Q1 Sales reached 80,000 units. Ideal Auto unveiled its new MEGA on March 1. Due to factors such as high pricing, public opinion, and lack of supplementary energy, the sales volume of the new car fell short of previous expectations. In late March, the founder of Ideal Auto issued an internal letter reflecting on current problems, stating that “Ideal MEGA will patiently operate at a pace from 0 to 1”, “reduce sales expectations and desires, and return to healthy growth.” In March, Ideal Auto sold 28,984 vehicles, up 39% yearly/month-on-month. A total of 80,400 vehicles were delivered in Q1, an increase of 53% year over year, and sales increased steadily.
New cars will be launched soon, which is expected to further drive growth. Model side: The Ideal L6 was officially released on April 18. It is positioned as a five-seater luxury SUV for the family. The price of the L6 Pro/Max version is 249,800 and 279,800, respectively. On April 21, Ideal announced that the cumulative number of orders exceeded 10,000 units in 72 hours. In addition, Ideal Auto is expected to launch 3 pure electric models in the second half of the year. By the end of 2024, the company will have 8 models in 3 series, forming a complete product matrix. Sales side: Considering the pace of pure electric models such as the Mega, we have lowered our sales forecast appropriately. We expect sales growth of 50%-70% year-on-year in 2024, and we expect to sell 56-640,000 vehicles throughout the year.
Laying the foundation for the intensive launch of pure electric models, the overcharging network is aggressive. As of March 11, 351 ideal supercharging stations (1,518 charging stations) have been put into use, mainly in high-speed service areas. According to the plan published on Ideal Auto's official WeChat account, by the end of 2024, the company aims to build 2,700 overcharging stations (20,000 charging piles) across the country, of which the city will build 2,000 supercharging stations (17,000 charging piles) to achieve more than 60% urban coverage in Tier 1, 2, and 3 cities; and to build 700 supercharging stations (3,000 charging piles) at high speed to achieve more than 70% coverage of national highways.
The pricing strategy is sound, and earnings are expected to remain high in 2024. On the gross margin side: Facing more intense market competition, the company cut L7/L8/L9/MEGA car prices on April 22, by 18,000 to 30,000. Looking forward to the future, the company is still expected to achieve a high level of gross profit through supply chain cost reduction, R&D cost reduction, scale cost reduction, and production efficiency improvement. We expect the company's gross margin to be between 15% and 20% in 2024. Expense ratio side: As the revenue scale continues to increase and the overall cost rate is expected to improve, we expect the company's R&D expenses to be about 140-16 billion yuan in 2024, and the SG&A fee rate is expected to drop below 7%.
Investment advice: Maintain a “buy” rating. Due to intense market competition, we lowered our profit forecast. We expect the company to sell about 60/90/1.31 million vehicles in 2024-2026, with total revenue reaching 1791/2482/359.9 billion yuan. Future profit changes depend on the extent to which suppliers bear the price reduction. Based on the different assumptions that suppliers bear 0%/50%/100%, we estimate that the company's gross margin in 2024 may be 18%/20%/22%. We selected suppliers to bear 50% and gross profit margin of 20%. The estimated non-GAAP net profit is 148/196/29.1 billion yuan, and the non-GAAP net profit margin is 8.3%/7.9%/8.1%. We gave it a target market value of RMB 294.2 billion, corresponding to a target price (2015.HK) of about HK$151 and (LI.O) of about $39, corresponding to 15x 2025P/E, maintaining a “buy” rating.
Risk warning: risk of model development and sales falling short of expectations, risk of fluctuations in upstream parts supply, risk of iteration of intelligent driving technology falling short of expectations.