As XPeng Prepares To Fly, Invest With Care .
Once upon a time, there were 3 EV makers that made their debut almost simultaneously.
All 3 were Chinese homegrown EV makers.
All 3 were listed in the US market.
All 3 were then subsequently listed in the HK market and even Singapore (for NIO).
These 3 musketeers are $XPeng Inc.(XPEV)$ , $Li Auto(LI)$ and $NIO Inc.(NIO)$.
And that is where the similarities end.
Of the 3 EV makers, we all know in the end who came out top and currently is still maintaining the pole position.
It is none other than Li Auto - a hybrid EV maker actually.
As for the 2nd position, it is still contentious (to me).
However, all shall be revealed when NIO releases its Q2 2023 earnings report before US market starts trading today, 29 Aug (also 2nd last trading day of August 2023).
Why The Post’s Title?
To get to the bottom, we shall be looking at the recent news coming out from Xpeng.
Hot off the press, it has reported that Xpeng will be significantly ramping up its expansion effort next year.
Having restarted its international expansion earlier this year.
Such “positive” news should be celebrated with opened arms.
Except in reality, as an astute investor - one must really look at this with both eyes & minds wide opened.
For starters, venturing abroad is venturing into the “unknown”.
Any business will need to have “deeper” pockets as the initial years’ burn rate will be substantially higher.
To go at it alone might just proved to be too much, not unless the hired help is a team of well connected veterans with in-depth knowledge of the “local” market rules (of engagement) and regulations.
Forming a dream team is only the beginning of the challenge.
On Mon, 28 Aug Xpeng announced that it was acquiring Didi’s smart electric car development business.
This will be in exchange for Xpeng shares valued at $744 Million and it cannot be sold in the open market until 2026.
Leveraging on the strategic partnership and newly acquired assets, Xpeng plans to develop an electric car for “the masses”; to be launched next year.
When news broke, Xpeng stocks rose +13%.
The 3rd latest news from Xpeng was its Q2 2023 earnings released on Fri, 18 Aug 2023.
XPeng delivered soft Q2 results.
It provided a solid Q3 outlook, indicating strong demand for EV model G6.
Q2 2023 Volume was 23,205 units.
Q2 2023 Revenue was RMB$5.06 Billion vs Wall Street expectations of RMB$4.8 - 4.9 Billion.
Q2 2023 Operating expenses (Opex) amount to RMB$2.91 Billion, overall consistent with Wall Street’s estimates.
Average Selling Price (ASP) was marginally better than anticipated.
Gross margin declined 560 bps (QoQ) to -3.90%; missing analysts expectations of +2.5%.
This was of course due to lower Vehicle margin of -8.6% vs analysts expectations of -1.1%.
Root causes for the lower-than-expected Vehicle margin includes (a) inventory write down and (b) aggressive promotional activity - this is to be expected as it was the first of the 3 Musketeers to drop its EV selling price in response to Tesla’s price cut.
Cash and cash equivalents RMB$33.74 Billion (US$4.65 Billion).
Overall, it is a weak report card if you asked me.
Personally, this is the only bright sparks (albeit not really that bright) in Xpeng’s recent development.
In short, Volkswagen (VW) & Xpeng will jointly develop two new VW-brand EVs only for the Chinese market.
Volkswagen is investing $700 million in Xpeng and taking a 5% stake in the EV maker.
The new EVs will be based on the platform that underpins Xpeng’s G9 SUV; meaning it is a copycat.
Will be sharing my personal views in the same descending “day” sequence; just like Xpeng’s development news.
It is “effortless” to share an expansion plan with the press.
The important question is how familiar is Xpeng’s Management team with the “local” terrains it plans to set foot in?
Should learn from NIO’s experiences as they attempted to make inroads into European markets - (a) the red tapes’ challenges and (b) iron-clad labour unions rules & regulations all adds up to substantive businesses costs.
NIO’s inability to scale its swap stations installations is for all to see.
Why do you think elon musk has so much praises for his Shanghai Giga factory of all Tesla factories scattered around the world?
The Didi buy-out is a “conundrum”.
It looks like Xpeng is trying to avoid reinventing the wheel.
Instead, it is opting for a “plug & play” autonomous driving solution from Didi.
What is bewildering is Didi self driving apps is meant for a cheaper diffusion EV line (codename Mona) that Xpeng plans to roll out next year.
Shouldn’t autonomous driving feature be included in Xpeng’s premium EVs instead of the diffusion line?
Xpeng EVs are priced at for RMB$200,000 (USD$27,400) or more. Mona is rumoured to be priced at RMB$150,000 (USD$20,580).
With a price difference of only RMB$50,000 (US$7,000 max), what and where is the value proposition with the diffusion?
Again, due to slight price difference, will the diffusion line inevitably cannibalize the premium line EVs?
Will Volkswagen US$700 Million injection into Xpeng be able to fund all activities above from now until end 2024? Hardly.
One only need to look at NIO’s past 2-3 quarters earnings report to know how much cash have been burnt in the name of “expansion”.
Does Xpeng have a deep pocket (Q2 2023 earnings - Cash & cash equivalent stands at RMB$33.74 Billions) to help achieve its dream of becoming a global player?
Of the 3 musketeers, NIO’s EVs command the most premium. Its ET5 sedan after the recent discount in a bid to stay “price competitive” goes for RMB$298,000 (USD40,826).
Li Auto produces the most PHEV (Plugin Hybrid EV) and its sales is the best of the three car makers.
Li Auto sales volume helped the company to be profitable, the first amongst the 3 of them.
Where does that leave Xpeng in the face of mounting competition; not just from NIO and Li Auto but also European veteran car makers like Mercedes Benz, Audi and also other Chinese EV makers eg. BYD (most successful Chinese EV maker) - see above table for details.
No analysts have been able to explain clearly when it comes to Xpeng EV output capacity.
Is production (a) hampered by its manufacturing / assembly line that it could not rammed up output capacity OR (b) slowed down due to lack of demand for its EVs?
If it is due to reason (b), it is not a concern. The partnership with Volkswagen to help the German car maker produce EVs would put the factory to better use.
If it is due to (a), will Volkswagen be in for a surprise when it is time for Xpeng to produce its own Premium line, Diffusion line (Mona) and Volkswagen’s EVs?
“See” my concerns with Xpeng now?
Do you think Xpeng is the best of the 3 Chinese EV makers?
Do you think Xpeng has morphed into more of a meme stock of kind to be invested with care?
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This stock swing like there's no tomorrow. Good for day trade. Thursday down over $1. Friday gain back 90%. Take a look at the month of August and you'll know what I mean.
I told you their deliveries would go up exponentially in august 💪 this wills rally back to $40 before end of year
Li Auto sold 34K in August and is up 1%, Xpev sold 13K and is up like 7%, if you buy at this price I have condos for sale in the moon.
It looks like LI is doing the best in Chinese market now??
BYD just reported great results last morning.
Great ariticle, would you like to share it?
Tesla is down 4% after cutting prices in China and Xpev is up more than 4%, makes no sense.
Like buying TSLA in 2019! I missed on that one. It won’t happen again.
Great ariticle, would you like to share it?