Zeeker: "Second Generation of Debt" or the Next Big Thing?

In the analysis of the relationship between ZEEKR and Geely in ZEEKR (Part I), what Dolphin wants to express is that the asset of CEVT's car manufacturing platform and Ningbo Weirui's three-electric research and development asset are essentially the cost units of the entire Geely family's middle and back office.

In the automotive manufacturing industry, Dolphin is optimistic about the asset value of vertical integration layout in the long-term race, but value without valuation, and valuation needs to be reflected by the car sales business that truly creates "external" income in the front end. The key to ZEEKR's investment value lies in car sales volume and what kind of comprehensive price brings about sales.

Therefore, this article focuses on the following two questions:

Returning to the core: How capable and promising is ZEEKR in selling cars?

Is the undervalued ZEEKR really being wronged?

The following is the main content:

1. How capable and promising is ZEEKR in selling cars?

Starting from the decline of mobile phone manufacturers, there is an increasing voice in the market that it has become "consumer electronics" in the automotive industry. When it comes to consumer electronics, it means that the components of the product are highly standardized, with mature suppliers in the market providing them, and the final manufacturing is completed by assembly plants. Especially after assembly outsourcing, the brand manufacturers are to some extent just putting a label on it. An intuitive example is similar to the early days of PCs, where many people in Zhongguancun bought different manufacturers' motherboards, graphics cards, memory, hard drives, and other components, assembled them together, and built their own desktop computers.

However, Dolphin believes that this view is somewhat biased. The manufacturing process and supply chain complexity of cars are not on the same level as consumer electronics, and the standardization of components is also not at the same level as normal consumer electronics. Even in the manufacturing of new energy vehicles, with their own factory capacity and self-developed and self-produced three-electric systems, it is easier for long-term car manufacturers to stay in the game in the long-term competition.

From this perspective, Dolphin believes that ZEEKR has the ability to survive in the long-term competition:

The factory capacity is said to belong to Geely, but ZEEKR itself is a subsidiary of Geely, which means that the capacity is self-owned, it's just that the investment is not shown on ZEEKR's balance sheet.

Through Ningbo Weirui, a shared asset of the Geely system, ZEEKR has achieved self-research in the strict sense of the three-electric system, and self-production of battery cells is also in progress.

The car manufacturing platform SEA's advanced version SEA-M is developed by CEVT, and the car manufacturing platform is also self-developed.

Although many investments are not shown on ZEEKR's balance sheet, this essentially self-developed and self-produced business is a very heavy asset, with a capital threshold for layout, and bears significant operational risks. If the end sales volume does not pick up, the middle and back office costs formed by these upfront capital investments will become a burden on cash flow.

Therefore, let's focus on these investments and the products launched in the front-end sales line:

1. Leading with 001, fiercely competing in the high-end market With the asset layout mentioned above, ZEEKR has launched 4 main models within three years of its establishment: a. Pure electric sedan - ZEEKR 001, ZEEKR 007; b. Pure electric MPV - ZEEKR 009; c. Pure electric compact SUV - ZEEKR X.

The current ZEEKR model matrix has two very obvious features:

① High-end positioning: The first model was directly priced at over 300,000 in the luxury car market; at the same time, it also has two other rare pure electric models - ZEEKR 001 FR and ZEEKR 009 Glory Edition, priced at 700,000 to 800,000. Note that this is not a limited edition with unchanged configuration for marketing purposes like Xiaomi's initial limited edition models. Instead, it is an upgraded version with enhanced configuration and technological muscle, focusing on creating a high-end feel.

②. Heavy reliance on 001, need the next explosive model to secure certainty

Among the four models, the company heavily relies on the first model created by ZEEKR - ZEEKR 001. As the first star model since ZEEKR's establishment, ZEEKR 001 bears the heavy responsibility of "sales champion" for ZEEKR. In 2021-2022, it became ZEEKR's only model, while 2023 marks a period of concentrated new model launches for ZEEKR, introducing 3 new models. However, ZEEKR 001 still accounts for 64% of the total deliveries. Relying mainly on ZEEKR 001, ZEEKR achieved a valuation of $13 billion in its Series A financing in February 2023.

