To The Moon

$Volkswagen AG(VWAGY)$ , an old car company, invested 700 million dollars in $XPeng Inc.(XPEV)$ , a new force of Chinese automotive industry, which triggered heated discussions in the industry and also marked that the competition between new-energy vehicles has entered a new stage.

As the industry with the strongest growth potential in recent years, China's new energy vehicle market has formed a trend of "two super and multiple strong" after fierce competition.

Under the leadership of $BYD Co., Ltd.(BYDDY)$ and $Tesla Motors(TSLA)$ 's "dual superpowers", traditional car companies and new car manufacturing forces have taken turns to seize the second tier.

Due to the popularity of the new energy concept in 2021, the frenzy of capital inflows has pushed valuations too high. During the year and a half from 2022 to 2023, the performance of the new energy sector was in the stage of rational regression, and most investors who followed the trend in the later stage were in a loss state.

At a low level in the market, the public capital injection announcement released by $XPeng Inc.(XPEV)$ has triggered another wave of small capital frenzy. Can the growth triggered by this marriage alliance continue and what impact will it have on the industry?

1.New forces and old brands hand in hand, each taking their own needs.

According to the announcement of $XPeng Inc.(XPEV)$ , $Volkswagen AG(VWAGY)$ took about 4.99% of the equity of $XPeng Inc.(XPEV)$ with a consideration of US $700 million, becoming the third largest shareholder of $XPeng Inc.(XPEV)$ , ranking behind 20.47% of He Xpeng and 11.1% of Alibaba.

Both parties will jointly develop two B-class electric vehicle models, with plans to launch them on the market in 2026.

These two cars will be built based on the platform used by XPeng G9, using technologies such as intelligent cockpit and ADAS assisted driving, and will be attached with the brand logo of Volkswagen.

In fact, both XPeng, one of the three new domestic automobile manufacturing forces, and Volkswagen Group are in their own most embarrassing moments in the harsh competition of China's new energy vehicle market.

After $XPeng Inc.(XPEV)$ experienced the positioning errors of P5 and G9 in succession, its sales and brand influence have plummeted. The current sales volume can be said to have been thrown out of the first echelon of new car making forces. In the past June, the sales volume was less than 30% of the ideal, leaving Leapmotor and Nezha behind.

Financially, the performance of $XPeng Inc.(XPEV)$ can be described as "miserable", with serious losses and reduced cash reserves.

On the other hand, the situation of Volkswagen Group is not much better, and the path of electrification in China can be described as one step forward and three steps backward.

In 2022, the market share of Volkswagen brands in China was 11.4%, while the new energy vehicle market was only 3.3%. In the first half of 2023, the sales of Volkswagen's pure electric vehicles were even worse. In the first quarter, only 22000 Battery electric vehicle were sold in the Chinese market, down 25.4% year on year, and the quarterly sales volume was only equivalent to the delivery volume of Li Auto in a month.

It should be noted that the products of the electric family of Volkswagen Group are all prioritized for landing in China, but sales are still in such a situation, which is hard to explain.

Despite the rapid growth in sales of Volkswagen pure electric vehicles in the European and American markets, there is still a significant gap compared to $Tesla Motors(TSLA)$ and $BYD Co., Ltd.(BYDDY)$ .

In the first half of 2023, Volkswagen delivered 217100 pure electric vehicles for European market, an increase of 68% year-on-year, and sold 29800 vehicles in the US market, an increase of 76% global sales.The global sales volume was 320000 units, while Tesla delivered 888000 units globally during the same period and BYD delivered 616800 units.

Whether for Volkswagen or Xiaopeng, this cooperation carries a sense of warming up and seeking breakthroughs.

2.In the era of intelligence, the second tier is even more unstable

Since 2021, the growth rate of the new energy industry has been maintained at over 80%, and the Chinese market is even more a battleground for strategists. But under the huge market growth, not all car companies can receive dividends.

In 2022, the momentum of traditional car companies that have turned around has significantly surpassed that of new forces in car manufacturing, with Chang'an and Geely being market beneficiaries. Back then, $BYD Co., Ltd.(BYDDY)$ captured 45% of the incremental market share, while new forces only captured 4% of the incremental market share.

2023 is also a year of significant market differentiation, with significant differentiation in sales and performance among vehicle companies. As the market enters a fierce competition, there will be a clear survival of the fittest.

