Earnings call transcript: Zeka Group reports Q4 2024 revenue growth amid losses

Zeka Group reported robust revenue growth for the fourth quarter of 2024, with total revenues reaching RMB 75.9 billion, marking a 46.9% increase year-over-year. Despite this growth, the company continues to face challenges with a net loss of RMB 57.9 billion, although this represents a significant reduction from the previous year’s loss. The company’s stock, represented by Zeekr Intelligent Technology Holding Ltd ADR, experienced a decline of 6.16%, closing at $28.24. According to InvestingPro data, the stock has shown high price volatility, with a remarkable 74% gain over the past six months despite recent pullbacks. Analysis suggests the stock may be undervalued at current levels.

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Key Takeaways

• Zeka Group’s total revenue rose by 46.9% year-over-year.
• Vehicle revenue grew by 63%, reaching RMB 55.5 billion.
• Net loss decreased by 30% compared to the previous year.
• The stock price fell by 6.16% following the earnings announcement.
• The company is targeting a breakeven point under U.S. GAAP by 2025.

Company Performance

Zeka Group demonstrated strong revenue growth in 2024, driven primarily by vehicle sales, which saw a 63% increase. The company delivered a total of 507,000 vehicles, with the Zeka brand accounting for 222,000 units, an 87% increase from the previous year. Despite these gains, the company reported a net loss of RMB 57.9 billion, though this was an improvement over the RMB 82.6 billion loss in 2023. The company aims to leverage its technological advancements and brand differentiation to enhance its market position.

Financial Highlights

• Total revenue: RMB 75.9 billion (46.9% YoY increase)
• Vehicle revenue: RMB 55.5 billion (63% YoY growth)
• Vehicle gross margin: 17.3% in Q4
• R&D expenses: RMB 9.7 billion (16.1% YoY increase)
• Net loss: RMB 57.9 billion (30% reduction YoY)
• Free cash flow: RMB 1.5 billion

Outlook & Guidance

Zeka Group is setting ambitious targets for the future, aiming to sell 710,000 vehicles in 2025, with a split of 390,000 for the Lincoln Co brand and 320,000 for the Zeka brand. The company plans to launch new models in 2025, including the Zeka Seven GT and Lincoln 900 in Q2, followed by additional models in Q3 and Q4. Zeka Group is also targeting 1 million global luxury new energy vehicle sales by 2026.

Executive Commentary

CEO Andy emphasized the company’s goal to become the world’s leading premium new energy vehicle group, stating, "We aim to become the world’s leading premium new energy vehicle group with annual sales of 1,000,000 units." CFO Yuan Jing highlighted efforts to improve cost and manufacturing synergies, which are crucial for achieving the company’s financial targets.

Risks and Challenges

• Continued net losses despite revenue growth could impact investor confidence.
• The competitive landscape in the electric vehicle market remains intense, with pressure from both domestic and international players.
• Achieving cost efficiencies and reducing R&D expenses may prove challenging.
• Global economic uncertainties and potential supply chain disruptions could affect production and sales targets.

Zeka Group remains focused on its strategic initiatives, including technological advancements and market expansion, to drive future growth and achieve its ambitious sales targets.

Full transcript - Zeekr Intelligent Technology Holding Ltd ADR (ZK) Q4 2024:

Conference Operator: Hello, ladies and gentlemen. Thank you for standing by for Zeka Group’s Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. Today’s conference call is being recorded. I would now like to turn the call over to your host, Mr.

Yuan Jing, the CFO of Zeka Group. Please go ahead, sir.

Yuan Jing, CFO, Zeka Group: Thank you very much. And thank you all for joining Zeka Technology Zeka Intelligent Technologies’ annual results conference call. First, may I have Mr. Anton Hui, CEO of the company, to start the meeting.

Andy, CEO, Zeka Group: Hello, everyone. I’m Andy. Thank you all for joining Zeka Group’s fourth quarter and full year twenty twenty four earnings call. First and foremost, I would like to express my gratitude to our users, suppliers and employees for their unwavering support. Thanks to everyone’s efforts, Zika Group has delivered its first stellar full year results to the capital market just a few months after our IPO in May 2024.

So Zieker Group has achieved total sales of over 500,000 vehicles in 2024. Of the total, the Link and Co brand delivered 280,000 units, nearly 30% year over year increase, achieving the highest sales in its history. Total annual deliveries for the Zika brand surpassed 222,000 vehicles for the full year, a remarkable 87% year over year increase, making Zika brand the best selling premium battery electric vehicle brands in China. And thanks to the rapid growth of our sales volume, in the full year 2024, we achieved a vehicle revenue of RMB 55,500,000,000.0 and the whole revenue of RMB 75,900,000,000.0. And also, our gross margin is considerably a growth.