In comparison, the current leading new energy companies, even excluding BYD as a comprehensive explosive player, from Tesla's 3&Y, Li Auto's L6&7, to Aito's M7&9, those able to stand firm in the first tier of deliveries are at least equipped with dual pillars. In other words, with self-developed and self-produced models, ZEEKR actually needs a new high-volume model to improve performance certainty.

Next, let's take a closer look at the four models currently on sale to try to understand why ZEEKR 001 succeeded and whether the other three have the potential to rise.

2) Unveiling the Four Models

A. Super successful ZEEKR 001 ZEEKR 001 is a pure electric hunting coupe that was launched in April 2021, and it is also the first model based on the SEA vast architecture. However, at the beginning of its launch, hunting vehicles were still niche, and other electric vehicle brands before ZEEKR had not introduced similar products.

With its unique design, positioning as a pure electric hunting vehicle, and high cost performance, ZEEKR 001 accurately captured the young audience. Within the first 4 months of delivery, ZEEKR 001 accumulated a total delivery volume of 10,000 units, making it one of the fastest-selling models among high-end pure electric vehicles in China to reach 10,000 units, comparable to the popularity of NIO ET5.

In the price range of 250,000 to 350,000 yuan where ZEEKR 001 is positioned, apart from Tesla Model Y, ZEEKR 001 is currently the best-selling pure electric vehicle model, with monthly sales exceeding 10,000 units in April.

It is rare for pure electric vehicle models in this price range to become bestsellers, and there are few pure electric vehicle models that can achieve monthly sales of over 10,000 units and maintain this performance. Currently, the players who have successfully created bestselling models in the pure electric brand are only ZEEKR and Nio. However, in 2024, this track will see the entry of internet players Xiaomi and Aito (Huawei and Chery cooperation model).

In comparison with the configuration of ZEEKR 001 and competing models, the success of ZEEKR 001 lies mainly in:

① Spacious: ZEEKR 001 is ahead of competing models in terms of size and wheelbase, with a large space characteristic;

② Significant power and endurance advantages: Equipped with CATL 100kwh Kirin battery, CLTC endurance can reach 750km; the total power of the dual-motor version is 590KW, and the maximum horsepower of the motor can reach 789Ps;

③ Core selling point - 5 minutes of charging, 500 miles of endurance: In the current pain point of the highest electric penetration - the issue of energy supplementation, under the same 800V overall situation, ZEEKR 001 seems to charge for 5 minutes and directly continue for 256 kilometers, while the Su 7 is 220 kilometers, and the XPeng G6 with an overall 800V needs 10 minutes to reach 300 kilometers.

Among vehicles in the same price range and type, being able to achieve the above three points at the same time is basically unique to ZEEKR

④ Sincere facelift: The 24th edition of ZEEKR 001 differs from other competing models in terms of minor facelifts. For example, the biggest upgrade in the Nio 24th edition is the upgrade of the intelligent driving cockpit to the Snapdragon 8295 chip, with minor adjustments to the exterior styling and interior, while maintaining the same price.

Compared to the previous model, the ZEEKR 24th edition 001 has undergone significant changes, including upgrading to the entire 800V high-voltage platform, increasing the total power of the motor system from 400kW to 580kW, upgrading to the Qualcomm 8295 chip in the intelligent driving system, and standardizing a LiDAR. At the same time, the price of the 24th edition models has been reduced by 31,000 to 57,000 yuan compared to the old models, making it "sincere".

With a high level of sincerity in the facelift and a super high cost performance ratio, ZEEKR 001 has a longer lifecycle than other competing models: ZEEKR 001's first model began delivery in October 2021, with a model lifecycle of nearly 3 years. The 24th edition facelift achieved nearly 40,000 cumulative orders in about a month after its release, and achieved monthly sales of over 10,000 units in April.

5) Serious shortcoming: Intelligent driving. This is not only an issue for the 001, but also for the other three ZEEKR models except for the ZEEKR 007. In fact, the lag in software is forgivable, as OTA updates can solve it. The main issue lies in the hardware itself being relatively weak from the ground up - currently, ZEEKR 001 still uses the Mobileye solution, with chip computing power lagging behind competing models (only 48Tops).

