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Despite reporting a 130% increase in net profit during the third quarter and achieving profitability for its automotive division for the first time, the company’s stock declined. Shares closed down 4.7% at HKD 38.86 (about USD 4.99) in Hong Kong trading today.
In the three months ending September 30, the Beijing-based tech company announced a net profit of CNY 12.3 billion (approximately USD 1.7 billion), up from the previous year. The adjusted net profit soared 81% to CNY 11.3 billion, while revenue increased 22% to CNY 113.1 billion (around USD 15.9 billion).
The automotive division delivered 108,796 electric vehicles in the third quarter, with revenue tripling to CNY 28.3 billion—nearly 98% of the company’s revenue from innovative segments. For the first time, the auto division turned a profit, posting an operating profit of CNY 700 million (about USD 98.5 million) and a gross profit margin of 25.5%.
As of September 30, the division had set up 402 car sales stores across 119 cities in mainland China, along with 209 service outlets in 125 cities.
While the gross profit margin for the auto division is expected to stay stable in the fourth quarter, it might decline next year, making it more challenging to sustain this year’s strong performance, according to the company’s president during the earnings call.
The company sold 43.3 million smartphones in the third quarter, showing a modest 0.5% growth year-over-year and marking the ninth straight quarter of growth. Nonetheless, revenue from smartphone sales dropped 3.1% to CNY 46 billion, primarily due to a decrease in average selling price (ASP) from CNY 1,102 (USD 155) to CNY 1,063 (USD 150).
The downturn in the smartphone segment was partly attributed to rising memory prices, which tend to fluctuate cyclically. Currently, however, demand is driven heavily by the need for high-performance computing fueled by artificial intelligence, leading to extended lead times, high demand, and tight supply.
Memory prices surged unexpectedly in the first and second quarters, with another significant increase in the third quarter, and expectations of even higher prices in the upcoming quarter.
Production capacity for new memory modules isn’t expected to come online until 2027. The company’s president expressed a rather pessimistic outlook for the smartphone market next year, indicating that pressures will be stronger than this year. He also forecasted a substantial rise in retail prices for devices in the coming months.
Revenue from the Internet of Things and lifestyle consumer products rose 5.6% year-over-year, reaching CNY 27.6 billion in the third quarter, with a gross profit margin of 23.9%.
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