The ongoing transformation in the automotive industry today has a major feature — hindsight. Whether it’s traditional enterprises or leading players in the new car army, observing what they have done in the past few years and their market performance these years, you will find some interesting phenomena.
BYD’s highly vertical integration mode, which was criticized when its sales were sluggish, has now become its core competitiveness in the new energy market. The ideal power system, which was thought to be reversing, has opened the second spring of the domestic hybrid market. NIO’s battery swapping mode, despite continuing questioning, has become a unique player in the homogenized electric vehicle market.
Turning to the launch of the XPeng G3, this compact pure electric SUV has no significant advantages in price or space. Its biggest product highlights are voice control, a large screen, and automatic parking assisted by a conspicuous roof camera. Faced with two competing models, WmAuto EX5 and BYD Song EV, the maturity and intelligence of the G3 made XPeng seem immature and unexperienced in the automotive industry.
Once again, practice has proved that new fields are not popular for three years. After several years of evolution and iteration, intelligence, which began with the G3, has now become XPeng’s best-known label, and the strongest “top-notch horse” in XPeng’s differentiated competition, helping XPeng achieve climbing sales time and time again.
In the latest 2022Q1 financial report released by XPeng’s official WeChat account, two sentences are particularly eye-catching:
- Maintaining year-on-year growth of over 150\% for seven consecutive quarters
- Winning the new force delivery championship for three consecutive quarters
The first sentence shows how pitiful XPeng was in the same quarter before the year-on-year growth, and how rapid it has grown since then. The meaning of the second sentence is somewhat complicated in the current stage of the top three new forces. With this sentence in mind and the information in this financial report, we may see a stone that is about to be pushed down the mountain.
Summary of Financial Information
The overall situation of China’s new energy vehicle market in 2022Q1 continued its upward trend. XPeng’s new car deliveries in Q1 increased by 159\% year-on-year, but the two key objective factors of the Spring Festival and the decline of government subsidies caused XPeng’s Q1 performance to decline by 17.2\% on a quarter-on-quarter basis, with 34,561 deliveries compared to 41,751 in Q4 of the previous year. However, as XPeng’s current best-selling model with the highest selling price, the P7 still has more than 19,000 deliveries, so the impact on its financial situation will be smaller than the decline in deliveries.
Q1 Financial Data
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Total revenue of RMB 7.455 billion, an increase of 153\% year-on-year, and a decrease of 13\% on a quarter-on-quarter basis;
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Automotive business income of RMB 6.999 billion, an increase of 149\% year-on-year, and a decrease of 15\% on a quarter-on-quarter basis;
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Total gross profit of RMB 911 million, an increase of 176\% year-on-year, and a decrease of 11\% on a quarter-on-quarter basis.- The overall gross profit margin was 12.2%, up from 11.2% in the same period last year and 12% in the previous quarter.
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The gross profit margin per vehicle was 10.4%, a decrease from the previous quarter’s 10.9%.
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Sales costs were 6.544 billion yuan, a year-on-year increase of 150% and a quarter-on-quarter decrease of 13%.
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Net loss was 1.701 billion yuan, compared to a net loss of 1.287 billion yuan in the previous quarter.
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The company had cash and cash equivalents of 41.714 billion yuan, compared to 43.544 billion yuan in the previous quarter.
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XPeng’s R&D expenses for Q1 were 1.221 billion yuan, down 16% quarter-on-quarter, accounting for 16% of the quarter’s total revenue.
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Sales expenses and general administrative expenses were 1.642 billion yuan, an increase of 128% year-on-year and a decrease of 19% quarter-on-quarter.
XPeng’s Q1 financial data shows that total revenue, automotive business revenue, sales costs, and gross profit are starting to show consistent changes, with the impact of car sales on the company’s finances becoming increasingly significant.
In terms of year-on-year data, the increase in total gross profit of 176% was higher than the increase in delivery volume of 159% and revenue of 153%, indicating that the gross profit margin has improved. However, the actual overall gross profit of 12.2% and per vehicle gross profit of 10.4% achieved by XPeng in Q1, while higher than the 11.2% and 10.1% in Q1 of last year, respectively, were not significantly improved given the significant increase in overall sales volume.
