Xpeng Motors Stock Falls after Posting a Record Loss
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Xpeng Motors (NYSE: XPEV) stock fell over 4% yesterday after the company posted a record loss in the second quarter of 2023 and reported negative gross margins in the quarter.
Xpeng Motors reported revenues of $693.7 million in Q2 which was in line with analysts’ estimates but 31% lower YoY. The company’s deliveries fell in Q2 which negatively impacted revenues. Notably, XPEV’s deliveries were below 10,000 units in all the months in the quarter but rose above the milestone in July.
The company posted a net loss of 2.8 billion yuan which is the record quarterly loss for the company and is above the 2.13 billion yuan that analysts expected.
Xpeng Motors posted negative gross margins in Q2
Xpeng Motors reported a gross margin of -3.9% in the quarter as compared to 1.7% in Q1 2023 and 10.9% in Q2 2022. The company’s vehicle margin was -8.6% in Q2 2023 as compared to -2.5% in Q1 2023 and 9.1% in Q2 2022.
The company blamed the fall in margins on inventory write-downs and losses on inventory purchase commitments, and higher sales promotions and expiry of new energy vehicle subsidies in China.
The company expects its gross margins to improve over time and said that increasing volumes would help its margins to improve in Q4. It added that “as we sell a better mix of products in the second half, we do expect our gross margin to become positive in the fourth quarter of this year.”
Xpeng Motors is also hopeful of generating positive operating cash flows
During the earnings call, Xpeng Motors’ CEO He Xiaopeng said the company made several changes to its business strategy and organization structure amid what he described as “intensified competition and rapidly evolving environment.”
Xiaopeng said that “these transformational adjustments have generated better-than-expected results internally and externally and propelled XPeng into the initial phase of a virtuous cycle.”
He added, “The G6 has become the dominant BEV model in the 200,000 RMB to 300,000 RMB price market segment, turbocharging our sales growth momentum.”
Notably, in July, Xpeng Motors began the deliveries of its G6 SUV. The car is based on Xpeng Motors’ new production platform called SEPA2.0 (Smart Electric Platform Architecture) which the company unveiled in April. The company priced the model 20% below Tesla’s Model Y. However, Tesla has since lowered its car prices in China and intensified the price war.
Last month, Tesla along with over a dozen Chinese automakers pledged to avoid “abnormal pricing” and promote “core socialist values.”
The pledge was signed by 16 automakers in total of which only Tesla was a foreign automaker. The automakers signed the pledge at an industry conference in Shanghai which stated they “take on the heavy responsibility of maintaining steady growth, strengthening confidence and preventing risks.”
However, the move seems to have failed and The China Association of Auto Manufacturers (CAAM) has retracted the pledge saying that it violated China’s antitrust law.
Xpeng Motors expects deliveries to rise gradually
Xpeng Motors is ramping up G6 production and forecast total deliveries between 39,000-41,000 in the third quarter. While it is below the average monthly deliveries of 15,000 that it had previously forecast, the company said that rising G6 deliveries would help its deliveries to surpass 15,000 in September.
Previously, XPEV said that its monthly deliveries would average 20,000 in the fourth quarter and now it is targeting “peak monthly deliveries of 20,000” in Q4. The company is optimistic about G6 and its SEPA2.0 platform though and Xiaopeng said, “I believe the success of the G6 is just the beginning. Moving forward, we plan to introduce an even wider range of SEPA2.0-enabled top-selling models.”
XPEV has partnered with Volkswagen
Last month, Volkswagen partnered with Xpeng Motors to build two EVs on its platform and also buy a stake in the company for a total consideration of $700 million. Commenting on the partnership, Xiaopeng said, “We’ll continually deepen our cooperation with the Volkswagen Group and build stronger synergies in the next-generation EV platforms, software technologies, and supply chain capabilities, sharing economies of scale. I’m excited about this strategic partnership, which underscores Volkswagen’s confidence in and recognition of our in-house self-developed core technologies and groundbreaking capabilities.”
Jefferies had upgraded XPEV stock after the Volkswagen partnership
Notably, after Xpeng Motors and Volkswagen announced their partnership last month, Jefferies upgraded XPEV stock from a hold to a buy, and analyst Johnson Wan said, “Harvest season for Xpeng’s AD (autonomous driving) initiatives has just started.”
Wan raised his target price on XPEV from $7.80 to $25.30 and said that the partnership signals “the start of China [original equipment manufacturers] exporting technologies to foreign players [and] will help Xpeng to increase its brand image globally.”
Xpeng Motors is working to cut costs
Xpeng Motors is also working to cut its cost base by 25% by the end of 2025. Xiaopeng added that he expects “even better results in some other subdivisions. These cost-saving initiatives will strengthen our product competitiveness and substantially drive gross margin improvement in 2024.”
The company is also working on lower-priced models and is expanding in tier 2 cities in China to drive its volumes.
XPEV stock has come off its highs
XPEV stock fell over 80% last year but has soared in 2023 amid optimism over its G6 SUV and its partnership with Volkswagen. It has come off its 2023 highs though amid the fall in Chinese stocks.
Many brokerages now expect China to miss its 2023 GDP growth forecast of 5% increasing headwinds for the world’s second-largest economy.
Musk on Chinese EV companies
On multiple occasions, Musk has praised China’s manufacturing ecosystem and EV companies.
Earlier this year, Musk termed China-based EV maker BYD “highly competitive.” In 2011, the billionaire had laughed at the possibility of BYD as a competitor to Tesla.
During Tesla’s Q4 2022 earnings call, Musk said, “we have a lot of respect for the car companies in China. They are the most competitive in the world. That is our experience.”
He added, “They work the hardest and they work the smartest. And so, if I were to guess, probably some company out of China is the most likely to be second to Tesla.”
Incidentally, at least when it comes to autonomous driving, Xpeng Motors comes the closest to Tesla – which does not the permission to offer its FSD (full-self driving) in Chinese cities yet.
