On August 20, market rumors emerged that China's state-owned FAW Group is planning to acquire a 10% stake in Leapmotor, becoming a strategic investor. The proposal is reportedly already circulating through multiple departments at FAW.

If confirmed, this would mark another significant alliance between a traditional automaker and a new energy vehicle (NEV) startup, following Stellantis's investment in Leapmotor in 2023.

When contacted by Caijing Auto, Leapmotor responded with "no comment."

An automotive industry analyst told Caijing Auto: "This rumor has substance. FAW Group has been slow to advance in the NEV sector, and pressure from the State-owned Assets Supervision and Administration Commission (SASAC) is increasing. Recent leadership changes and frequent interactions with Leapmotor are closely tied to the KPIs set by SASAC for FAW. A 10% stake might just be the first step."

Signs of collaboration have been evident for some time. On March 3 this year, FAW and Leapmotor signed a Memorandum of Understanding for strategic cooperation. The agreement covers joint development of NEV passenger vehicles and components cooperation, while also exploring potential capital collaboration to achieve resource synergy across the entire industry chain. Leapmotor founder and chairman Zhu Jiangming previously revealed that the two companies had been discussing capital cooperation for years, stating that "more substantial projects will be launched quickly this year."

The market responded positively to the potential deal. Following the news, FAW Jiefang's stock hit the exchange's daily gain limit, and Leapmotor's share price surged to HK$76.3, pushing its market capitalization past HK$100 billion ($12.8 billion). At the close on the 20th, Leapmotor's shares settled at HK$73.5, with a market cap of HK$98.267 billion ($12.6 billion).

Some analysts noted that this rumor creates a favorable opportunity for Leapmotor to initiate a follow-on offering in the Hong Kong market.

Interim Report Shows Profit Turnaround, But a Slim $3.8 Million Net Profit

On August 18, Leapmotor delivered its strongest interim results since going public: it achieved a positive net profit for the first time in a half-year period, becoming the second Chinese NEV startup to report a half-year profit.

The financial report shows that in the first half of 2025, Leapmotor's revenue reached RMB 24.25 billion ($3.1 billion), a year-on-year increase of 174.0%. Its gross margin improved by 13 percentage points to 14.1%. Net profit attributable to shareholders was RMB 30 million ($3.8 million), a significant reversal from the RMB 2 billion ($256 million) loss in the same period of 2024.

However, a closer examination of the profit structure reveals that the core business's profitability is not yet solid. The net profit of RMB 30 million represents just 0.12% of the RMB 24.25 billion in revenue, indicating an extremely thin profit margin. More notably, the company actually reported an operating loss of RMB 90 million ($11.5 million). The shift to a net profit was primarily dependent on net financial income of RMB 110 million ($14.1 million) and a RMB 10 million ($1.3 million) contribution from an associate company.

Furthermore, the transparency of non-automotive revenue in the report has raised questions among investors. According to Leapmotor executives on the earnings call, non-automotive income includes approximately RMB 500 million ($64 million) in government subsidies, RMB 200-300 million ($25.6-$38.4 million) from carbon credit sales, RMB 200 million ($25.6 million) in R&D revenue from FAW, and RMB 100 million ($12.8 million) in trade revenue, totaling nearly RMB 1.1 billion ($141 million).

"There's a fundamental difference between a net profit of RMB 30 million and RMB 300 million ($38.4 million). The current profit scale is too small and of low quality. The possibility of financial engineering cannot be ruled out, and it might be closely related to subsequent capital operations," an analyst told Caijing Auto.

The Hong Kong follow-on offering market has warmed significantly this year, with companies like BYD and Xiaomi raising substantial funds through placements. In March, Leapmotor announced plans for a private placement of 70.21 million shares to four state-backed institutions to raise RMB 2.6 billion ($333 million). Achieving profitability undoubtedly helps boost its valuation and market recognition for such fundraisings.

The industry analyst added: "While the RMB 30 million net profit is small, it can significantly help increase the placement price, making it easier to secure a better deal."

Amid High Growth, New Tests on Profit Quality and Brand Elevation

Despite the impressive financial figures, Leapmotor still faces fundamental challenges, including pressure on its margin space and uncertainty in its brand premiumization efforts.

On the positive side, Leapmotor has successfully carved out a space in the mainstream RMB 100,000-200,000 ($12,800-$25,600) market with its differentiated positioning of "low price, high specs" and being a "half-price Li Auto." In the first half of 2025, its sales reached 220,000 units, ranking first among NEV startups, with monthly deliveries exceeding 50,000 units in July. Meanwhile, overseas expansion is progressing steadily, with over 20,000 vehicles exported in H1.

Zhu Jiangming attributed the profitability to two main strategies: first, adhering to in-house R&D across all domains, with over 65% of core components developed in-house, promoting platformization and cost optimization; second, diluting fixed costs through economies of scale. He predicts the company will achieve a stable break-even point when annual sales reach 500,000-600,000 units.

Regarding its product line, Leapmotor is gradually perfecting its strategic positioning and entering an upward sales cycle. The B-series covers the RMB 100,000-150,000 ($12,800-$19,200) market, while the C-series remains the volume driver, with the C10 being the sales champion in its SUV segment for three consecutive months. Furthermore, once B-series sales stabilize, Leapmotor plans to launch the flagship D-series in 2026, targeting the RMB 200,000-300,000 ($25,600-$38,400) segment to challenge the premium market.

Based on strong sales performance, management is optimistic about short-term sales, expecting August deliveries to be significantly higher than July's 50,000 units. Leapmotor has also raised its full-year sales guidance from 500,000-600,000 units to 580,000-650,000 units and plans to reach 1 million units in annual sales next year.

However, behind the rapid expansion, the "low-price, high-volume" strategy carries the risk of solidifying its brand perception. Leapmotor's main market remains concentrated in the RMB 100,000-150,000 range, with consumer perception still centered on "high value for money." Whether the upcoming D-series can successfully break this mindset and penetrate the premium market remains to be seen.

More immediate pressure comes from profitability. As sales of lower-priced models like the B10 and C10 increased, Leapmotor's average revenue per vehicle dropped from RMB 114,000 ($14,600) in Q1 2025 to RMB 98,000 ($12,550) in Q2, while the gross margin fell from 14.9% to 13.6%. Against the backdrop of an intensifying industry price war, particularly in the fiercely contested RMB 100,000-200,000 battlefield involving BYD, Geely, Tesla, and others, whether Leapmotor can continuously reduce costs to support its gross margin will be a key test.

Facing these challenges, Leapmotor's management has expressed firm confidence. Vice President Li Tengfei stated at the interim results meeting: "Based on H1 performance, Leapmotor's overall gross margin will maintain a good level and trend in the second half of the year, and we will strive for a slight increase."

It is worth noting that the carbon credit transfer agreement reached with Stellantis in July could provide a new source of profit. According to CITIC Securities estimates, Leapmotor's price per carbon credit could exceed €1,000 ($1,080), and assuming its annual sales in Europe meet the target of 50,000 units, it could generate approximately €51.88 million ($56 million) in revenue.

The NEV industry landscape remains unstable, and the competition continues to intensify. Although Leapmotor has achieved symbolic breakthroughs in sales and finances, its profit sustainability, brand elevation, and capital endurance still face severe tests. The true path to scaled profitability for Leapmotor has just begun.

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