From the wave of price cuts caused by Tesla at the beginning of the year, it can be seen that the competition between car companies has reached a close combat mode.

Despite Tesla's constant claims of 'pricing based on cost', in fact, commercial pricing is ultimately determined by supply and demand, and Tesla's price reduction is definitely a consideration of increasing market share.

From the current competitive landscape in the Chinese market, BYD and Tesla, as the market leaders, are relatively stable.

The two giants have different advantages, and $BYD Co., Ltd.(BYDDY)$ has a rich product line covering multiple market segments. Tesla mainly relies on the integration of global supply chains, with cost advantages. $BYD Co., Ltd.(BYDDY)$ has strong hardware technology, with self-sufficiency in batteries, electronic control systems, etc., while Tesla's software is even better.

Compared to the "two super brands", the "multi strong pattern" of the second tier is still quite unstable, and the traditional car companies as well as new forces in the car manufacturing industry that have undergone transformation are still in the stage of "sales being the king,running horses and seizing territory", and the sales ranking is constantly changing.

Of course, China's overtaking in the field of new energy vehicles has undoubtedly been confirmed. As commented by netizens, "Volkswagen invests in Xpeng, Audi cooperates with Zhiji, and Middle Eastern tycoons invest in $NIO Inc.(NIO)$ . These three things truly mark a change in the times, and the automotive era belonging to China is coming''.

But the new forces in car manufacturing still face the brutal market reshuffle that follows. Taking the first tier of the earliest new forces as an example, the rankings of the $Li Auto(LI)$ , $NIO Inc.(NIO)$, and $XPeng Inc.(XPEV)$ families have undergone multiple rotations.

So far, Ideal has achieved a leading position by leveraging extended range technology, valuing user experience, and creating a "mobile home" that meets the needs of Chinese users, winning both sales and profitability. However, there are still many variables regarding $NIO Inc.(NIO)$'s battery swapping model and high-end brand image in the future.

$XPeng Inc.(XPEV)$ , which was funded by Volkswagen this time, is a little hard on Tesla. It takes the route of pure electric cars and faces market difficulties in the short term.

However, $XPeng Inc.(XPEV)$ has been making frequent efforts in intelligent fields such as lidar and autonomous driving since 2021, claiming that assisted driving technology is in the first tier, in line with the trend of "electrification in the first half and intelligence in the second half".

Nowadays, $Li Auto(LI)$ has the function of self transfusion, with $NIO Inc.(NIO)$ holding hands with Middle Eastern tycoons and $XPeng Inc.(XPEV)$ receiving public funding. This sorting battle is still ongoing.

According to the plan of Volkswagen Group, 180 billion euros will be invested in the new energy strategy by 2007, and the proportion of 700 million dollars this time is just testing the water. Of course, for$XPeng Inc.(XPEV)$ , it is a blood transfusion, so we can increase the investment and make another effort.

In the short term, $XPeng Inc.(XPEV)$ has joined hands with Volkswagen to bring new vitality to the market, and capital has given a quick positive response. In the medium and long term, it depends on the sales of new models.

Moreover, if the new model jointly launched by$XPeng Inc.(XPEV)$ and Volkswagen will be branded by Volkswagen, even if it achieves market success, $XPeng Inc.(XPEV)$ 's next development positioning still needs new deployments.

3.The sector has entered the price investment zone, with intelligence as a key track

In the low market position of the new energy vehicle sector, Volkswagen's investment in $XPeng Inc.(XPEV)$ has become a catalyst for the rise of stock prices. In some cases, it marks a new stage of competition from electrification to intelligence.

Institutional analysis generally indicates that the core of separating product demand among various brands in the coming years lies in intelligence, including autonomous driving and intelligent cockpit.

From the policy point of view, encouraging automobile consumption, supporting new energy automobile consumption and Charging station construction are still the key points. The market growth potential is still huge. After a round of market decline, the whole sector entered the price investment zone.

From the perspective of the entire vehicle, except for the "two super brands", the seats have not yet been scheduled, and there are opportunities for traditional brands and new forces to surpass the average market growth.

From the perspective of the entire industry chain, autonomous driving, sensors, cameras, etc. related to automotive intelligence are all worth paying attention to.