And in the fourth quarter, our vehicle gross margin achieved 17.3% while the full year vehicle margin achieved 15.6%. So we saw our gross margin for the vehicles also grow quite good. Under the strategic guidance of Jiri Holdings’ Taizhou Declaration, Zika and Linchenko successfully completed our equity transaction in just three months. Officially launching Zika Group on 02/14/2025. Building on a global user base of over 1,820,000 across both Zika and the Lincoln Co brands, we aim to deliver 710,000 vehicles in 2025.

Within two years, we aspire to become the world’s leading premium new energy vehicle group with annual sales of 1,000,000 units. Meanwhile, we are leveraging synchronized product R and D, improved the manufacturing system, enhanced user engagement and integrated domestic and international distribution to drive greater operational efficiency, maximize economies of scale and strengthen Zika Group’s resilience against market uncertainties. With these efforts, we are confident in our ability to continuously improve our profitability and enhance our shareholder values. Next, let me outline our three key strategies for driving sustained growth. First, we will continue to strengthen the Zico brand in the premium market to go more upmarket while broadening the Lincoln co brand customer base and further expand our product portfolio and enhance product competitiveness.

The Zika brand with an average selling price of close to RMB 300,000 continues to solidify its market position in the premium segment. The Zika nine emerged as the best selling NPV in China priced above RMB 400,000 in 2024 and has gained a significant popularity among business leaders. In 2025, the Zika brand will launch three new models to further expand its reach in the premium market. And we will release the Zika seven GT, our second shooting brake model, in Q2 followed by the Zika 9X, our full size flagship SUV, in Q3. Furthermore, we are introducing a large size premium SUV in Q4.

Both premium SUVs would feature advanced super electric hybrid technology. And notably, the ZEECA9X Grand will make its debut with the Level three Tianhie Haohan autonomous driving system H9 and make its first appearance at the Shanghai Auto Show in April. Meanwhile, the Linkenco brand is broadening its customer reach. In 2024, its new energy vehicles segment showed rapid growth with over 58% penetration rate, and the average selling price for the Lincoln Co brand reached over RMB200000. The Lincoln Co E and P ranked among the top three in the high end plug in hybrid segment with an average selling price exceeding RMB 220,000.

As the Link and Co brand achieves both price and the sales volume growth, its range of powertrain and customer reach continue to expand. In 2025, the Linkenkou brand will launch two new models. The first one is the Linkenkou 900, its flagship large six seater SUV. And we will officially launch this product in late April or early May. And many of these show cars have already arrived our showrooms.

And it will be the world’s first mass produced vehicle with very advanced ADAS system and would feature the Tianlei Haohan H7. Additionally, the brand’s first EMP mid to large size sedan will be released in the second half of this year. Secondly, we will strategically leverage our full stack AI capabilities to further enhance our competitive edge. The Zika Group is the only company in the industry with full stack in house development capability that span vehicle architecture, electronic and electrical systems, the battery and e powertrains, autonomous driving and the intelligent cockpit. Amaon with along with superior innovations through the seamless hardware and integration.

And with this unique technological advantage, we are well positioned to quickly expand our technological motors through AI empowerment. In the field of home striving, we have firmly established ourselves as now the leading player in the industry, admitting that in the first, we were late compared to our peers. And last in March, on March 18, we held a product launch event to showcase our end to end and door to door technologies. Lastly, our self developed end to end AI powered large model became the first of its kind to be mass produced and deployed in vehicles. And by the end of this year, we have completed the nationwide rollout of MAP3 NGP, ensuring a seamless driving experience on every road across the country.

And in February, we also launched a large scale battery for the Dotsu Don navigation. And we recently unveiled the industry first, the full stack Dotsu Don navigation system featuring GSN automatic invasive maneuvering and the level three autonomous driving technology architecture. And for the infotainment, we have based on our full stack, it is in house developed AI, KR Accur AI large language model. We have launched our Zika AI OS, and we hope to deliver very good technology offering to our customers this year. And in addition, we have recently established our IDD department for AI development and AI services, a powerful engine for the ZIKO Group, preparing progress across various business segments.

In 2024, we deployed AI driven solutions across a wide range of scenarios, including the R and D supply chain, quality control sales and operational support. And certainly, we will drive our sustained sales growth through the continued growth global expansion. In 2025, we aim around 10% of our annual sales target will come from the international market. And to maximize the synergies, we will establish a unified sales company after we integrate the two brands in the global markets outside of Europe and with a single team focusing on expanding the Bose brand’s international presence. And we will also introduce a new product tailored for the mainstream global market, including the Lincoln Core08 EMP and the Zika 7X.

These two products are liked by the global customers. And the 2025 marks Zika Group’s inaugural year since its formation to establish a unified organizational structure. We have embarked on a new phase of internal management transformation, and we aim to unlock greater organizational synergies while driving platform based technology sharing and the economics of scale for the cost reduction ultimately maximize shareholder returns. With that, I will hand over our call to our CFO, Yuan Jin, and hope we have a decent time for the Q and A. Thank you, everyone.

