment, combined with cost management and vertical integration, position Leapmotor for sustained profitability and global competitiveness.

Catalysts

Engages in the research and development, production, and sale of new energy vehicles in Mainland China and internationally.

• Rising protectionism and mounting trade barriers, especially in Europe and North America, threaten to impede Leapmotor's planned international expansion and localization strategies, significantly constraining future revenue growth and undermining long-term diversification efforts.
  
• Intensifying global competition from both established automakers and new EV entrants is expected to fuel ongoing price wars, pressuring average selling prices and eroding gross margins, particularly as Leapmotor's product differentiation and brand recognition remain limited relative to larger peers.
  
• Persistent industry overcapacity in China's EV sector raises the risk of lower plant utilization rates and potential inventory build-ups, which will likely force Leapmotor into aggressive discounting and further compress operating margins and profitability.
  
• Continued high levels of R&D and marketing investment are required to keep pace with rapid technological innovation and to build overseas brand presence, but these expenditures will delay meaningful improvements in net margin and heighten operating leverage if sales targets are not met.
  
• The company's growing reliance on carbon credit sales for non-vehicle revenues is inherently unsustainable as regulatory environments evolve and industry participants ramp up their own EV production, creating a volatile and shrinking profit contribution that could lead to earnings shortfalls over the medium term.

Zhejiang Leapmotor Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Zhejiang Leapmotor Technology compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Zhejiang Leapmotor Technology's revenue will grow by 15.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1.2% today to 5.5% in 3 years time.
• The bearish analysts expect earnings to reach CN¥4.1 billion (and earnings per share of CN¥3.06) by about August 2028, up from CN¥-576.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from -164.9x today. This future PE is lower than the current PE for the HK Auto industry at 21.3x.
• Analysts expect the number of shares outstanding to grow by 5.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.94%, as per the Simply Wall St company report.

Zhejiang Leapmotor Technology Future Earnings Per Share Growth

Risks

• Leapmotor is experiencing rapid sales expansion, with its 2025 interim deliveries up 155% year-over-year and a full-year 2025 guidance revised upward to between 580,000 and 650,000 units, suggesting strong revenue growth momentum that could contradict expectations of a share price decline.
  
• The company achieved interim net profitability for the first time in 2025, with a net profit of RMB 330 million compared to a loss of over RMB 2 billion the previous year, indicating markedly improving net margins and operational leverage.
  
• Ongoing investment in R&D and accelerated rollout of advanced smart driving technologies like urban NOA, along with a diversified new product pipeline across multiple platforms, improves Leapmotor's product competitiveness and may support revenue growth and higher average selling prices in the long term.
  
• International expansion is progressing rapidly through a strategic partnership with Stellantis, local production plans in Europe and Malaysia, and a growing overseas dealership network, suggesting a strong foundation for long-term revenue diversification and margin improvement driven by global sales.
  
• Effective cost management, vertical integration (notably in self-developed batteries and major EV components), and economies of scale have led to record high gross margins, which, combined with anticipated further efficiency improvements, position the company for sustained enhancements in both profitability and earnings stability.

Valuation

• The assumed bearish price target for Zhejiang Leapmotor Technology is HK$38.38, which represents two standard deviations below the consensus price target of HK$75.83. This valuation is based on what can be assumed as the expectations of Zhejiang Leapmotor Technology's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$100.08, and the most bearish reporting a price target of just HK$25.4.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥74.1 billion, earnings will come to CN¥4.1 billion, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 11.9%.
  
• Given the current share price of HK$73.5, the bearish analyst price target of HK$38.38 is 91.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.