Furthermore, in terms of intelligent driving software, Mobileye's "black box delivery" also prevents ZEEKR from participating in the core development of intelligent driving algorithms, affecting the long-term development of ZEEKR's intelligent driving functions. At the same time, in terms of map update speed, due to Mobileye's use of REM maps, map collection is slow. As of April this year, ZEEKR's intelligent driving highway NZP deployment reached 65, while urban NZP is still in the testing phase, putting ZEEKR in a completely different league from other players.

ZEEKR has already recognized this obvious shortcoming, and it seems to be trying to detach from Mobileye. The new car to be launched in the next generation in 2025 will be equipped with the NVIDIA Driver Thor chip (with a chip computing power of up to 2000 TOPS) and will start developing its own intelligent driving algorithms.

B. Just about passable 007

ZEEKR 007 is still in the sedan market, but unlike the 001 which is a crossover, the 007 is a normal family sedan, positioned as a mid-sized pure electric sedan with a price range of 209,900 to 299,900 yuan.

Compared to competing models, ZEEKR 007's advantages also lie in its long range and leading power performance, as well as its adoption of the 800V high-voltage architecture, and for the first time in intelligent driving, it uses the NVIDIA Orin X chip, with a maximum computing power of 508 TOPS Looking at the core competitors in the same price range, combined with the cost-effectiveness of product configuration and pricing, unlike the obvious leading advantage of 001 over its competitors, the ZEEKR 007 in the price range of 200,000 to 250,000 RMB, although the dual motors bring the advantage of zero to one hundred acceleration, overall, it is not much different from the P7i in terms of electrification.

However, although the ZEEKR 007 uses Orin X hardware for autonomous driving, only the highest-priced model at 270,000 RMB comes with a LiDAR sensor. Compared to the P7i which has LiDAR and advanced autonomous driving features at 250,000 RMB, it seems to be lacking.

Previously, it was officially announced that ZEEKR 007 received over 50,000 orders during the 40-day pre-sale period (specific numbers for large and small calibers are unclear). However, now that half a year has passed, with current delivery times of 2-4 weeks, it seems that there are no production capacity issues. Currently, monthly sales are hovering around 4,000 units, lacking the momentum to surge.

C. The Underperforming X and Niche 009

The ZEEKR 009 and ZEEKR X, two models, one a pure electric MPV for business and family travel needs, and the other a compact SUV, have not continued the good momentum of the 001, mainly due to:

The two new ZEEKR models are facing a more niche market. For example, the pure electric MPV market where the 009 is positioned has limited capacity, and the ZEEKR X has a strange appearance and small space.

Another reason is the lack of cost-effectiveness. Compared to the XPeng X9, the ZEEKR 009 does not have a cost advantage. At the same time, the price range of the compact SUV is concentrated in the 100,000 to 150,000 RMB range. For example, the BYD Yuan Plus, the starting price of the ZEEKR X at 200,000 RMB also faces a cost-effectiveness issue.

Currently, the weekly sales of both models have dropped to less than 100 units, contributing limited sales to ZEEKR this year.

3) Are there any promising new car releases in the future plans?

In the 2024 release plan, a new MPV called ZEEKR MIX, which will be priced lower than the 009, has been revealed. This car will be priced in the second half of the year, with deliveries possibly further delayed.

However, in the pure electric MPV category, the best-selling model currently is the XPeng X9, with monthly sales that are difficult to exceed four thousand. It is estimated that the MIX will also find it challenging to handle high sales volume.

By the fourth quarter, in the SUV category, after the failure of the ZEEKR X, ZEEKR will release another medium to large SUV. We can only hope that the next SUV will take on another leading role In addition, according to the company's plan, at least two new cars will be released every year in 2025 and 2026. From some spy photos and naming revealed by Reuters, it seems that next year there may be three releases, two large SUVs and a large sedan.

It can be seen that due to Mix's positioning being too segmented and difficult to achieve high sales volume, and also delayed delivery, this year will mainly rely on the existing four models. ZEEKR 001 must resist the overall situation, while 007 may only play a supporting role. With continued momentum, there is hope to support sales of 200,000 units, but whether the ultimate goal of 230,000 units can be achieved depends on the progress in overseas markets.

Currently, the company's target for the overseas market in 2024 is 30,000 units, aiming to reach 100,000 units in 2025, expanding to Southeast Asia, the Middle East, Latin America, and other regions. However, considering that only 4,000 units were exported last year, and overseas market expansion also requires market demand, there are not too many expectations for overseas sales for now.