Yuan Jing, CFO, Zeka Group: Thank you, Andy. Before I start, our lawyer remind me to read the disclaimer. So, I will read. Before we continue, please be reminded that today’s discussion will contain forward looking statements made under the Safe Harbor provisions of The U. S.

Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company’s actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain company filings with the U. S.

Securities and Exchange Commission. The company does not take any obligation to update any forward looking statements except as required under the applicable law. With that said, now I will go over our key financial results for the fourth quarter and full year of 2024. Due to time constraint, I will address our financial highlights here, and I encourage you to refer to our earnings press release and 25 forms for further details. As you can see, we ended the year on a strong note delivering record high across several key financial metrics in the fourth quarter.

Propelled by the ongoing expansion of our product lineup and the continuous enhancements of intelligent features, we delivered over 222,000 vehicles in 2024, resulting in impressive year on year growth of 87%, further reinforced our position as the best selling pure electric luxury brands in China. Our record breaking vehicle deliveries led to a remarkable 46.9% year over year increase in total revenue, reaching RMB75 billion in 2024. Notably, vehicle revenue grew substantially by 63% year over year, targeting totaling RMB55 billion. Thanks to our strong product competitiveness, rigorous cost discipline in supply chain management and economic scale, we also continued to enhance profitability, achieving sequential improvements in vehicle margin to 17.3% in the fourth quarter and 15.6% for the full year. We believe this is better than all our listed pure play bVPS globally.

Driven by our unwavering commitment to electrification and intelligentization, we continue to increase our R and D investments while enhancing efficiency. In 2024, our R and D expense reached RMB9.7 billion, representing a 16.1 year over year increase. At the same time, our R and D expense ratio decreased from 16.2% in 2023 to 12.8% in 2024, demonstrating improved operational efficiency. Our R and D expense for 4Q twenty twenty five for 4Q twenty twenty four is around RMB3.2 billion, roughly in line year over year with 4Q twenty twenty three, which stood at around RMB3.16 billion. The quarter over quarter increase of R and D expense mostly due to year end employee bonus and booking schedule for finished projects.

We also booked an investment gain of RMB727 million. It is related to a partial disposal of investments in Guangzhou Xinyuanm by our subsidy in Bouhou variety as we received cash gain during the disposal. We did not book any non cash investment gain as the rest of the variety’s shareholding are not deemed as available for sale. We also made notable progress in reducing our total net loss, which decreased from RMB82.6 billion in 2023 to RMB57.9 billion in 2024, marking a year over year decline of 30%. This improvement was attributable to stronger profitability and operational efficiency despite substantial share based compensation expense related to the company’s initial public offering in May 2024.

Last year, our capital expenditure amounted to RMB1.7 billion, primarily allocated to PPE for Verizon, production toolings and leasehold improvements for our retail stores. Our free cash flow for 2024 reached RMB1.5 billion, setting another record high. In February of this year, we successfully completed the acquisition of Link and Co, and we have disclosed the pro form a condensed combined financial data for Zico Group for the year 2023 and 2024. As shown in the combined pro form a financial results, in 2024, the combined Zika Group achieved a remarkable revenue milestone of RMB130.9 billion, backed by vehicle deliveries of more than 507,000 cars. Looking ahead to 2025, we’re working towards a significant growth trajectory of 40% delivery growth to 710,000 vehicles across two brands.

The pro form a vehicle margin for Zika Group stood at 12.5%. And with the realization of transaction related synergies, we’re working very hard to implement form cost and manufacturing synergies and we expect Zika Group’s vehicle margin to further improve to around 15% in first quarter twenty twenty five if we can realize a few one off synergies. Having said that, we will continue to aim for around 15% vehicle margin full year 2025 in light of potential market conditions. Pro form a R and D expense stood at around RMB13 billion and we are seeking to realize 20% quarter over quarter R and D expense savings in fourth quarter twenty twenty five. We then will work to reduce R and D expense ratio to around 6% in two years’ time.

Pro form a SG and A ratio stood at around 12.5% and we’re aiming at reducing it to around 8% in the same timeframe. Link and Co recorded a free cash outflow of around RMB400 million, which means pro form a Zika group free cash flow for full year 2024 is around RMB1.1 billion inflow. Again, we would like to reiterate our target of quarterly U. S. GAAP breakeven in 2025.

Our key work to achieve this milestone are quite clear. Most importantly, it is Link and Co integration. We’re targeting to fully integrate Link and Co and Zigger brands together and realize, if not surpassing, the aforementioned guidance as soon as possible. In the first half of twenty twenty five, you can see we are focused on improving our ADAS experience. As evidenced by our March 18 event, we believe we are on the right track to be among the leading players in the Chinese e market in terms of ADAS software and globally.

