The domestic mainstream market strives for steady growth. With Stellantis exports, it is expected that new C10 and C16 models will be released in 2026. The 2024H2 T03 and C10 models are expected to be exported. The sales volume is expected to be 24.4/44.3/690,000 units in 2024-2026, corresponding to a total revenue of 269/507/71.4 billion yuan, an increase of 60%/89%/41% over the previous year; based on increased scale effects, technology iteration and raw material cost reduction, which is expected to be driven by increased scale effects, technology iteration and raw material cost reduction Bicycle costs have declined. Non-GAAP net profit for 2024-2026 is expected to be -30/-11/900 million yuan, and the current stock price of HK$23.45 is 1.1/0.6/0.5 times PS in 2024-2026. With the launch of new car cycles such as the C10 and C16, the domestic market share is striving to rise steadily, and is expected to narrow losses in the domestic automobile sales business after the industry pattern stabilizes. At the same time, overseas automobile sales are expected to start in 2024H2 and ensure stable profitability. The company as a whole is expected to usher in profit volume in 2026, and the first coverage will be given a “buy” rating.

Manage R&D and production accurately and control to ensure product cost performance advantages The company adopts a “pure electricity+range extension” dual power strategy, focusing on the mainstream price range of 100,000 to 200,000 yuan for domestic passenger cars. Currently, there are 4 models in total: T03, C11, C01, and C10, which will gradually expand the price range coverage in the future.

The core competitive advantage of the product is high cost performance. Compared with competitors in the industry, it has certain advantages in terms of price, wheelbase space, and intelligence. It stems from its strong cost control capability driven by multiple dimensions of management, R&D, and production. (1) Management: Core executives have rich relevant experience, and the management structure is flat. SVP and VP all directly connect with CEO Zhu Jiangming. (2) R&D: The R&D path is clear, the R&D efficiency is high, the generalization rate of the platform is 88%, and the cost of global self-developed driving software and hardware technology is reduced; (3) Production: self-developed and self-production reduces vehicle manufacturing costs, and other components other than batteries, smart chips, and traditional interior and exterior are basically self-produced; (4) Channels: mainly dealers, accounting for 85% of the number of distribution stores, and there is still room for improvement in coverage and sales efficiency.

Using Stellantis channels, after-sales service and brands to drive overseas sales expansion and stable profitability, Stellantis Group is the second-largest automobile group in Europe. It has 16 major automobile brands and channel stores all over Europe. The company and Stellantis Group each established “Zero Run International” as a joint venture at a ratio of 51:49. This joint venture exclusively owns the right to sell Zero Sports cars overseas. The company's products have significant cost performance advantages over mainstream European electric vehicles, and it is expected that delivery of new cars to the European market will begin in the second half of 2024. Using Stellantis Group channels, after-sales service resources, and brand influence, the company is expected to achieve a faster rise in overseas sales, and the asset-light overseas cooperation model ensures stable profitability.

Risk warning: Product launches are not as good as expected, production capacity and supply chain risks, and NEV growth is not as good as expected.