2. Sales Volume vs Profit: How will ZEEKR choose?

In addition to sales volume, another equally important issue in car sales is the issue of unit price and gross profit margin. Due to the past sales being mainly driven by ZEEKR 001, the unit price is slightly lower than Nio and Li Auto.

Looking at the trend, the unit price has been continuously declining since 2023. In the fourth quarter of 2023, the unit price has dropped from the high point of 310,000 yuan in the first quarter of 2023 to only 267,000 yuan. On one hand, this is due to ZEEKR actively lowering the prices of its models: introducing the compact SUV ZEEKR X and the mid-size sedan ZEEKR 007 to further increase sales volume. On the other hand, with increased competition in the new energy vehicle market, ZEEKR's main model ZEEKR 001 also could not withstand the impact of price wars, starting to reduce prices by 30,000-37,000 yuan in the third quarter, with a price reduction of about 10%.

The key here is the gross profit margin of car sales. Among the new forces that Dolphin Jun has observed, companies that only sell pure electric vehicles, even including Tesla with sales volume close to 2 million, face significant pressure on the gross profit margin. Only hybrid cars have slightly less pressure on gross profit margin, and for domestic brands of pure electric vehicles, achieving a 10% gross profit margin is already considered good.

However, ZEEKR's gross profit margin is quite good. With the growth in sales volume of ZEEKR 001 from scratch, ZEEKR's car sales gross profit margin has increased from single digits to the current 15%. Even with weaker sales in the first quarter of this year and clearing out old inventory, ZEEKR's car sales gross profit margin has reached 14%, which is better than Dolphin Jun's expectations.

From the above analysis, it can be seen that in the golden triangle of sales volume, unit price, and ASP, its overall strength seems to be stronger, apparently better than Nio and XPeng.

However, as Dolphin Jun pointed out in the previous analysis, ZEEKR is more cash-strapped and relies more on sales volume to release its layout advantages in vertical integration. Compared to domestic new forces, ZEEKR's desire for sales volume in the triangle relationship of sales volume, unit price, and ASP may be more serious than that of Nio and XPeng.

Therefore, in terms of ZEEKR's sales target for this year, Dolphin Jun estimates 200,000, which is slightly lower than the company's guidance of 230,000, but in reality, there is no need to worry.

Especially considering the current gross profit margin and unit price level of ZEEKR's automotive business, there is room for price reduction to achieve the sales target (similar to the performance improvement + significant price reduction of ZEEKR 001) to recover cash flow. Because even with Geely's loan, the cash on hand is too low, leading to a lack of security.

Therefore, the key issue this year is to achieve the sales target, and the question is how much price reduction or gross profit margin cost will be required. In this judgment, Dolphin Jun estimates that it will be difficult for ZEEKR to increase its gross profit margin this year, and it can only rely on the increase in sales volume and the cost reduction brought by the platform strategy's scale effect.

With ZEEKR 001 as the sales leader, coupled with the improvement in gross profit margin, as automotive manufacturing is a business with extremely high operating leverage, there is hope for a reduction in losses. The result is that the loss rate is indeed narrowing, but the amount of losses remains relatively large, with an annual loss level of around 8 billion RMB.

One very important reason for this, as mentioned by Dolphin Jun in the previous article, is the high R&D investment (possibly due to a low return on investment, or possibly still in the stage of upfront investment, with intelligent driving + self-developed and self-produced batteries still in the stage of investment being the main focus). The company further increased its already high R&D expenses to 10 billion in the latest performance meeting, making it even more difficult to narrow the losses.

Another reason for the significant losses is that ZEEKR independently builds its sales network, managing sales stores through a direct-operated model. However, building stores through a direct-operated model requires a large amount of capital investment, putting pressure on ZEEKR, which is not very cash-rich. Starting in 2023, ZEEKR began recruiting ZEEKR Home, adopting a quasi-direct-operated model, but not a true direct-operated model, leaning more towards a distribution model, with store opening and operation costs borne by distributors From the perspective of the number of stores, ZEEKR presents a model where direct-operated stores are the main focus, supported by distribution.