For the new models, our two brand new models to be launched in the first half of twenty twenty five, we have targeted improvements over where we received most customer feedback. Seven zero seven GT will show improvements over the seven zero seven and Linkencode 900 over Linkencode nine. With the latest NVIDIA flagship site on Linkencode 900, we hope we will be able to further solidify our leadership in the ADAS area. We believe these targeted improvements and improved smart software experience will support Linkenco and Zhiyqa sales growth. In the second half of twenty twenty five, we will introduce Zhiyqa 7x and Linkenco eight EMP to international markets to further boost our also launched our start product for the year at Ziggo 9x, which will feature our latest and industry leading PHEV drivetrain technology and smart ADAS capability, including a L3 capable variant of the model.

Two additional models, a middle to large plug in sedan for Lincoln Co and the large plug in luxury SUV on the Zieker brand will also be launched and we expect these new models to further boost our sales delivery. Looking ahead, we will stay focused on accelerating resource integration and unleashing greater synergies to enhance shareholder returns and create sustainable long term value. So this concludes our prepared remarks. I will now turn the call over to the operator to begin the Q and A session.

Conference Operator: And the first question will come from Tina Hau with Goldman Sachs. Please go ahead.

Tina Hau, Analyst, Goldman Sachs: So my first question is regarding our breakeven timeline. So we mentioned that it’s going to be sometime in 2025. So just wondering what will be the conditions in order for us to breakeven in terms of the sales volume, vehicle gross margin as well as operating expenses? And also in terms of the ZEAKER and Linchenko consolidation, what kind of cost reduction can be seen in the specific quarter? So that’s the first one.

So my second question is regarding management’s outlook for 2026. What kind of product pipeline volume as well as market competition expectation do you have? And then also your CapEx guidance for 2026 as well?

Yuan Jing, CFO, Zeka Group: Thank you, China. Yes. So obviously, as you can see, there are things and there’s conditions that we can control and there are things that we cannot control. So for the things that we can we’re currently controlling and implementing changes, obviously, we are working very, very hard, as mentioned earlier, on the Link and Co integration. Say, for example, most of the mid and back office functionalities, including HR, legal, compliance and finance and admin team, we are all now sitting together as one team.

And at the same time, we are also working very hard to integrating the R and D team, not only in China but also globally. So those are the things that we believe we can control. And as I mentioned earlier, we do have this midterm target of lowering the R and D expense ratio towards something around 6%. And our targeted SG and A ratio is around 8%. And those two numbers, if you look at our pro form a financial statements, stood at around 11% for R and D and 12.5% for SG and A last year for year 2024.

So, we do think we are implementing these changes and working very, very hard towards what we are able to control. But on the other hand, obviously, you can see we have left some room for the market conditions that at this moment we see an intense competition in the Chinese new energy vehicle market and a more increased competition in the global market as well. So it’s very unfortunate at this moment that we won’t be able to pinpoint an exact state where we can turn around. But as I mentioned earlier, we are very confident backing up by the consolidation of Lincoln Co and Zika backing up on a targeted 40% vehicle delivery increase and back up by improved manufacturing and manufacturing efficiencies and improved gross margin targets to achieve this kind of results. On your second question with regarding to our guidance for 2026, You can probably see when we started this Lincoln Co integration project, our aim for full year 2026 is that we will create a luxury brand group that sells close to more than 1,000,000 cars globally in the luxury new energy vehicle sector.

And we stood by this target and we think we are on the right track to realize this target. That means we are not only expanding in China, but we are expanding into global markets. And we are not only selling BEVs on the Zieker brand but also plug in hybrids and potentially hybrid vehicles on the Lincoln Cove brand. So we do think if you look at 2024, Zieker Brands, we had a CapEx of around 20 something capital expenditure. And for 2025 and 2026, we looked at slightly increased capital expenditure for the combined Zieker and Lincoln Co brands.

But as you can see from my previous guidance, we’re looking at improved synergy. We’re looking at improved efficiency. So we do not see a proportional increase in CapEx but increase in CapEx in a more constrained and restrained.

Andy, CEO, Zeka Group: So I would like to add a few remarks. First of all, after we integrate Lincoln co brand and the Zieker brand, we have already made decisions to cut the models in the pipeline by in the R and D pipeline by 20% and to avoid the unnecessary internal competition between the two brands. And accordingly, the R and D expense was also lowered because of this decision. And secondly, I would like to say that the Zika brand products and the Lincoln co brand products are all developed based on the platform strategy, so they share a lot in common. And certainly, I would like to say that if we look at our performance in the last year, our gross margin showed a very healthy growth.

