Xpeng, a Chinese electric vehicle manufacturer, is counting on the cost reductions and collaboration with Volkswagen to improve its financial performance, the co-president of the company revealed in a CNBC interview on Monday. On Friday, the company posted its worst quarterly loss since its U.S. listing in August 2020. The business was met with an arduous macroeconomic climate in China along with a competitive market from domestically based rivals and Tesla, who lowered the prices of their Model S and Model X last week.
Xpeng told CNBC in an exclusive interview on Monday that it is counting on cost cuts and its Volkswagen partnership to help decrease losses. On Friday, its U.S.-listed shares closed down 4.28% after the Chinese EV maker reported its biggest quarterly loss since its U.S. listing in August 2020; 2.8 billion yuan, higher than the 2.13 billion yuan forecast from Refinitiv. Nevertheless, Xpeng's Hong Kong-listed shares were trading more than 2% higher on Monday afternoon. This can be attributed to its second-quarter deliveries, which totaled 23,205; a 32.58% drop from 34,422 a year ago. CEO He Xiaopeng said that cost-cutting should cause a "substantial gross margin improvement by 2024," while Bloomberg reported in April that the company plans to save 50% of costs on intelligent driving features by the end of 2024. Brian Gu, vice chairman and co-president of Xpeng, further stated on CNBC's "Street Signs Asia" that the company has gone through a "very significant" business reorganization and is beginning to "regain growth momentum."
Xpeng is attempting to revive its business in 2021, after its share price plummeted by more than 80% in 2022. This was due to the tough macroeconomic environment in China and fierce competition from domestic rivals and Tesla, which recently decreased the prices of its Model S and Model X. "The demand side has actually been quite strong. It has continued to expand despite the economic backdrop. But at the same time, the competition has become more intense in the first half of the year, with multiple companies releasing new models and taking part in aggressive price wars," said Gu. "In order to secure better profitability, we have been working hard to minimize costs. We expect our total vehicle bill of materials cost to reduce by up to 25% by the end of the year, which should provide us with a useful tool to increase profits," he added. In automotive manufacturing, the bill of materials includes all the parts needed to assemble a vehicle, such as an engine, brakes, seats and dashboards.
BofA Securities said in a report released Monday that it believes Xpeng's partnership with Volkswagen can be of benefit by bolstering their financial stability and potentially optimizing their supply chain management. As a result, BofA upgraded Xpeng from a "neutral" rating to a "buy" at $22 per share, which is higher than the former price target of $16.30 per share. In July, Volkswagen Group announced an injection of around $700 million into Xpeng and a 4.99% stake in the company. Through the collaboration, the two companies will jointly create two EVs, including Xpeng's driver-assist software, for the Chinese market. The rollout is expected to begin in 2026. Chinese automakers, as well as those from other countries, are attempting to stay competitive in the largest EV market in the world. According to estimates from BofA Securities in a May report, China is predicted to have a 40%-45% market share by 2025. In addition, Xpeng's CEO Gu commented that the deal with Volkswagen is likely to result in improved earnings from next year.
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Xpeng has planned new models and "updated versions of current models" set to launch next year, according to Gu. He added that the company believes these models will bring higher gross margins, aiding profitability and product mix. Moreover, the G6 Ultra Smart Coupe SUV, which was launched in the second quarter, is expected to drive up margins. According to BofA Securities, Xpeng anticipates seeing an improved product mix, stronger cost control, and greater sales volume growth through the second half of 2023 to 2025. — CNBC's Michael Bloom contributed to this report.
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