To The Moon

$NIO Inc.(NIO)$ $NIO-SW(09866)$ released its Q2 earnings yesterday, completing the earnings reports for NIO, $XPeng Inc.(XPEV)$ $XPENG-W(09868)$ , and $Li Auto(LI)$ $LI AUTO-W(02015)$ . It’s time to dive into the comparison!

Growth Rates

Li Auto leads with a total revenue of ¥31.7 billion. NIO follows with ¥17.4 billion. XPeng trails with ¥8.1 billion.

Li Auto’s revenue growth is just 10.6%, lagging behind XPeng’s 60.3% and NIO’s 98.9%.

Li Auto’s slower growth can be attributed to its strong historical performance, raising questions about its future growth after dominating the high-end extended range market.

XPeng and NIO have shown where Li Auto could focus next: moving downmarket!

In August, XPeng launched its budget model, the Mona M03, starting at just ¥120,000. Within 48 hours, it received over 30,000 pre-orders, potentially marking it as XPeng’s first major hit!

Coincidentally, NIO will start delivering its second brand, ONVO’s first model, the L60, in September, priced as low as ¥220,000. The management expects a monthly production capacity of 10,000 units, aiming for 20,000 units next year.

Besides ONVO, NIO will also launch its third brand, Firefly, next year, with prices possibly starting at ¥140,000.

With these moves, NIO’s range of models will span from ¥140,000 to ¥800,000, potentially achieving monthly sales of 40,000 units!

XPeng and NIO’s push into lower-priced models seems somewhat forced, primarily because both companies are struggling to break through their current sales ceilings. XPeng’s monthly sales have been stuck around 10,000 units, while NIO’s sales hover just above 20,000 units per month.

Sales Challenges

NIO holds 40% of the market for electric vehicles priced over ¥300,000 in China. Expanding market share further is becoming increasingly difficult. The most straightforward way to boost sales is to broaden the market by offering more affordable options.

Li Auto also faces a sales ceiling. The company projects Q3 sales between 145,000 and 155,000 units, maintaining a steady average of 50,000 units per month, consistent with the end of last year’s figures.

In March, Li Auto launched the Mega MPV, which has struggled with sales, averaging only 600 units per month. This has not significantly driven up Li Auto’s overall sales.

In contrast, the Li Auto L6, launched in April, has become a standout. Priced around ¥250,000, it quickly reached monthly sales of over 20,000 units, proving to be a key model for the company.

The L6’s success won’t last forever. Li Auto will need to either release more new models, like the Mega, or introduce lower-priced options similar to NIO’s strategy to sustain growth. Otherwise, growth challenges will continue.

Despite slower growth compared to NIO and XPeng, Li Auto excels in profitability. In Q2, Li Auto’s gross margin was 19.5%, outperforming XPeng’s 14% and NIO’s 9.7%.

Skinny Margins

NIO and XPeng are struggling with skinny profit margins, leading to significant losses. In Q2, NIO lost ¥5 billion, XPeng lost ¥1.28 billion, while Li Auto made ¥1.1 billion.

Even though NIO and XPeng have hundreds of billions in cash, they may need to raise more funds if they can’t quickly cut their losses, which could dilute existing shareholders' equity.

Li Auto, on the other hand, is more pragmatic. It’s balancing extended-range and bettery electric models, rapidly scaling up to achieve economies of scale. NIO and XPeng, by sticking strictly to bettery electric vehicles, facing higher sales and profitability pressures.

$BYD Co., Ltd.(BYDDF)$ $BYD COMPANY(01211)$ , the global EV leader, sold 370,000 units in August, with hybrids contributing 220,000 units—nearly 60% of the total. If NIO and XPeng also offered extended-range options, their sales might double instantly.

However, their deep-rooted pride keeps them from adopting what they see as outdated technology. Under pressure, NIO cut R&D spending by 3.8% year-over-year in Q2, while XPeng saw a slight increase of 7%, and Li Auto ramped up R&D by 24.8%, far exceeding its 10.6% revenue growth.

Valuation

XPeng’s current price-to-sales ratio is 1.5x, noticeably higher than Li Auto’s and NIO’s 1x.

Higher valuations carry the risk of missing expectations, and according to earnings guidance:

1. XPeng’s Q3 sales are expected to be between 41,000 and 45,000 units, with a growth rate of 2.5%-12.5%

2. NIO forecasts Q3 sales between 61,000 and 63,000 units, up 10%-13.7%

3. Li Auto expects 145,000 to 155,000 units, a 38%-47.5% increase.

Can NIO and XPeng turn things around with their second brands? We’ll have to wait and see!