And as far as we can see for this quarter, the margin in the Q1 is also quite good. And also, we can see our R and D expense would be lowered by over 20%. And for the further details of our performance in the Q1, we would release in May in our earnings results. But I can say here that with the organizational optimization and the personnel optimization as well as the cost reduction on the manufacturing and the BOM cost, we are confident that we can achieve a very good performance in the first quarter. And I would like to add one point that Zika brand would go further upmarket.

And this year, we plan to launch two large SUVs, and they would both use the super electric hybrid technology. And as we know that the super electric hybrid technology powered with the products will have a higher gross margin than the battery electric vehicles and will contribute to better performance of our gross margin. And as we can see in this industry, there are products with an engine are always profitable. So as we plan to as we launch the two vehicles models with a super electric hybrid technology, we would enjoy we will see our vehicle margin grow as well as we will further strengthen our brand and further strengthen our sales volume performance.

Conference Operator: The next question will come from Tim Siau with Morgan Stanley.

Tim Siau, Analyst, Morgan Stanley: So my first question is about the sales target because the competition has been incredibly strong this year. So if such competition persists with a risk, we think there’s a full year sales target of 710,000 units in 2025. That’s my first question.

Yuan Jing, CFO, Zeka Group: Thank you, Tim. This is Jing. And you are right. We have set a 710,000 vehicle sales targets. Among them, sorry, 390,000 will be Linhuanqou vehicles and 320,000 will be Zika vehicles.

And you can see, we are very confident about the profitability and the integration of Linhango brand that can lead us to a very, very strong financial position starting from fourth quarter twenty twenty five. And with regarding to our financial positions, with regarding to our new models, with regarding to, as Mr. An mentioned, some of the high profitable sorry, high margin plug in hybrid vehicles, we are continuing to guide our full year vehicle business cost margin that is on par with what we were able to achieve on the first quarter of this year. So I think that gives you an indication of, I would call it, our animal spirit, our ability and our willingness to remain competitive in this very highly competitive market. And with the strong support of our earning ability and our profitability and our financial strength, we think we are in a much better position than most, if not all, of our competitors to remain competitive and to remain relevant when our customers are looking at their choices and looking at the price tags of the vehicles they are looking to buy.

So again, we’re reiterating our sales targets and we are fully confident we are able to achieve that.

Andy, CEO, Zeka Group: So I would like to add one point that, of course, it’s not easy to achieve that 710,000 annual sales units target, but we are still confident. We understand that the first the sales volume achieved in the first quarter was, according to our management perspective, it’s not that satisfactory, but it is also still in line with our expectation. Because if we look at our sales performance in the last year, quarter by quarter, we saw our sales growth very growth very healthily quarter by quarter. And this year, we see that with our new product offering in the second quarter, in the third quarter as well in the fourth quarter by LinkedIn co brand and Zika brand as well as the further improvement in and the enhancements of ADAS offerings, we have the confidence that we can achieve the full year sales volume target. And in the future, we will launch a new product as well as launch our face lift product, a version of our existing popular products.

And our goal is to make everyone every new product very popular among our customers. Next month in April, we will launch the new Lincoln KON 900 as well as the ZEKA seven GT, we hope they can be the hit product hit in the market. So our products will have a very competitive technologies and they would also be very competitive in pricing as well.

Tim Siau, Analyst, Morgan Stanley: My second question is about the new models because the management just updated the model pipeline. Are we going to fine tune the launch schedule in response to the intense competition? And secondly, what kind of strategy weaker would take to make sure that all these new models can stand out in such a crowded market? That’s my second question. Thank you.

Andy, CEO, Zeka Group: So regarding the cadence of launch of the new product, because we this product has been have been in our product development pipeline for years. And so for the second quarter this year, we will launch the Lincoln code 900 as well as the Zika seven GT. For the Q3, we will have one Lincoln code new product and one Zika new product. And for the Q4, we have we will have Zekkenu product SUV. We don’t want to launch the product too frequently in a short period of time.

So I think the cadence we in our plan is healthy. So for the product competitiveness, we want our products to stand out in the market with very advanced technologies. So we already released the spy pictures of ZK9X, which won the recognition by the customers. And the Lincoln Kona00 also have we have delivered showed them in the showrooms already, and the customers gave very positive feedback. We hope we have a very advanced technologies.

So the ZIKA9X will be the first product to be equipped with ZIKA’s Super Edge hybrid technologies, and it will have a 900 volt technology to support ultrafast charging. And it will be equipped with a very advanced ADAS offering. And also, we would release some more details about the ZKNOX in our product launch event. But then nevertheless, our principle is that to equip this with the most advanced leading technologies in the industry to make it very luxurious and comfortable for the customers. At the same time, we have still have a competitive pricing.