Among the top three new energy vehicle manufacturers, Li Auto had the best performance with an overall gross profit margin of 22.6% and per vehicle gross profit of 22.4% in Q1 2022, up from 17.3% and 16.9%, respectively, in the same period last year.
The reason for this difference is twofold. On the one hand, it is widely known that the market where XPeng currently competes is relatively fierce, and XPeng has invested heavily in the intelligent configuration of its models which does not leave much room for flexibility in terms of cost control.
On the other hand, given their relatively low selling price, XPeng is more affected by three factors: 1) the increase in raw materials prices for batteries, 2) the reduction of national subsidies, and 3) the decrease in prices for trading new energy credits. As a result, we can clearly see signs of “brand upgrading” in XPeng’s recent model planning, where more capabilities are required to compete in the high price range, not so much focusing on cost performance, which is an important step towards increasing their gross profit margin.The R&D team of XPeng Motors still shows great attention, with R&D investment of 1.221 billion yuan accounting for 16% of quarterly revenue. The Q1 R&D investment for the newly-launched Ideal Q1 was 1.37 billion yuan, accounting for 14.3% of revenue. The situation of NIO, which has not released its Q1 financial report, is estimated to be similar. It should be noted that the investment of the three major new car makers in new product development and core capabilities has begun to accelerate, and the pace is becoming more synchronous. In the next period, the R&D department of each company is likely to maintain a high investment cycle.
Business Expectations for Q2
In the financial report, XPeng announced its performance guidance for Q2:
- The expected delivery of vehicles is between 31,000 and 34,000, an increase of approximately 78% to 95% compared to 2021Q2;
- The expected total revenue is between RMB 6.8 billion and RMB 7.5 billion, an increase of approximately 81% to 99% compared to 2021Q2.
Under the epidemic situation, the overall performance expectation for the second quarter has been slightly lowered compared to Q1. In the first month of Q2, XPeng had already delivered 9,002 vehicles, so the average delivery volume for the remaining two months of May and June is still expected to exceed 10,000 according to official expectations.
XPeng Q1 2022 Conference Call
During the conference call, XPeng officials and investors focused mainly on the impact of the epidemic, the supply of raw materials, and the payment model for XPeng’s software in the upcoming operating strategies. During this period, He XPeng also revealed the new car plan for the company for the next year, summarized as follows.
Opening Statement
In the opening statement, He XPeng briefly described the company’s recent developments. In the first quarter of 2022, XPeng was ranked first in new energy vehicles among new car makers. The competitiveness of XPeng’s products and brand has been improving this year. In March, XPeng’s new orders reached a new high. The penetration rate of pure electric vehicles in the domestic market has exceeded 24% in March, and the trend of increasing penetration rate of pure electric vehicles will continue. In May, orders will return to the level before the epidemic. XPeng’s main production site is located in Guangzhou, which has efficient epidemic prevention and control, and XPeng’s Zhaoqing factory has resumed two-shift production in May.
New Vehicle Information
Regarding new vehicles, there are two major revelations. He XPeng stated that G9 will be launched in the third quarter and will begin mass delivery in the fourth quarter. XPeng hopes that the comfort and luxury of G9 will become the benchmark for the same class and become a popular choice for medium and large-sized pure electric SUVs. Starting from G9, XPeng will introduce the new generation of assisted driving, XPILOT 4.0, which will become the best product in the market in terms of safety, cost, and performance in different driving scenarios.Before, XPeng had revealed that there are even higher product lines above G9, and this news was updated during the conference call. He XPeng stated that the company will launch a new car for each of the new B-class and C-class car platforms in 2023. These two new cars are expected to become the aesthetic leaders of the same level, and the new cars will cover the price range of 400,000 to 500,000 RMB.
In terms of long-term planning, XPeng’s flying car research and development is progressing smoothly. Most of the time, the two-seater flying car can be driven on land and can fly when needed. The combination of these two modes can provide very different travel experiences between urban and suburban areas.
