(Yicai) April 17 -- Leapmotor will continue to double down on expanding its scale over the next three years to ensure the Chinese new energy vehicle maker’s survival in a highly competitive market, the company’s chief executive officer said as he sounded another ‘survival warning’ at a press briefing yesterday.

“The market only has so much capacity," said Zhu Jiangming, who is also founder and chairman of the firm. "Right now there are 17 Chinese auto manufacturers, but the market is not large enough to support that many and so the number will shrink. So we need to survive. And the precondition for survival is, first of all, not losing money, and second, having scale. Only with sufficient size do you have a future."

As the second Chinese EV startup after Li Auto to turn profitable, Leapmotor has been one of the leading players among emerging carmakers over the past year. Last year, the Hangzhou-based company sold nearly 600,000 autos and is targeting one million units this year.

Leapmotor’s A10 model, which was launched three weeks ago, has already received more than 30,000 orders. The firm also unveiled a new sports utility model, the D19, yesterday. Even with many hot-selling products and strong cash flow, the NEV startup still issued a warning as overall sales in the sector have dropped sharply this year.

On the night of the D19 launch, six other car launch events were happening simultaneously in China’s auto market. This level of intense competition will remain the norm for the next two to three years as the industry’s elimination process is not yet over, Zhu said. But after three years, it will be impossible for this kind of situation to continue.

Developing a new vehicle model costs at least CNY1 billion (USD146.5 million) even with the most cost-efficient approach, Zhu said. If a car is developed and at least 10,000 units of capacity are planned during the design stage, but only 5,000 autos are actually produced, factories end up half idle. This results in an extremely high unit cost once the costs of research and development and production are factored in.

With raw materials and chips seeing sharp price increases this year, there is also concern over whether Leapmotor’s pricing strategy and gross profit margin will be affected.

Leapmotor will not sell cars at a loss, and maintaining a reasonable gross profit margin is a bottom line that the firm will not compromise on, Vice President Cao Li told Yicai. Profitability this year is more important than anything else as it is a matter of survival and future growth is not possible without survival, he added.

China’s passenger car sales have tumbled 17.4 percent so far this year from the year before to 4.2 million units. Industry profits remain under pressure, with profit margins in the auto sector narrowing to a record low of 2.9 percent in the first two months of the year.

The total retail sales of consumer goods climbed 1.7 percent in March from a year earlier, lower than the 2.4 percent growth in the first quarter, mainly due to the sharp drop in auto sales, according to the latest data released by the National Bureau of Statistics. Car shipments plunged 11.8 percent in March and slumped 9.1 percent in the first three months.

Editor: Kim Taylor