As far as I can see in the industry, 9X will be very unique and stand out in the market, and I don’t see a direct competitor to this model. Released a lot of details about the product, and it is well received by the customers. And we aim to launch it either at the April or the May. Currently, we receive a very positive feedback on the product, and people love its product and its technologies. And we would still offer very competitive pricing for the product as well.

So I would like to emphasize highlight again on one point that the super electric hybrid technology as well as the EMP technology used by the Lincoln Ho brand are very competitive. And for the Ziggyi Holding Group, we have been making cars for around three decades. So we have our very unique edge on the powertrain system, including the engines and the gearbox compared to many of our competitors.

Conference Operator: The next question will come from Ming Sun Li with Bank of America. Please go ahead.

Ming Sun Li, Analyst, Bank of America: So my first question is regarding your autonomous driving product strategy for your Zieker brand and also Lincoln co brand. And also right now, what is the progress of your R and D team in the product design integration? Especially in the future, when can we expect the Lincoln co brand car can start to use Seeker’s autonomous driving technology and also smart cabin technology? Thank you.

Andy, CEO, Zeka Group: This is a very good question. Also, as we integrate the Lincan co and the Zika brand, it is our plan that the DuVose brand would share the unified ADASA solution. On March 18, we’re at the ZEECA’s Chennihao Han ADAS technology launch event. We already explained that the ZEECA brand in the future will use the H7 and H9 ADAS G pilot solutions all with all that we equipped with the LiDAR as in our sensor suite. And for the Lincoln Core 900, it would also use the H7 system and it will be the first product in the market to be equipped with NVIDIA as a drive source, a very powerful SoC.

After we integrated the both brands, they will share the same solution of ADAS and they will share the same solution of infotainment. But of course, we understand the Lincoln Co and Zika are two different brands. So when it comes to the human machine interaction, the HMI, we would have a different design. But when it comes to the base wear, the middle wear and the hardware, they will share the same solution. Of course, for those link and core products in the brands, the product development pipeline, it might take some time for us to have a very unified solution for the ADASAN infotainment, but we aim to achieve the share platform ADASAN infotainment solution as soon as possible.

And by utilizing the platform strategy, we can enjoy the economies of scale and lower the cost, and we would speed up in the iterations of the software upgrades.

Ming Sun Li, Analyst, Bank of America: So my next second question is regarding your powertrain strategy. So currently Lincoln co brand, the technology is the E and P platform, but you are Zieker, the super hybrid technology should be more advanced compared to E and P system. So in the future, can we expect that your Lincoln Co brand will also use the super hybrid technology? And currently, you still sell some iCEV in your Lincoln Co brand. So do you think you will retire those iCEV sales faster or gradually?

Andy, CEO, Zeka Group: So first of all, because the ZEKA brand and Lin Tianco brand are two different brands, so they are different differently positioned. So currently, in our planning, the ZEKA brand will use a super electric hybrid technology, whilst the Lancangou brand currently has no plan to use this technology. However, I still would like to say that a lot of components between the super electric hybrid technology and the E and Ps are in common, especially on the engines and the gearbox. So we can have still have a very good synergy. Regarding the ICE vehicles, currently, we do not spend much on the R and D of ICE pure ICE vehicles, but still there is some customer demand.

For example, in the domestic market, there is some customer demand for the three products. And for the international market, still many customers appreciate ICE vehicles. So we would keep limited investment from the R and D for the IC vehicles to meet these customer demands in the global market. But more importantly, we will further accelerate our R and D investments in the new energy vehicles such as EMP, super electric hybrid and pure battery electric vehicles.

Conference Operator: The next question will come from Ting Wengian with CICC. Please go ahead.

Ting Wengian, Analyst, CICC: I have two questions. The first is, what is the current progress of our export business? Does the layout of linked end co stores help make the business go smoothly? The second question is about how do we view the impact of the position of Galaxy TwinStar models as high end new energy sedans on Lincoln

Andy, CEO, Zeka Group: So first of all, I would like to say again that for the Linkedin co for the Zika group, this year, our target is that the globe overseas sales volume make up over 10% of our full year global sales performance. And secondly, to answer your second question, so inside the GD Holdings Group, we have a very clear brand positioning and differentiation between the brands of Lincoln Co, the Zika and the GD Galaxy. So they respectively have their each very clear brand positioning and they would not conflict with each other. And we have already established a very good mechanism to avoid those unnecessary internal competition.

Conference Operator: Your next question will come from Ben Wang with Deutsche Bank. Please go ahead.

Ben Wang, Analyst, Deutsche Bank: Thank you. My question is more about financial. You actually elaborated that next year, first quarter gross margin will be 15%. Can I confirm if the vehicle margin was overall gross margin? So what’s the comparable number four quarter last year gross margin?