Supply and Production
Regarding the situation of epidemic supplies, XPeng stated that the epidemic has brought great challenges to the national automotive supply chain. After sensing the risk, XPeng Automobile made advanced preparations for key components. Starting from 2021, XPeng began to connect with multiple battery suppliers and will complete the multi-system switch of battery suppliers after Q2 (last year, it reached cooperation with SKI and Xinwanda), and this adjustment will have a long-term positive impact on XPeng’s supply stability, cost, and gross profit.
The problem of chip shortage in the automotive industry may take longer to resolve than everyone thought. The in-depth independent research in embedded systems enables XPeng to have higher flexibility in verifying and switching chips, which allows XPeng to respond more efficiently to related issues.
Business Prospects
For the next stage of development, XPeng’s focus is still on intelligent + electric. In 2022Q1, XPeng’s high-speed NGP penetration rate reached 70%, with a cumulative mileage of 24 million kilometers. In the new generation of intelligent driving functions that incorporate lidar, XPeng has already OTAed the fusion of lidar for cross-floor parking, and will OTA the adaptive cruise control that uses vision and lidar fusion later. In mid-May, XPeng has completed the public testing of urban NGP in Guangzhou, and the testing performance exceeded expectations. The company will work to further expand the coverage area of NGP in the city.
XPeng’s strategy is to produce intelligent driving solutions that are both high in safety and affordable, and that can be mass-produced. With the iteration of technology, XPeng will further integrate intelligent driving solutions, intelligent cabins, and intelligent chassis into a more complete intelligent experience. In May, XPeng merged the software and hardware operation and sales of XPLIOT, which is of significant importance for expanding the penetration rate of intelligent driving and reducing costs. XPeng will achieve L4 level of automatic driving by 2026.
XPeng is also continuing to invest in its energy supplementation system. Starting in Q4 of this year, the next-generation high-power supercharging will be deployed on a large scale, which can replenish 200 km of energy in 5 minutes.
QA Session
Q1: XPeng started to promote NGP as a standard configuration in May. Will it be difficult to return to the software charging mode if everyone starts using it as a standard configuration in the future?A5：我们认为软硬件一体销售比分开销售更好，因此 XPILOT 4.0 将标配。关于软件收费的问题，我们不排除按里程或时常的收费机制。取消免费充电对毛利有一定影响，但我们相信在用户规模上升的情况下，整体收益会增加。至于更快的充电技术，我们正在研发中，目前暂时不能透露更多细节。A5: The strategy for software payment of G9 is still undecided, and the influence of software standard on gross profit has indeed been offset through adjusting equity. XiaoPeng actually developed two types of ultra-fast charging solutions exceeding supercharging, including 360 kW and 480 kW, but finally decided to launch 480 kW, and current actual data needs further testing. After 480 kW, XPeng will have an even faster charging system.
XPeng will continue to deploy on charging facilities to make recharging more convenient, followed by improvements in wind resistance and energy efficiency, which will bring about a cost and usage experience advantage for electric vehicles, compared to gasoline cars. With the upgrade of the new generation of intelligent driving and cabin experience in 2023, the market will also usher in a turning point of intelligence.
A6: On G9 and subsequent new cars, the price difference between cars with advanced assisted driving and cars without assisted driving (also without hardware) will increase, but the company will make more efforts to reduce the impact of hardware costs and make advanced assisted driving more competitive. In addition, the proportion of optional assisted driving has increased significantly after the adjustment of software strategy.
P7 and P5 are not worried about. P5 has done well in terms of price with two lasers, and its advantage in intelligence level will remain quite competitive compared to peer companies in the future, which will not be affected much.
“Rock” and “Peak”
How much impact does intelligence have on sales?
Industry has been exploring the discussion about this issue for a long time. Compared to Tesla, XPeng is actually a better case because objectively, XPeng has not done enough in the “car” aspect. Among the factors contributing to XPeng’s market growth during this time, intelligence accounts for a higher proportion than Tesla.