In 24, in order to accelerate the achievement of sales targets, ZEEKR continues to expand its channels. It is expected that the number of stores will reach 520 by the end of the year, an increase of 178 compared to 23. At the same time, it is expected to add 16% more marketing service personnel. Sales management expenses are still relatively rigid this year. Although ZEEKR has not provided specific guidance, Dolphin Jun estimates that sales and management expenses this year will be around 8 billion.

III. Is there still room for undervaluation in ZEEKR?

For ZEEKR, the valuation has dropped from $13 billion in Series A to an IPO valuation of only $5.2 billion. Even after the IPO debut rose and then fell back to the IPO price, it is still a valuation of just over $5 billion, corresponding to less than 0.5 times the PS of the entire ZEEKR listed company in 2023. Compared to the P/S ratios of 1.3X/1.4X/1.8X for Li Auto/Nio/XPeng's stock prices in 23, the undervaluation is visibly apparent.

However, it should be pointed out that Dolphin Jun believes that the sales of the three electric vehicles and the technical service business are cost units under Geely's vertical integration layout and cannot be independently valued. Dolphin Jun sees this part of the business as an option for ZEEKR's stock price to rise, with its value reflected through ZEEKR's sales volume, without independently valuing these two revenue streams.

The ultimate valuation of ZEEKR still focuses on its car-making business:

Sales end: ZEEKR's sales target for the automotive business this year is 230,000 vehicles, with 200,000 vehicles targeting the domestic market and 30,000 vehicles targeting the overseas market. However, the overseas market is still in its early stages, with vehicles sold in Europe accounting for only 1% in 24 from January to April.

Looking at the new models introduced by ZEEKR this year, the new MPV ZEEKR Mix is positioned as niche, and the market capacity for pure electric MPVs is currently limited, with an estimated sales volume of around 6,000 units in 23. Another planned mid-to-large SUV CX1E (priced at around 200,000-300,000 RMB) is reported to be delivered by the end of 24, contributing limited delivery volume to ZEEKR this year. The main delivery volume for ZEEKR this year will still be concentrated on the existing 4 models.

Dolphin Jun estimates that under neutral valuation, ZEEKR's total delivery volume this year will be just over 200,000 units, with ZEEKR 001 and ZEEKR 007 still being the main drivers, with ZEEKR 001 achieving close to 120,000 in sales, and 007 about half of that.

ASP per vehicle: Due to the significant decrease in the proportion of ZEEKR 009, from 16% in 23 to an estimated 2% in 24, the proportion of the relatively low-priced ZEEKR 007 in the model structure has increased (expected to increase from 1% last year to 35% in 23), and the main model ZEEKR 001 has already reduced its price by 31,000-57,000 RMB compared to the 23 model, as ZEEKR 009's proportion has decreased significantly With the intensifying competition and the possibility of further price reductions in the future, Dolphin predicts that the ASP of a single vehicle in 2023 will drop to between 230,000 to 240,000 RMB.

Based on this estimation, ZEEKR's car sales revenue in 2024 is expected to be approximately 48.2 billion RMB.

As ZEEKR is still in a loss-making state, Dolphin values ZEEKR's car business using the P/S valuation method. Referring to the current P/S multiples of new forces in 2024, which range from 1.2 to 1.5 times, and considering the dilution risk, a certain valuation discount is applied, placing its PS ratio between 0.9 and 1.2 times.

Under the relatively conservative valuation of 0.9 times PS, its valuation is approximately 5.9 billion USD, with a 11% premium compared to the current price.

Therefore, it can be seen that ZEEKR still has a significant valuation discount even after excluding R&D services and three-electric assets. Looking at its performance since the release of the first-quarter financial report, with a higher-than-expected gross profit margin, increased cash consumption due to changes in related-party receivables, and the company's guidance for higher R&D investment, the market is concerned about financing risks and has not given positive feedback.

At this price level, Dolphin's advice is to closely monitor ZEEKR's car delivery progress. If there is further decline due to external factors, and the company's sales progress is marginally improving, then it may present an opportunity.

Additionally, it is important to note that the company is a new stock with a market value just over 5 billion USD, and the market value of circulating shares is only around 900 million USD. In situations where there are too few circulating shares, stock price fluctuations may not necessarily follow the fundamentals. However, from the perspective of the company's car manufacturing business layout, Dolphin intends to continue tracking this company for the long term.