If you just mentioned that there will be one off positive, can you elaborate what’s the one off positive MENA margin looks quite decent? Thank

Yuan Jing, CFO, Zeka Group: you. Thank you, Binong. This is Jin. Yes. So, as we mentioned earlier, we are targeting or we are aiming to achieve 15% vehicle business gross margin on a consolidated level, which means both Lincoln Co and Zika combined together for the fourth quarter of twenty twenty five, if we were able to achieve a number of one off synergies we identified when we’re doing this Lincoln Co and Zika consolidation.

Unfortunately, there is no public available quarterly data for Lincoln Co available. But if you look at the six ks pro form a six ks that we published on our website, you can see that the overall pro form a Zika Group consolidated vehicle business gross margin for the full year 2024 is around 12%. So we’re looking at somewhere around 3% improvement on a consolidated level for the fourth quarter of twenty twenty five. At this moment, it may take too long for me to elaborate on each of these one off synergies that we identified. It is mostly due to supply chain, further examination of supply chain and closer examination of, if you remember, Lin Kanhai have their own manufacturing facility.

So we’re able to stop or find some leakages over there as well. And in addition to that, we were able to talk to our suppliers since we were Zita and Lincoln Co, we are coming together as a whole group. And there is further consolidations with regarding to the R and D. So the future components and parts, that is something we can leverage on when we’re talking to existing suppliers. So, yes, so I hope that satisfies you.

Ben Wang, Analyst, Deutsche Bank: Because you mentioned around 3% bond cost reduction on the call in the afternoon, do you consider 3% deduction in the bond cost in this guidance?

Yuan Jing, CFO, Zeka Group: I would argue that this is more than just BOM cost. But I think the essence is that we were able to demonstrate within the first quarter of Lincoln Co and ZEC consolidation, we were able to achieve this kind of gross margin growth.

Ben Wang, Analyst, Deutsche Bank: Okay. And my second question is about your battery sales business. We saw sharp decline in the lump of four quarters last year. Can you explain why side? So was the key customer what changed due to big decline in the battery sales?

Thank you.

Yuan Jing, CFO, Zeka Group: Yes. If you look at the battery and other component sales, it is mostly the business on nimble V Ray and nimble V Ray. If you recall, nimble V Ray is priced to a certain extent. GD Group’s EVs and NEVs regarding to battery packs and EV power chains. I’ll note is that not all of Geely Group’s NEVs are supplied by Ningbo Variety.

Some of Geely Group’s products are purchased from their respective suppliers directly. On the other hand, one of the key customers of Ningbo Variety, Volvo, we continue to supply them battery packs for Volvo’s EX30 model. So that contributes to the margin increase in the fourth quarter of twenty twenty four.

Ben Wang, Analyst, Deutsche Bank: Thank you very much. Thank you.

Yuan Jing, CFO, Zeka Group: Thank you.

Conference Operator: The next question will come from Eugene Tsao with Macquarie Capital. Please go ahead.

Eugene Tsao, Analyst, Macquarie Capital: So my first question is on if there’s any update on the vehicles to be sold to Waymo and on January, the U. S. Government had a ban on Chinese software, will that have any impact?

Yuan Jing, CFO, Zeka Group: So the way that we work with Waymo is a very delicate process. So we actually manufacture the bare bone car, the hardware in China. And then we ship it to Waymo in California. Over there, they will put on the ADAS hardware and at the same time, they will install all the related software. So when the vehicle clears The U.

S. Customs, it does not contain any so called vehicle communication modules. So we make this kind of arrangement to making sure that we are in full compliance with relevant laws and regulations and to minimize any potential risks with regarding to our cooperation with Weibo.

Eugene Tsao, Analyst, Macquarie Capital: So to follow-up, so the vehicle sales this year will be on track as expected before, is that correct?

Yuan Jing, CFO, Zeka Group: Yes, so far it’s still on track. Okay, great.

Eugene Tsao, Analyst, Macquarie Capital: My second question is on the self developed autonomous domain controllers that you showcased at CES. Are those only going to be on Superbrand and will they only be using NVIDIA chips?

Yuan Jing, CFO, Zeka Group: You mean the star chips?

Eugene Tsao, Analyst, Macquarie Capital: The main controller that was yes, that CES.

Yuan Jing, CFO, Zeka Group: The domain controller that we showcased, yes, yes. That domain controller will be equipped not only on Lincoln vehicles but also on vehicle vehicles. So it’s basically all of our sold in Airbus models in the future can use that ADC.

Eugene Tsao, Analyst, Macquarie Capital: But only ZEAKER brand or will the link use it as well?

Yuan Jing, CFO, Zeka Group: Both link and ZEAKER brands, so long as they use the ZEAKER chips.

Eugene Tsao, Analyst, Macquarie Capital: Okay. And maybe just a similar question, a follow-up is that, will we still plan to use mobile I chips going forward? Because I think all the new models are using NVIDIA chips.

