To The Moon

XPeng: Serious Doubts On Deliveries

Summary

• XPeng guided for just 18k to 19k deliveries in Q1, -45% to -48% y/y, increasing the risk that it fails to reach its 200k goal for 2023.
• Monthly deliveries remain weak, and although March is pointing to a slow recovery, XPeng is far below the levels needed to record over +20% y/y growth in 2023.
• Management is expecting strong demand for the G6, predicting monthly deliveries at 2x to 3x the level of the P7, suggesting a reliance on the upcoming model to drive growth.
• Execution risk -- the risk that XPeng fails to achieve solid growth in 2023 from an inability to grow deliveries at a strong rate -- makes it difficult to buy the growth story.

Alexander Farnsworth

$XPeng Inc.(XPEV)$ (NYSE:XPEV) initiated Q1 2023 delivery guidance alongside its Q4 results, starting 2023 on a very weak note with projections for a nearly 50% decline in vehicle volumes. After pushing itsprofit target backearlier inQ1, there are more doubts about the company's execution through the remainder of 2023 given initial delivery targets.

Q1 Guidance Shows Sharp Decline

XPeng CEO He Xiaopeng reportedly set a target to reach450,000 cumulative vehicle deliveriesby the end of 2023, meaning the OEM has a target of nearly 200,000 units this year, after reaching 258,710 deliveries through year-end 2022.

The EV manufacturer ended 2022 on a fairly weak note in Q4, with deliveries totaling just22,204 vehicles, down -46.8% y/y. Q1's guidance shows a further continuation of that weakness, with XPeng guiding for deliveries between 18,000 and 19,000 vehicles, or a decline of -45% to -47.9% y/y.

Here's a quick breakdown of Q1 deliveries to date:

• Januarydeliveries of 5,218 vehicles, -59.6% y/y and -53.8% m/m
• Februarydeliveries of 6,010 vehicles, -3.5% y/y and +15.2% m/m
• March deliveries estimated to be 7,272 vehicles at midpoint of guidance, -52.8% y/y and +21% m/m

So monthly deliveries are trending positively after taking a massive hit in January, with XPeng adding about 1,200 units in March to reach the midpoint of guidance, and about 1,700 units to reach the high end at 19,000 units. Some acceleration in m/m growth rates, from +15.2% m/m in February to anywhere from +12.7% to +29.3% m/m in March does set the stage for an uptick in Q2 -- but on a broader level, Q1's guide looks way too weak for XPeng to reach its 450,000 cumulative delivery target.

2023 Delivery Target Challenged

XPeng is entering 2023 after a pretty dramatic growth slowdown, recording just +23% y/y delivery growth in 2022, and with Q1 '23 pointing to further declines. In order to reach that annual target of approximately 190,000 to 200,000 vehicles, XPeng will have to significantly increase scale to at least 25,000 vehicles per month through most of the back half of the year, a tough ask considering that supplier confidence may have eroded following its poor growth performance in 2022.

Author calculations (data from XPeng)

Aside from a surge in deliveries in December, XPeng hasn't shown much growth since the beginning of Q4, with March pointing to a slow and steady recovery. Breaking down deliveries by vehicle type shows some worrying trends -- P7 and P5 sales slumped from June to October last year, while the new G9 saw sales take a two month hit after reaching 4,000 units just three months after deliveries commenced.

XPeng's management has pointed out some positives for delivery growth moving forward -- the company said that "neworder intakein February increased 100% over the previous month," and with "the strong momentum of P7i orders, following its official launch, we expect to see a considerable month-on-month growth of total new order intake in March." This level of growth in new orders should translate to higher growth over the next quarter, which is what is needed to reach that 200,000 vehicle target -- XPeng needs to record strong q/q growth each quarter this year to recover from Q1's weakness.

In addition, management added that "following the ramp-up of G6 mass production, we expect G6 monthly sales target to be 2x to 3x that of its P7 predecessor sales." The P7 has averaged around 5,200 deliveries per month since 2021, suggesting that XPeng believes it can reach 10,000 to 15,000 deliveries per month for the G6 in the back half of 2023/early half of 2024. However, execution risk remains, as XPeng has already failed to achieve a 10,000 unit monthly goal for the P5.

Execution Risk

Management has some lofty, ambitious goals for the G6 that it needs to back up with tangible results -- similar commentary about the P5 sedan failed to pan out, raising the risk that G6 monthly sales fail to reach the high levels touted by management.

Prior to the launch of the P5 in late Q3 2021, management had "statedthat demand is higher for the new sedan than it was for the P7 in the pre-order phase." However, that strong demand seemed topeter outrather quickly, as the P5 never topped the P7 in monthly deliveries to date, and has never recorded monthly deliveries in excess of 6,000 units, whereas the P7 recorded 7 months with deliveries in excess of 6,000 units. In addition, management pointed to further declines in Q4, saying that Q4's "quarter-over-quarter decrease was mainly due to lower vehicle deliveries for the P5 and P7."

Given that the P5 has not propelled XPeng to new highs, relying solely on a new model, the G6, as well as the refreshedP7idoes not instantly rev up the confidence that XPeng will quickly resume strong growth in deliveries.

Let's look at the growth needed to reach management's 200,000 unit goal for 2023 -- given Q1's guidance of 18,000 to 19,000 units, XPeng will need to deliver about 180,000 units in the remaining three quarters, or about 60,000 vehicles per quarter -- triple the quarterly rate from Q1. That's a huge ask for the rest of the year, since six of the past seven months have seen delivery levels below 10,000 units.

Essentially, XPeng has to scale deliveries from 6,000 per month to 20,000 per month overnight --or to 12,000 monthly in Q2, 18,000 in Q3, and 30,000 in Q4 -- to reach its annual target. That's a challenging ramp, one that looks entirely dependent on the G6 -- the risk that XPeng fails to reach the mark and records another year of around +20% growth is high at the moment, unless XPeng can prove success in rapid scalability.

Outlook

Execution risk is on the table as XPeng looks increasingly challenged to reach its 450,000 cumulative delivery target in 2023, as that level would require deliveries in excess of 192,000 for the year. XPeng is guiding for just 18,000 to 19,000 deliveries in Q1, meaning that delivery growth will need to be exponential in order to reach its annual target -- requiring year-end monthly volumes in excess of 25,000 to 30,000 in a continual ramp scenario. XPeng is touting strong growth potential for the G6, suggesting monthly volumes for the vehicle can reach 10,000 to 15,000 units, but without tangible results, it's still hard to buy the growth story after other growth stories like the P5 failed to pan out and as vehicle deliveries continue to be weak.

Source: Seeking Alpha