Leapmotor plans to complete the spin-off of its vehicle intelligence systems teams and set up a separate company by the end of this year, according to local media.

Stellantis NV-backed Chinese electric vehicle (EV) maker Leapmotor (HKG: 9863) plans to complete the spin-off of its vehicle intelligence systems teams and set up an independent company by the end of this year, local media Jiemian reported today, citing people familiar with the matter.

Departments including smart driving and smart cockpit will be spun off to the new company, which will sell hardware and software solutions to external customers in addition to serving Leapmotor, according to the report.

The new company will have separate offices, and it will be both a sub-division of Leapmotor and a vendor, the report said.

Leapmotor's smart driving and smart cockpit businesses are part of the digital division, which employs about 1,000 people, the report said.

The division is headed by senior vice president Zhou Hongtao, who joined Leapmotor in 2016 and was previously in charge of software-related work at Zhejiang Dahua Technology Co Ltd, the report noted.

Zhu Jiangming, one of the main founders of surveillance products supplier Dahua, is the founder and chairman of Leapmotor, and Dahua was one of the main shareholders of Leapmotor at its inception.

This is not the first time Leapmotor has split its teams to form independent companies, as it has previously spun off its electric drive and battery business teams into two separate subsidiaries.

The split of the smart systems teams will allow for an independent search for new customers, as well as new potential financing, helping to reduce the financial pressure on Leapmotor, according to the report.

This approach is not uncommon among automakers, with BYD (HKG: 1211, OTCMKTS: BYDDY) spinning off businesses including batteries, motors, automotive electronics, molds, and lights into multiple subsidiaries in 2020, the report noted.

Leapmotor is focusing on the mass market under RMB 200,000 ($28,020), and the profits it can make from selling cars alone are quite limited, the report said.

In the current capital market environment, where access to financing is limited, the startup car brand needs to more aggressively broaden its revenue streams, the report said.

Leapmotor's revenue in the second quarter rose 22.62 percent year-on-year to RMB 5.36 billion, up 53.73 percent from the first quarter, according to its unaudited financial report released on August 15.

The company's gross margin was 2.76 percent in the second quarter, up 7.96 percentage points from -5.20 percent a year earlier and 4.16 percentage points from -1.40 percent in the first quarter.

Despite the gross margin improvement, Leapmotor's losses continued to widen in the second quarter, which the company blamed on more investment in research and development.

Leapmotor established the smart technology research institute in 2024 and plans to expand its current team from about 200 to around 500, focusing on the development of algorithms and technologies related to smart driving, Zhu said on the company's earnings call.

Leapmotor is going to invest more in research and development in the smart driving space as the sector becomes more competitive in order to turn around its lagging position, Jiemian's report noted.

Founded in 2015, Leapmotor is one of the first new car-making forces in China and is expanding overseas in partnership with Stellantis, Europe's second-largest carmaker by sales.

Leapmotor's current models on sale include the T03, C01, C10, C11, and C16, with all but the T03 offered in both battery electric vehicle (BEV) and extended-range electric vehicle (EREV) variants.

Leapmotor delivered 22,093 vehicles in July, up 54.12 percent year-on-year and up 9.83 percent from June, according to its previously announced figures.

In the January-July period, Leapmotor delivered 108,789 vehicles, up 84.90 percent year-on-year.

($1 = RMB 7.1372)

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