3Q24 results are in line with our expectations

The company announced 3Q24 results: achieved revenue of 7.13 billion yuan, +42.9%/+9.1% YoY; net profit to mother 0.78 billion yuan, +54.6%/-4.1% YoY; deducted non-net profit of 0.73 billion yuan, +53.7%/+4.0% YoY. The results were in line with our expectations.

Development trends

Growth in core customers led to month-on-month revenue growth; fluctuations in non-current accounts affected the release of performance. In terms of revenue, 3Q24 Tesla delivered 0.463 million vehicles globally, +6.4%/+4.3%, a quarterly high; Tesla China/Xiaomi/Geely/Celis/BYD 3Q24 sales volume +21.1%/+32.6%/+11.2%/+11.4%/+14.9% month-on-month, with impressive sales growth for core customers; SAIC-GM's 3Q24 sales volume was 53.6% month-on-month, causing a certain drag. In terms of profit, net profit due to 3Q declined month-on-month. We think it was mainly due to month-on-month fluctuations in non-recurring profit and loss accounts. Among them, government subsidies for 1Q/2Q/3Q were 0.058/0.115/0.04 billion yuan, respectively, and 3Q decreased 0.075 billion yuan month-on-month; net profit to mother was positive month-on-month after excluding the impact.

The gross margin was fixed month-on-month, and the R&D cost ratio increased slightly. In terms of profitability, 3Q24's gross profit margin was 20.9%, -1.8/+0.5ppt. The decline in raw material prices and the release of scale effects hedged the increase in upfront costs brought about by the gradual commissioning of the 3Q Mexican plant. Gross margin showed a month-on-month upward performance; after deducting 10.2% of non-net interest, +0.7/-0.5ppt compared to the same period, we believe that the month-on-month decline was mainly due to the impact of the cost rate during the period. On the cost side, the cost rate for the 3Q24 period was 8.6%, -2.8/+0.4ppt compared to the same period, of which the R&D cost rate was +0.4ppt. We think it was mainly due to an increase in R&D expenses for new businesses such as robots; the exchange loss was 5.44 million yuan, and the total exchange loss was 25.18 million yuan in 1-3Q, which was narrower than in 2Q.

New regions, new customers, and new tracks continue to expand, and diversified growth momentum is sufficient. Looking ahead to 4Q24, we believe: on the revenue side, the first phase of overseas Mexican production capacity has already been put into operation, the other two factories are being installed and commissioned, and 4Q continues to climb. The peak season for the domestic traditional car market is expecting further release of 4Q revenue; in terms of profit, Mexico may cause upfront costs and depreciation, profitability or phased pressure.

Looking at 2025, we think the increase comes from: 1) Tesla: The 3Q24 Tesla call will guide Tesla sales growth of 20% to 30% in 2025; according to MarkLines, 3Q CyberTruck sales climbed to 0.0135 million units, an increase of about 70% over the previous month. We believe that the company is Tesla's core supplier and is expected to significantly benefit from Tesla's volume. 2) Xiaomi/ Celis/ ZEEKR: Popular models will be launched every year in 2024. Brand strength and product strength have been recognized by the market, and the launch of new models in 2025 is expected to drive the company's continued growth.

In the longer term, humanoid robot business companies will continue to participate in R&D and may contribute to the second growth curve.

Profit forecasting and valuation

We maintain our 2024/2025 earnings forecast. The current stock price corresponds to 2024/2025 25.7/20.5xp/E. Maintaining an outperforming industry rating, consider switching the valuation to 2025, and raising the target price by 8.1% to 55.8 yuan, corresponding to 31.0/24.7x P/E in 24/25, with 20.3% upside compared to the current stock price.

risks

The progress of the robotics business fell short of expectations, and the expansion of overseas customers fell short of expectations.