Yuan Jing, CFO, Zeka Group: So Mobileye continues to be a very, very important partner with us. And as we mentioned earlier, so for most, if not all, international market targeted vehicles, we will continue working very closely with mobile.

Eugene Tsao, Analyst, Macquarie Capital: Okay. All right. Thank you.

Yuan Jing, CFO, Zeka Group: Thank you.

Conference Operator: The next question will come from Paul Gong with UBS.

Paul Gong, Analyst, UBS: So my first question is regarding the number of models. I think with the two brands, right now you have about 15 models and after this year’s new launch, you have about 20 new models in total. Do you think there is any room to be in the next sometime less popular models? And what do you think is the optimal number of the models?

Andy, CEO, Zeka Group: So first of all, we can make very clear that we have we hold a hit product strategy, meaning that all the new products we launched to the market, our goal is to make them the respective benchmark and the leaders in their respective segments. This is our strategy. And after we integrate the Zika brand and the Lincoln co brand, as I explained earlier, that we already cut the products in our pipeline by 20%. So this is already explained.

Paul Gong, Analyst, UBS: So my second question is regarding the R and D budget for this year and the breakdown roughly between the models development versus the intelligence and AI, etcetera?

Yuan Jing, CFO, Zeka Group: Yes. Thank you, Paul. So if you look at the unaudited pro form a combined with the initial statement, you can see Zika and Link and Co combined together. Last year, we spent around RMB1.2 billion, RMB1.3 billion on a U. S.

GAAP accounting standard for R and D. And we are looking at similar or slightly like single digit percentage increase with regarding to the guidance we do we pull out for R and D this year. Given that we’re introducing quite a few new models as well as refreshments of our existing models as well as improvements to data, smart copiers, etcetera, etcetera, we do believe that is an indication of our overall R and D improvement of our R and D efficiencies. For 2024, in each of the smart cockpits as well as ADAS sector, we spend around RMB1 billion. And as mentioned in 2025 and beyond, so we are looking to platformize our smart cockpits and ADAS technology among between Lincoln Co and Zigger brands.

So, we are looking at a similar level of expenditure for both smart copyrights and ADAS in 2025.

Andy, CEO, Zeka Group: So I would like to add one point that since the year 2022 to this year, we invested mostly for the platform technology. For example, the mechanical architecture, the electrical and the electronic architecture, infotainment and ADAS. And these investments in these platforms, technologies will bring us benefit this year. And I think in the future, the investments in many areas will be platformized and would not be as high as before. For example, take a super electric hybrid as an example.

We have already completed the almost completed the development of these technologies, and we will enjoy the benefits of the completion of this product technology development in the coming years.

Yuan Jing, CFO, Zeka Group: Yes. Also, sorry to add that if you remember, we continue to reiterate our guidance of around 6% on the expense ratio after the full integration of ZVika and Linkenco.Co.

Conference Operator: The last question will come from Juntao Dong with Citrix Securities.

Yuan Jing, CFO, Zeka Group: So my question is about the self driving. What would be the relation with ourselves self driving team and the Chinese technology?

Andy, CEO, Zeka Group: So as we integrate the Tianle technology and ZECAS ZID, we can very well combine the advantage of both sides. So for Tunley Technologies, they have a very good computing power computing centers with very high power computing capabilities, and they are cultivated in the areas in AI and the large language model. For the Zika ZID, we have a very good reserve in the ADAS algorithm. And we also have our engineering capabilities, and we understand how to further improve the customers’ experience. So after we integrate the two brands, we can enjoy very good synergy to benefit our ADAS offering to the customers and lower the cost.

So for the Zcash ADAS, it was still the development work would be led by Chenxi or Baymax, but this has been no change. And we would further enhance the platform strategy among the ZECAS brands and the Lincoln co brands ADAS solution offerings.

Yuan Jing, CFO, Zeka Group: And in addition to that, I think one key important factor I would like to mention is that for Zika, we will continue to make sure that the engineering team, I. E, the team who actually puts the technology on board of both Zika and Lincoln co vehicle to continue work very closely with the vehicle’s R and D team. With regarding to Chinese Hexi, as Anzong mentioned earlier, as you probably watched the events on the March 3, they are providing with lots of computing power. They are providing with lots of infrastructure. They are providing the backbones for the VLM and MLM models.

But the actual implementations of putting those models, those general infrastructures into use into an actual ADAS system that our customers can reliably and safely use on car, that is 100% in the hands of Zico’s team. So thank you all for joining today’s call. And hopefully, we addressed mostly, if not all of your questions. Ms. Dan and us will continue to be able to talk to you in the next few days to come.

Meanwhile, if you have any further questions, please feel free to reach out to the SECO’s IR team. That’s all for today. Thank you very much for your time and have a nice day. Bye bye. The

Conference Operator: conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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