Incident: Ideal Auto announced that it delivered 0.054 million vehicles in September, +48.9% YoY, +11.6%; in 24Q3, the company delivered 0.153 million new vehicles, +45.4% YoY and +40.8% month-on-month, which is close to the upper limit of the previous Q3 sales guidelines (0.145-0.155 million vehicles).

We believe that the month-on-month increase in the company's sales volume in September was mainly due to the successive introduction of local trade-in subsidy policies and increased demand. In particular, the amount of subsidies in some provinces is tiered based on car prices, which is beneficial to high-end car sales. According to retail data, the Zengcheng series remained popular, with average weekly sales of about 5,500 units for L6 and an average weekly sales of about 6,000 units for L7/8/9 in the first three weeks of September; pure electric products increased slightly, with MEGA's average weekly sales volume of about 186 units and an increase of 15 units month-on-month in the first three weeks of September. We believe that the main products are gradually accumulating word of mouth and the layout of overcharging stations is becoming more and more perfect.

Sales channels and service networks continue to be upgraded. As of September 30, Ideal Auto had 479 retail centers nationwide, a decrease of 2 from the end of August, and 436 after-sales maintenance centers and authorized sheet spray centers, an increase of 13 over the end of August.

Outlook: The Extended Range series is expected to continue to be popular, and the pure electric series has great potential for sales.

1) Growth range series: Subsidy policies and smart driving upgrades are expected to drive sales growth and structural optimization. The company's strategy of focusing on the L series has had remarkable results. The recovery in L7/8/9 sales is compounded by continued L6 sales volume. It is expected that steady monthly sales will remain above 0.05 million vehicles in the future. Smart driving functions continued to be upgraded. At the end of August, OTA6.2 was launched. In terms of smart driving, the AD Pro high-speed NOA enhanced safety capability to cope with construction diversion and transit scenarios, and AD Max added a parking space drawing function. In September, a new generation of end-to-end + VLM smart driving systems began mass testing and a nationwide store experience for all models; in July 2024, the share of Max orders for models over 0.3 million yuan is close to 70%. The proportion of smart driving test drive users in August is expected to reach 55%. Continuously optimize the sales structure.

2) Pure electric series: The infrastructure side and vehicle side are working simultaneously, and the product sales potential is huge. On the infrastructure side, as of September 30, the company had put into use 894 supercharging stations nationwide, an increase of 146 from the end of August, with 4286 charging stations, an increase of 780 over the end of August. According to the company's plan, more than 2,000 supercharging stations are expected to be built within 2024; on the vehicle side, the company has a solid layout of high-voltage fast charging technology, and MEGA products are strong. After the company reverses its mindset and operates at a pace from 0 to 1, sales are expected to break through, and sales potential is high after the launch of a new pure electric product in 2025.

Investment advice: The company's net profit due to mother in 2024-2026 is estimated to be 8.1, 15.4, and 26.5 billion yuan, respectively, corresponding to the current market value PE, which is 20, 11, and 6 times, respectively. Referring to comparable company estimates, a 25-year 18xPE is given, corresponding to a 6-month target price of $130.86, equivalent to HK$144.79.

Risk warning: industry competition increases risk, supply chain cost reduction falls short of expectations, model launch pace falls short of expectations, etc.