XPeng P5 is definitely one of the most surprising models of 2021. As a pure electric A+ sedan model, sharing the same front-drive platform with the G3, and lacking a handsome design, the starting price is comparable to that of a JV B-class car, and the high-end configuration exceeds 200,000 RMB. From the perspective of the traditional Chinese auto market, this is undoubtedly a very awkward product. Even in XPeng’s own product line, the top configuration of P5 is facing the situation of “internal competition” with the entry-level model of P7.But that is exactly the car that has strayed into many industry pitfalls. Its monthly sales volume has reached 4,000, and it may rise after the subsequent production capacity improvement. A key factor that cannot be ignored behind it is that P5 is currently the cheapest car with Lidar that can be bought on the market, and its price is the cheapest for the same level of assisted driving ability. Its assisted driving ability is the strongest among cars at the same price. Compared with cars of the same price range, XPeng’s advantages in the smart cockpit are also significant. With the help of intelligent technology, P5 has almost no horizontal competitors among cars of the same price range. In other words, there is no alternative model for P5.
A similar thing also happened with XPeng P7. In the competition with BYD Han and Model 3, the sales volume of this car has increased from the initial 3,000 units to 8,000 units in the past year.
On the road to sales growth, intelligence is the stone that XPeng pushes up the mountain step by step. In this process, its potential energy is getting larger and larger, but it has not yet come to the stage of converting potential energy into kinetic energy.
Let’s take another example: BYD’s Qin PLUS EV and Han EV on sale are counterparts to XPeng P5 and P7 in the same price range. In the sales comparison of these models, it is not difficult to find that even if the smart features are missing, the sales volumes of BYD models are still considerable.
The reason here is not that intelligence is not important, but that the value of intelligence is still not enough to cause a qualitative change. Before Apple launched AirPods, portable Bluetooth headsets were still a niche market. But now, the popularity of TWS Bluetooth headsets is so high that the 3.5mm audio jack has almost irreversibly disappeared from phones.
Voice control, continuous conversation, lane keeping, adaptive cruise control… the emergence of these smart features has improved our driving experience, but they are not enough to make the final decision.
So the real question is, what kind of intelligence is powerful enough to buy a car for it?
I think what He XPeng said at the Electric Vehicle Hundred People Conference this year belongs to this category: In the future, vehicles equipped with advanced intelligent driving capabilities can drive themselves to nearby charging stations for charging and drive themselves back at low cost with the “one-key charging” function based on the vehicle’s own intelligent driving capabilities.
Earlier, Musk also said that after achieving completely autonomous driving, users can share their idle vehicles as Robotaxis to make money from ride-hailing.
Create electric cars that require almost no manual recharge, create value-added electric cars, this is the imagination that advanced intelligence may bring. But the above is already a bit of an “endgame”. At the moment, what we need to focus on is the turning point.With the scaling expansion of the new energy industry, the cost of electric vehicles compared to fossil fuel vehicles will reach a turning point within the same level. With the trends of increasing charging speed and longer driving range, the average energy replenishment time will also reach the turning point of being comparable to fossil fuel vehicles. In addition, there are also many turning points in system security and regulatory processes.
During the QA session, He XPeng stated that in the next two years, electric vehicles will reach a turning point in terms of comprehensive user experience and cost compared to fossil fuel vehicles. The turning point in intelligence will also be reached. The consideration in his words is the actual value of the product for users.
Finally, with the correlation between sales volume and vehicle price of P7, P5, and G3, XPeng has realized that the company should not spend too much experience in the price war-dominated market. The label of intelligence has been established, and it may have better effects to consolidate its advantages at this new stage.
In the 2022Q1 financial report, XPeng is very positive about this year’s overall expectations. Although the new car G9 and XPILOT 4.0 were not mentioned much throughout the conference, XPeng’s sentence “looking forward to G9 becoming a popular mid-to-large-sized pure electric SUV” obviously has extraordinary confidence. As a new force, the introduction of SKI and Xindayang immediately after the differences with Ningde is even more impressive.
Those who still despise and ignore XPeng may only realize it later when the stone falls, while XPeng has already pushed the stone up the mountain.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.