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XPeng results: look to Volkswagen deals and sales volumes


Short term the picture for Chinese electric vehicle manufacturer XPeng [NYSE:XPEV] does not look brilliant, with a bigger than anticipated loss announced last week. A Q2 2.7 bn yuan hit did not go down well with investors. 

It was also the biggest quarterly loss reported by XPeng since the company went public in August 2020.

XPeng’s USD ADR was down almost 5% on the week, following heavy selling on Friday, but this is now looking like more of a short term reaction from speculators. Analysts noted that Q2 revenues were hitting expectations.

“Our experts say the impressive sales volumes of the XPeng G6 are down to its advantages in prices and autonomous driving systems because Model Y doesn’t have the FSD chip yet,” said Rosalie Chen, an analyst with Third Bridge.

XPeng was fighting its corner last week: its vehicle margin was down 8.6% in Q2, but the company said this was partly due to inventory write-downs and the losses on inventory purchase commitments.

XPeng hoping G6 SUV will turn things around

Much hope is being pinned on the company’s G6 SUV model, launched last quarter, which management feel should accelerate sales growth. XPeng is also looking at cost saving initiatives which it says will improve the gross margins picture by next year.

After the lacklustre sales of their iconic G9 model and with Wang Fengying taking on the role of president, XPeng has decided to focus on vehicles priced between RMB 200,000-300,000, aiming to regain its position as a first-tier player in the market.

Challenges for XPeng in H2 2023 include Tesla potentially making further price reductions, and equipping their new cars with FSD chips.

XPeng’s development focus is now on advancing its autonomous driving capabilities and developing new affordable vehicle models. It will launch new MPVs (multi-purpose vehicles) in the market at the end of this year, the company said.

Cooperation with Volkswagen could be a boon for XPeng

“The cooperation between Volkswagen and XPeng makes up for the weaknesses of Volkswagen in ICV, autonomous driving, and smart cockpit DCUs (domain control units),” Chen explained. “With the help of Volkswagen’s brand power, XPeng will be well supported in terms of market performance and financial health.”

“Our experts expect the EVs jointly developed by Volkswagen and XPeng will be launched in 2026 and will be based on the Edward platform of XPeng G9,” Chen said.

Moreover, it is also believed that Volkswagen will start paying technical service fees to XPeng from next year, subverting the 40-year tradition of Chinese auto manufacturers paying technology license fees to overseas auto manufacturers, which shows that China’s EV industry is leading the world.”

Key considerations for XPeng investors:

  • Gross margin is now negative, despite being broadly positive in 2022
  • Share price was down 80% last year – company is now in turnaround mode
  • Weak Chinese economy and depressed consumer spending has to be a factor
  • Competition in Chinese electric vehicle market increasing, with new kids on the block like NIO and Li Auto
  • Price war in EVs developing, led by Tesla cutting prices for its cars

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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