Is the Chinese market truly capable of sustaining 17 automotive manufacturers? "The market capacity is only so large. Currently, there are 17 Chinese automakers; there certainly cannot be 17 in the future—the number will inevitably shrink. Therefore, we must survive. The prerequisite for survival is, first, to at least avoid losses, and second, to achieve scale. Only with scale can you have a future." On the evening of April 16, during a media briefing following the launch event for the LEAPMOTOR D19, Zhu Jiangming, Founder, Chairman, and CEO of LEAPMOTOR (09863.HK), once again issued a warning about survival. In recent interviews, Zhu Jiangming has repeatedly mentioned that China cannot realistically support 17 automakers. Zhu believes that over the next three years, LEAPMOTOR will remain focused on scaling up its operations. As the second new energy vehicle startup after Li Auto to achieve profitability, LEAPMOTOR has been a leading player among its peers over the past year. The company sold nearly 600,000 vehicles last year and has set a sales target of 1 million units for this year. According to the latest figures disclosed by Zhu Jiangming, orders for the newly launched A10 model have already exceeded 30,000 units in just three weeks. For a startup with a popular model and sufficient cash flow to issue such a warning demonstrates the management's sense of crisis and foresight. On the other hand, Zhu Jiangming's warning for the industry comes against the backdrop of a significant overall decline in industry sales this year. From the beginning of the year to now, cumulative retail sales of passenger vehicles in China have reached 4.226 million units, a decrease of 17.4% compared to the same period last year. Profits in the Chinese automotive industry continue to be under pressure. From January to February this year, the industry's profit margin fell further to 2.9%, hitting a new record low. The latest data released by the National Bureau of Statistics shows that total retail sales of consumer goods in March increased by 1.7% year-on-year, lower than the overall growth rate of 2.4% for the first quarter, primarily dragged down by a sharp decline in automobile consumption. Retail sales of automobiles plummeted 11.8% year-on-year in March, with a cumulative decline of 9.1% for the first quarter. On the same evening as the LEAPMOTOR D19 launch, six other vehicle launch events were taking place simultaneously in the Chinese auto market. Zhu Jiangming believes the current market is excessively competitive, and this state of intense competition will be the norm for the next two to three years because the elimination process is not yet over. However, he stated that this situation cannot be maintained beyond three years. Zhu Jiangming said that developing a new model, even with the most cost-effective approach, requires an investment of at least 1 billion yuan. He gave an example: if a new model is developed and the production capacity is planned optimistically for at least 10,000 units, but only 5,000 units are sold, leaving the factory half-empty and forcing a shift from two production shifts to one, the allocated costs for R&D and production become extremely high. "So, making cars is genuinely difficult," Zhu said. He predicted that in two to three years, the current situation of "six model launches in a single day" will no longer exist, as this is a process of normalization following intense competition. Against the backdrop of significant price increases for bulk materials and chips this year, there is considerable attention on whether LEAPMOTOR's pricing strategy and gross margin will be affected. In response to inquiries from media including Yicai, Cao Li, Vice President of LEAPMOTOR, stated that the company will not lose money to make cars and that maintaining a reasonable gross margin is a bottom line that LEAPMOTOR will definitely defend. Zhu Jiangming also emphasized that the profit target for this year is more critical, as it is a matter of survival. Only by surviving can the company develop.
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